How to read the money article

Front matter

LIBRARY

OF THE

N

Chapter I. Why It Should Be Read

To many thousands of newspaper readers the money article, and the money page upon which it appears, is so much wasted space ; a dull jargon of meaningless phrases, to be passed over, with the advertisements, in favour of the latest news and police court intelligence. It is the one part of the paper they never read ; they do not realise that much care and expenditure are lavished over the financial intelligence department, all for their benefit — especially if they have a little spare money to invest, or which might be invested to their profit. They disregard the money page, although it forms a large proportion of the newspaper for which they have paid. On the other hand, there are those who open their newspapers first at the money article, and keep it open there ; which seems to show that some find use for it. A little observation will disclose that there are those who closely scan every line of the money article, who glance through the rest of the journal with diminished interest, or, in some extreme cases, do not glance through it at all. These people are to be found mainly amongst those who godown to the City in cabs, but also amongst country clergymen. In short, whereas the literary and news pages of a newspaper are of some interest to the thousands — they read them for amusement — the money page is of intense interest to the few — they read it for pecuniary profit.

" What are they all doing ? " asked a lady of her husband, as they threaded their way through the noisy crowds of stock-brokers and stock-jobbers in Throgmorton Street, one afternoon. " They are doing each other," was the reply. As the lady had just been to her bank regarding a little investment, she might have been more usefully interested in a less witty explanation. So is it with the money page of the newspaper. " What is it all about ? " is the usual question. " About to be passed over as useless," is the usual answer. But it might always be scanned with considerable interest, and frequently studied with considerable profit. Wrapped away in its forbidding columns of technicality and dry tabular arrangements of figures is often an item of news which does not find its way into the other columns of the journal until afterwards — for the Stock Exchange and the Money Market are in the habit of receiving their news very early. The readers of the money article of a certain evening paper were assured of the occurrence of the romantic Jameson Raid with its vast political significance many hours before the news columns of all the papers flared forth its details in big type. That is one instance of interest, and there are many minor instances every day. As to the pecuniary profit to be derived from a perusal of the dry money page, .few will gainsay it.

It is not the fault of the newspaper reader that he does tiot derive such interest and such profit from the money article as he might ; it is his misfortune that because or its technical terms he cannot understand it. This defect will be remedied, this wrong righted, it is hoped, in the pages of this little book. It is sought to define

WHY IT SHOULD BE READ. «3

popularly all the technical terms, to say something explanatory of all the abstruse allusions with which the money article of the daily paper abounds ; there is an attempt to make its dry bones live ; that not alone the financier and his small class may take interest, but also the man in the street, and the woman at home, for the matter of that ; that there may be no monopoly of the good things. The game of finance is not so intricate that only few can understand it ; the money article is not much more undecipherable to the uninitiated than the report of a cricket match.

If it is not the fault of the general reader that he cannot understand the technicalities of the money article, it certainly is not the fault of its writer. Because of his subject the writer must be precise ; he must use the terms of the trade ; he cannot stop at the end of every paragraph to explain his meaning for the benefit of the amateur financier.

But the point is that the amateur financier has become so numerous in the land that it is high time somebody stopped to show him how to read the money article. With the great growth in the number of companies in recent years, with the great extension of the limited liability system, with the apotheosis of the one-pound share, there are a hundred who take interest in finance in this generation for every one who took interest in it a generation ago ; and to each of these hundred, even if he has only some savings in Consols, or a few spare pounds in mining shares, the money page of his newspaper is of importance, and he will find it worth while to understand it from beginning to end.

That is why an attempt is here made to explain it popularly. If the attempt be successful there should not remain uncleared a single difficulty to the general reader

HOW TO READ THE MONEY ARTICLE.

of the money article. Many questions arise before the gentle reader who attempts to understand the money page in his daily paper and thus derive the benefit for which he pays. " Where is the money market ?" "How can money be dear ? " "I hold some Lake Views, and a financial paper says they must rise because of the big 1 bear ' account in them ; how can this be, seeing that the * bears ' try to lower prices ? " " What are those Treasury Bills to which all the money articles are referring?" " What is contango ? " "I read that the carrying-over rate on Midland Deferred stock is stiffer at this settlement. What does all that mean ? My mother gets dividends on that stock, but we never hear from our broker about any carrying-over rate ? " " What is a stag ? " " How can 1 find from the money article in my paper how to invest £150?" These and other simple questions are easily answered ; but it has often been pointed out to the writer that they are, none the less, well worth the answering.

Chapter II. General View Of Its Contents

FOR only about three-quarters of a century has the money article had a place in the newspaper at all. In the early years of the nineteenth century it was found in no newspaper; now it is a prominent feature in nearly all, and its importance seems to be developing. Of course, before 1825, the newspapers generally published the prices of the few stocks and shares that were dealt in ; but anything in the nature of a money and stocks article was supplied by some broker who was willing to undertake the trouble in consideration of the advertisement derived from the appearance of his name in connection with his contribution. Some commercial reports, dealing with various trades, appear in the papers to-day in much the same way. But reports as to movements of stocks and shares never appear now connected with a broker's name. Members of the Stock Exchange are not allowed to advertise. The place of these contributions has been taken by the regular money article, which was inaugurated during the great Stock Exchange boom and subsequent collapse of 1825. At that time the number of new loans and companies dealt in on the Stock Exchange was practically doubled, and mining shares were introduced for the first time. The excitement in the financial world, and the increased importance of the Stock Exchange, naturally attracted the attention of the Press, and the regular money article was conceived and born. Passing

HOW TO READ THE MONEY ARTICLE.

reference only need be made to the interesting fact that there was actually a financial paper in existence two hundred years ago, at the end of the seventeenth century. It was called the Collection for the Improvement of Husbandry and Trade; it gave a weekly history of commercial and financial speculation and in one of its issues in 1694, it was even referring to time bargains. But the beginning of the modern money article was in 1825.

Let us look at the money article to-day, after its three-quarters of a century of growth, that we may read and be able to digest it.

A general view shows it to be divided, roughly, into departments of the mystic number seven. Whatever may be our favourite newspaper, we shall find its money and stocks article thus divided, treating of the departments in the very same order as every other money article does. The divisions of the article represent the markets for the various kinds of stocks, just as if in describing the Covent Garden Exchange we were to deal consecutively with flowers, plants, apples, cabbages, and so on. In describing the Stock Exchange, and what is going on there in the way of price movement, the money and stocks article practically always deals consecutively with (1) Money, (2) British and Colonial Government Securities, (3) British Railway Stocks, (4) American and other Railroad Shares, (5) Foreign Government Securities, (6) Mining Shares, and (7) Miscellaneous Shares.

Most of the big morning papers devote a separate paragraph to each of these markets; and although in the money article of the evening papers there are not as a rule separate paragraphs, the markets being apparently huddled together, it will be found that this order is practically always observed. The order of the seven

GENERAL VIEW OF ITS CONTENTS. 7

divisions of the money article is almost as unchangeable as the order of the seven colours of the rainbow, the seven notes of the piano, the seven days of the week.

It is convenient that this recognised arrangement of subjects should rule throughout all money articles. It obviates the possibility of the gentle reader becoming ungentle by reason of an irritating search through a maze of confusion for the one stock in which he is interested. If he is happy enough to hold Consols, he knows he has only to glance near the beginning of the article to find the state of the market described ; if he is scientific enough to take interest in the Money market he will look to the very beginning of the article, even before Home Government securities ; if he dabbles in Milwaukees he will bring his eye to bear right at the middle of the article amongst the American Railroads if he be a gambler in mines he will know that his market is reviewed near the end of the article.

Speaking generally, the nearer the top of the article the sounder, the more solid, the more stable, the less speculative the security. The first market is the Money market, and if the reader hold money itself he need not worry about the rise and fall in its value ; but then, uninvested, it will yield him no interest, no dividend. The day has gone by for investment in a stocking up the chimney ; that reminds one of the time, about two hundred years ago, just before investment of any kind was known in this country, before any stocks existed in which to invest, when the father of Pope the poet had to carry with him to his country house a box containing an uninvested hoard of twenty thousand pounds.

The safest things to hold, after the money itself, are those securities dealt with in the second department of the money article, Home Government Securities, such

HOW TO READ THE MONEY ARTICLE.

as Consols, Local Loans Stock, Corporation Loans, and Colonials. Here the yield of dividend or interest on the amount invested is low. It is an axiom of the science of investment that the better the security the lower the yield ; the higher the dividend the more unsafe the capital invested to secure it.

So we go on down the money article. After Home Government Securities comes the Home Railway department, in which, always speaking generally, there is a considerably higher yield than in Home Government Securities, but a good deal less safety. American Railroads are more speculative still ; and when we come to the sixth and seventh divisions of the money article, Mining Shares and Miscellaneous Shares, we find we are surrounded by gambling counters, with possibilities of very high dividends and possibilities of the loss of the whole of our capital.

Of course there are exceptions in this arrangement of the money article according to stability of security; For instance, the security of some of the debenture stocks of our English Railways and of a few of the bonds of the American Railroads is almost as sound as that of Consols ; whereas such a railway stock as Metropolitan District Ordinary is more of a gambling counter than some of the shares of established mines such as Mount Morgan. And at the bottom of the article, amongst the Miscellaneous shares, there are many in industrial businesses which would come very soon after Consols if the arrangement were strictly in accordance with stability.

Chapter III. Some Main Market Influences."

WE have seen that, like the rainbow, like the musical scale, like the week, the money article in every newspaper is, broadly speaking, governed by the mystic number seven ; there are seven classes of securities with which it deals. That is the money article proper : the review of the markets. A glance at almost any money page will show that with this review of the markets there is much more — some comment on financial topics of current interest, the outline of a new company's prospectus, a review of the monthly trade returns of the country, the figures oi the weekly return of the Bank of England, and so on. These will claim our attention by-and-by ; at present it is interesting and useful to note some of the general influences which are always affecting certain of the seven markets, influences to which the money article is constantly referring.

The chief influence which affects the Money market, which makes rates that borrowers have to pay high or low, is the plentifulness or scarcity of available money. It may be thought by the man in the street, the small investor, that the condition of the Money market has little to do with him ; but it is a mistake so to think. Cheap money or low rates, for instance, means a high price for his Consols. Dear money, or high rates, means depressed prices all round ; it may develop into financial panic with a run on his bank ! Thus we see that an ever-present influence on all the stock markets is the condition of the Money market, and that is why it is always dealt with first in the money and stocks article. The condition of the Money market, as we have said, depends upon the plentifulness or scarcity of available money within the country. It may be very plentiful because trade is dull, and manufacturers and merchants do not require to keep it in employment ; it may be scarce, conversely, because trade is brisk. It may also be scarce because much gold has gone abroad. Gold is always flowing from and to this country, and sometimes we lose more than is safe. That is why the Bank return, which shows these movements, is so closely watched.

It has just been hinted that the main influence which is always making itself felt on Consols is the state of the Money market. Like the securities of other Governments, they are also affected by the political constitution of the country, by considerations of peace and prosperity.

The main permanent influence on the next market, the Home Railway market, is the traffic returns, given in the money article every week, which, being read in connection with the price of coal and railway material, such as steel, give fair indications of what the half-year's dividend will be. Of course traffic returns are affected by the state of trade in the case of what the money article calls the Heavy Lines — that is the big trunk lines with enormous capitals ; and by the weather in the case of the southern lines.

American Railroads, whilst also affected by their traffic returns, are dominated by the position of the New York Money Market and Stock Exchange — Wall Street — and, unlike English Railways, by considerations as to what will be done with the profits when they are earned. In England they are divided among the stockholders ; in

SOME MAIN MARKET INFLUENCES. 11

America they are frequently diverted by the directors to improving the line — which is called " betterment," although it is all the worse for those who are not in the secret of the directors' policy.

Foreign Government securities are mainly affected in the case of Europeans by international political relations and by internal prosperity or poverty. In the case of the South and Central American countries, the securities are affected by honesty or dishonesty of administration and by the insurrections which are always breaking out in these States, most of which have defaulted over and over again. Foreign Government securities of all kinds are dealt in much more on the Continental bourses than in London, and accordingly the condition of the bourses at Paris and Berlin have a telling influence.

In the Mining market the chief influence which dominates prices is the hope of the discovery of payable gold, for the proportion of mines on the market which are really paying is very small. The reports made at intervals by the manager at the mine are eagerly scanned as they appear in the money article. But Mining shares more than any others are manipulated by unscrupulous directors, officials and operators.

An influence which affects all stocks and shares individually, to whatsoever market they belong, is their sudden increase by the issue of more. Thus, even Consols are depressed when the Government is compelled to borrow. People see that the more Consols there are, or the more Government stocks of equivalent security, the lower will be their price. Again, we periodically read in the money articles of the newspapers that certain railways, in those notices of their Parliamentary Bills which they are obliged to advertise, foreshadow heavy capital expenditure. They are going to extend their lines and improve their stations, which means that they must raise money by the issue of more stock. Tht more stock there is, other things being the same, the less it is worth, and so the price of the existing stock is depressed. It should be noted, however, that the price of existing stock is not always depressed by the issue of more by the same company: Directors sometimes so arrange for the new issue that the value of the existent stock shall be enhanced. The price of our stock in the market, they say, is 152; to every holder we will give the privilege of subscribing for the new stock we are issuing at 140, in the proportion of 10 per cent, of his holding. Thus a holder of £1,000 of the existing stock may subscribe for £100 of the new, and for this he pays 140, although! the stock is worth 152 in the market. This right to subscribe at a l»w price for new stock of course increases the value of the old. The issue of new stock or shares by a company or by a Government and the terms of issue are always a potent influence in the market.

Chapter IV. The Markets, The Jobbers And The Brokers

HAVING seen that the money article is split up into divisions, dealing with the different markets of the Stock Exchange, and that these markets are affected by certain dominant influences to which the article is always referring, it may aid the uninitiated to a better understanding of the money article if he thoroughly comprehends why it is thus divided; why the Stock Exchange is split up into markets ; what these markets really are. For the simple exposition we may take for our text some words the like of which often appear in money articles : " Home Railways appear idle and uninteresting, with a sagging tendency ; two or three jobbers have, we learn, recently deserted this market, being lured away by the superior attractions of Kaffirs ". Marked and inwardly digested, such a sentence as this is not only interesting to the small investor, but it conveys a tip of practical utility.

There was a time when the Stock Exchange itself was only one market out of many. At the end of the seventeenth century, the Stock Exchange, or rather the company of stock-jobbers and stock-brokers, assembled in the Royal Exchange with mercantile brokers. Old plans of the Royal Exchange show us the oblong building, with a statue of the Merry Monarch in the middle, and the various markets, or " walks " as they were called, ranged round it. In the north-west corner of the building there was the Silkmen's Walk, and next to it the Clothiers' Walk. In the middle, on the west side of the statue, was the Grocers and Druggists' Walk ; and, also in the middle, on the other side of the statue was the " Brokers, etc., of Stocks Walk." Thus if one wanted to buy stocks he would pass through the other markets to the east side of the statue, knowing the exact spot in the vast Exchange to which to proceed.

So it is on the Stock Exchange to-day. Stock dealing outgrew the Royal Exchange and eventually, at the beginning of the nineteenth century, the stock-jobbers settled down in an Exchange of their own — the Stock Exchange, with its principal door in Capel Court, opposite the Bank of England; the triangular Stock Exchange with Bartholomew Lane for its base, bounded on its north side by Throgmorton Street and on its south side .by Threadneedle Street.

When it was in the Royal Exchange, the Stock Exchange consisted of only one market, practically only British Government securities being dealt in. Now, as we have seen, there are seven great divisions, consisting of many more markets. The Consol market (if your money article calls it the Consols market, it is an indication that its writer is not in very close touch with the members) is there still, with its dealings in British Government securities; but many more markets have been added.

Until the year 1811 only twenty securities — mostly Home Government securities — were officially recognised on the Stock Exchange. Early in that year, however, were added American securities, and canals, docks and waterworks. Later in 1811, dealings began in railways, but it was not until 1845, at the time of the railway mania, that there was anything like a Railway market. In 1816

THE MARKETS, JOBBERS AND BROKERS. 15

•dealings in Foreign Government funds began on a larger scale, but the Foreign market was for many years a separate institution from the Stock Exchange altogether. In 1825 dealings in Mines and Miscellaneous companies commenced in earnest. And now we have all the markets into which the Stock Exchange is divided.

These markets are geographically distinct in the House ; it would be possible to draw a plan of the Stock Exchange showing the exact spots where the various securities are dealt in ; and the utility of this arrangement is clear. When you want to buy, say, some Randfontein shares you give the order to your broker in his office. He knows that Randfontein shares are to be bought in the South African market, or the Kaffir Circus, as it is colloquially called. He goes into the Stock Exchange and walks direct to the exact spot where stand the jobbers who deal in Randfontein and other South African shares. Your broker can thus execute your order at once. There is no need for any delay ; no need to seek for some one who may happen to want to sell the Randfontein shares you want to buy. The jobber is ever ready either to buy or sell, at the prices which he offers. He is like the wholesale warehouse to which the retail shopkeeper (your broker) goes in the assurance that he can get the shares you, his client or customer, want.

We thus get some idea of the different functions of the broker and the jobber. There have been agitations for the abolition of the jobber, as there have been agitations for the abolition of the middleman warehouseman ; but we can see that both are exceedingly useful. There have been disputes in the Stock Exchange because, against the rules of the institution, jobbers sometimes act as brokers and brokers sometimes act as jobbers ; but we can see the distinct parts they generally play. If there were no definite market for the shares you want to buy or sell, the broker might experience much delay and difficulty in executing your order. In the case of some securities he does, securities in which there is only a " limited market " ; that is, securities of which the total amount is small or which does not often change hands. But there are distinct markets on the Stock Exchange, and the money article in the newspapers, by its divisions, reflects them.

We now see the full meaning of our text. The jobbers in the Home Railway market have nothing to do ; they stand idly in their warehouses, stocked with Home Railway securities; no brokers come to them because the public are sending all their brokers to the South African market to buy or sell Kaffirs. Accordingly some of the jobbers move from the one market to the other, where they will get more trade. They actually change their positions in the Stock Exchange ; from beside a certain bench, say, they go to stand near a certain pillar. The broker who goes to buy Midland Railway stock finds some old faces gone ; the broker who goes to buy Randfontein shares finds some new jobbers in that market ready to supply him.

The practical tip conveyed in such a sentence as that which has been quoted is that, in the opinion of those best able to judge, the jobbers, there will be no activity in the Home Railway market for some time ; if you want to gain quick profits, or risk quick losses, you must turn your attention to that part of the money article in your newspaper which deals with South African shares.

Chapter V. The Money Market Paragraph

IT is quite appropriate that the first paragraph of the money and stocks article should be that dealing with the Money market, for, as has been indicated, the condition of the Money market affects the position in each of the stock markets ; its influence is over all.

It should be understood that the Money market is not a distinct market as the stock markets are. To find the American market, for instance, you have merely to go to one definite spot in the Stock Exchange ; the Money market extends from the Bank of England in Threadneedle Street throughout the whole length of Lombard Street, and wherever an important bank, discount house or bill broker's office is situated.

In the Money market they deal in money as in Covent Garden they deal in apples. They buy or sell money, or rather loans, which they want for a day, or for a week, or to enable them to meet their engagements at the Stock Exchange settlement, or for a month, or for a longer period. The price of a loan of £5,000 for a week might be £2 17s. 8d. that being at the rate of 3 per cent, per annum. On reading the first paragraph of the money and stocks article we immediately find out every day the price of a loan for any amount for any time, for it always gives the rates, sometimes in tabular form. As in every other market, supply and demand are the dominant influences in the Money market. If the demand for money is

(17) 2 big and it's supply small, rates will be high ; if the demand is small and the supply large, rates will be low. The article usually shows the state of the supply and demand and why they are in that state. When money is borrowed for " short terms " a day or so, or for a week or a fortnight, "fixtures," the borrower has of course to deposit securities. It may be stock or shares and the rate he pays for the money is called the " loan rate ". There is a great deal of borrowing for longer periods on the security of bills, which promise that the money shall be paid in, say, three months, in which case the rate the borrower pays for the money is called the "discount rate ".

The money article will often be found speaking of "best bills " or " fine bills " or " best bank bills " ; these terms mean bills in connection with which no question of the money being forthcoming at the proper time ever arises ; the discount rate on such bills is fixed only in accordance with the value of the money lent on the bill ; in fixing it the lender makes no charge for risk as to his never receiving his money back again ; or as to his only receiving part of it, or as to any difficulty in getting it at the proper time. Thus it comes that the money article sometimes tabulates two kinds of rates, one for best bills, and a higher one for " trade bills". The former may be 3£ per cent., and the latter a little higher, 3|- per cent. In that case the discount rate proper is 3J per cent. — the rate for bank bills, backed by financial houses whose credit is unquestionable, being taken as the standard.