A ONE HUNDRED DOLLAR BILL... FROZEN IN ICE!
1907 compared to today... how times resonate...
To give a bit of background, Jesse Livermore was a huge deal in his time. Coming from a poor farming family in Massachusetts he initially learnt his business clerking on the blackboards of the newly formed Paine Webber brokerage house in Boston. He’d an innate ability to memorise and process market data, using Technical Analysis before it was recognised as such. He started trading for himself, initially in the ‘bucket shops’ of New York but eventually striking a strong friendship with Edward Hutton, owner of E. F. Hutton & Co. and over time became a behemoth of the stock and commodity markets in New York and
Chicago...second only to the great J. Pierpont Morgan. Yet Jesse suffered many failures, becoming bankrupt at least twice properly and realistically at least four times and ending his life tragically. For our purposes, I’d like to refer to the period October – November 1907 (aka The Panic of 1907). This was seen as the biggest stock market panic till the Crash of 1929.
The events leading up to it may sound familiar. There was over-leverage on U.S. stock trading provided by banks to clients on a huge scale as they competed for stock margin finance business with the recently allowed trust companies. Eventually, with the market turmoil many trust companies found liquidity drying up beyond their ability to pay customer withdrawals. There was no more money to lubricate stock market trading. The famous Knickerbocker Trust Company had gone broke and the Trust Company of America was next in the frame... and needed to be saved if U.S. banking was to survive. Jesse Livermore was asked to attend a private meeting late one afternoon at the cusp of the crisis at the stock brokerage offices of Van Emburgh & Atterbury to meet principal John Turner Atterbury - personal broker to J. Pierpont Morgan. Everyone knew Jesse was one of the big shorts in 1907 (as he would be 22 years later). However, Atterbury (without asking directly) appealed to his patriotism and his common sense NOT to smash the NY Stock Market. Jesse realised whom he was actually speaking to and said ‘Go back and tell Mr. Morgan that I fully realise the gravity of the situation even before you sent me. I not only will not sell any more stocks, but I am going to go in and buy as much as I can carry’. In such hysterical times he realised his duty and also realised all his profits were paper profits. Smashing the Exchange could ruin him as well and for a while stability returned.
Fast forward to 2018. On 5 of February the Dow Jones had its worse one day point fall ever – down 1,175 at COB. My good friends at Clarus Financial Technology have produced an excellent article looking at segregated funds of U.S. Futures Commission Merchants (‘FCMs’) held at clearing houses during this volatile time. Among the top 17 or so FCMs, three had ‘Negative Excess Segregated Funds’. The biggest was RBC (-USD 1.13 billion) followed by ABN (-USD 115 million) and TD Ameritrade (-USD 27 million).
FROM
KNICKERBOCKER TRUST TO RECENT ‘MODERN’ UNDER- SEGREGATION... IT’S STILL ALL ABOUT LIQUIDITY...
16 | ADMISI - The Ghost In The Machine | May/June 2018
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