The Taste of the Crash
Capitalism in the 19th century is similar to the modern era, yet vastly different in many ways.
In the 21st century, everything is finished with a simple tap on an app, but now, everything must be processed manually through financial brokers. In that process, no matter how tight-lipped a broker may be, rumors are bound to spread.
Naturally, the fact that I was planning to dump all the railroad stocks I held began to circulate throughout Natchez. I wasn't just selling a few shares; I was liquidating my entire portfolio. It would have been more surprising if the secret had been kept.
Naturally, the veracity of this rumor became the biggest topic of conversation at the horse racing club.
"Sett, are you truly disposing of all the stocks you hold?"
"Yes. I've already seen a good return, so I'm planning to cash out and watch the situation for a while."
"But railroad stocks are still breaking all-time highs even now. Why on earth?"
"He's right. Sett, why don't you realize that railroad stocks are bound to rise? If you dump them now, you'll be the only one losing money, don't you see?"
The business structure of Southern planters is, then as now, entirely dependent on cotton, but there were countless individuals who invested the money earned from it into stocks. And the stock they loved above all others was, of course, railroad stock—the current "cheat code" for printing money in America.
Investing the money earned from cotton into railroad stocks to double one's wealth was the effective asset-building method for Southern planters, and I had been doing the same.
However, there is no such thing as an eternal boom in this world. I didn't know the exact timing, but after seeing Rockefeller's warning, I could be certain. The global economic crisis I had learned about in economic history—the very panic that had a massive impact on the American Civil War—was about to erupt right now.
This panic was a bit different from the classical economic crises of the past, like the Tulip Mania or the South Sea Bubble. I had learned that it was a major event that caused significant damage not only to the United States but also to Europe, as it was a panic triggered by a chain of bankruptcies in the financial sector at a time when global finance was intricately intertwined.
Honestly, I didn't know the details, but isn't this reason enough for me to have no reason to hold onto stocks right now? Holding onto pieces of paper that were destined to become worthless, even if I didn't know when, was something only a fool would do.
"The Crimean War has ended, and agricultural prices are falling in real-time. Britain isn't satisfied with that and is waging war against the Qing Dynasty as well, so shouldn't British financial capital be pulling out soon? That is why I am trying to observe the situation conservatively."
"Haha, you young man lack spirit."
"It's been ages since it was revealed that the Qing Dynasty is just a bunch of cripples with a large frame. Once you gain more investment experience, you'll realize that times like these are when you can make even more money."
Was the "Hope of the South," who I thought was good at everything, just a greenhorn who still had a lot to learn when it came to investments? As such an atmosphere permeated everywhere, the planters each offered me a word of advice.
"They say you should buy stocks at the waist and sell at the shoulders, but that's just talk from bookworms who only study theory. To make big money, you need guts."
"Saying it's dangerous, dangerous—that's all meaningless. Those very people will snatch up the stocks you just sold, you know? It's all fear-mongering."
Parr, Toliver, and all the other members of the horse racing club had a firm belief that the stocks of the Union would continue to rise endlessly. I knew that no matter what I said, no one would listen. This was a form of insurance.
Who knows what they will say among themselves when I am the only one sweeping up the money after this panic? However, I had clearly warned of the possibility of a crash, and it was the self-proclaimed investment geniuses, the great planters, who laughed at my opinion, so they wouldn't be able to blame me later.
I sipped my coffee and enjoyed my cookies, letting the 36 reasons why this boom would have to continue flow in one ear and out the other.
"The news is breaking like this, are you really going to sell all your stocks?"
"Of course. Rather, news like this is the signal that I need to escape."
Historically, articles denying reality have always broken out before a bubble bursts. It's still okay. It's still solid. If you believe these words and keep holding onto stocks, you have no choice but to go to the afterlife along with the crashing stocks.
By the way, this Mr. Buchanan is involved in everything. How could he only do things that erode his approval rating like this? I know exactly what to do. From now on, whenever Buchanan announces something, if I do the exact opposite, I won't lose money.
However, unlike me, whose trust in Buchanan is negative 100, others were still caught in the optimism that it was truly okay because even the President had come out to say so. Even Rockefeller, who had rushed to the South after receiving my call, expressed the opinion that selling everything was too hasty.
"I said as much in my letter, but seeing the government step up like this, even if the situation is dangerous, there is a possibility that it will maintain a steady trend after undergoing a correction. Instead of selling all the stocks you hold, how about adjusting the ratio?"
"No. Sell everything unconditionally and hold as much cash as possible. This will be our greatest opportunity."
"If you call it an opportunity... you mean there is a high possibility that a crash will come, not just a crisis."
"Yes, unconditionally. And when this crash hits its peak, countless companies will go bankrupt and come up for sale, so if we acquire the decent ones there, we can grow the size of our company in one fell swoop."
The speed at which grain prices are falling now, or the moment the bubble-filled railroad stocks burst, agricultural companies in the West have no choice but to receive a report card close to annihilation. If I acquire grain warehouses, land, and companies in this gap, my Standard Supply will be able to stand tall as a leading agricultural brokerage in the North as well.
"Buying at the bottom is easy to say, but it is practically impossible to grasp which moment is the bottom. You have no choice but to trust your gut and buy at the right time..."
"Buying will be fine around the end of this year to next year."
Since the panic will be roughly sorted out before the American Civil War begins, I can be certain that if I pick everything up before the middle of 1858, I will never lose money. The problem is exactly which fields to pick up, and this required a cautious approach. If the companies or stocks I acquired with such effort were to languish even after the panic ended, I would have no face to show.
"Rockefeller, Leo. From now on, the work we will do is to classify companies and stocks into two major categories. The first is blue-chip stocks that will unconditionally recover within 3 years even if they crash. This will guarantee certain profits in the short term."
"Theoretically, those would be the railroad lines that can never go bankrupt. Like New York Central or Illinois Central..."
"Yes. And the second is to preemptively secure fields that can see huge profits in the longer term, when the relationship between the South and the North becomes extremely strained."
I think companies that handle things like military boots, uniforms, candles, firearms, and food would be enough for this side.
"I don't know about anything else, but I can guarantee these two. A cold winter is coming soon. But just as spring comes after winter, a time of recovery will surely come. We just need to be the final winners then."
If we can secure food and military supplies here, arming the farms themselves and becoming self-sufficient will be solved in one go. If everything until now was in the realm of possibility, the time has come to make that possibility a reality.
With wings named capital, it is time to leap to that high place.
In July 1857, if you summarize the economic situation of the United States in one word, it is "bubble." In fact, until now, every situation had been smiling upon the Union. The vast territory with no end in sight had endless room to lay railroads, and European capitalists, who were already feeling the power of railroads in their bones, poured money into American railroads without hesitation.
On top of this, the economic situation in the United States improved significantly as the Crimean War broke out. This is because Russia, which was the grain shuttle for Europe, was at war with Britain and France, and the amount of grain supplied to Europe decreased significantly.
Thanks to this, the price of American grain, which was $0.75 per bushel before the war, jumped nearly three times, and farmers screamed with happiness. As the domestic economy became insanely active, people poured this overflowing money into stocks, and railroad companies, which sucked up money from all over the world and the United States, began a frantic race.
The railroads of the United States, which were only 14,500 km in 1850, exploded to exceed 48,000 km now. Demand? Profit? You can think about those after you lay them down.
If you just buy railroad stocks, money keeps increasing, so not buying them is something only fools do. Here, creative American investors developed a genius investment method.
"Railroad stocks will continue to rise in the future, so shouldn't we borrow money and buy them?"
"But how do you buy stocks if you don't have money? Even if you try to get a loan and buy them, will the bank lend you money?"
"That's simple, just use railroad stocks as collateral."
"...Are you a genius? Let's do it right now."
You get a loan using railroad stocks as collateral, buy railroad stocks with that, get another loan with those, and buy more railroad stocks. Huh? A perpetual motion machine has been completed?
American investors, who found a miracle circulation structure that would make even future Nobel laureates in economics cry, bought railroad stocks like crazy.
"Wow! Look at that rate of return! Why are people stupidly working? If you just buy stocks, money comes in."
"From now on, anyone in front of me who pretends to work, pretends to farm, pretends to labor, or pretends to be sound will die."
The perception began to spread that if you just mindlessly buy stocks, your bank balance increases, and not doing this is a foolish act, and everyone jumped into this frenzy.
However, no matter how fun a party is, the time eventually comes when the curtain must fall. The beginning was the sharp drop in grain prices due to the end of the Crimean War. The drop in grain prices was directly linked to a decrease in income for farmers, and farmers who had borrowed as much as possible using their land as collateral were in a position where they could not pay back the money they had to pay to the bank immediately.
"Huh? Hu-huh?"
Something is strange. Still, until now, only a few people thought this was a big problem. There is no way the economy of the United States, which is becoming a power not inferior to Europe, could be shaken just because farmers had a hard time. However.
August 11. N.H. Wolfe & Co., the largest grain and flour broker in New York, went bankrupt. It was the first signal flare announcing the collapse of grain prices and a credit crunch. Market selling pressure spread little by little, but even until this time, many opinions said it was just a simple correction.
"It's okay! It's just one grain broker that went bankrupt!"
"The New York stock market is invincible! Buy when it falls! Make those who sell regret it!"
August 24.
The Ohio Life Insurance and Trust Company, one of the largest in Ohio, declared insolvency and went bankrupt. It was the most certain signal that the funding network in the West and Midwest had collapsed.
"...I-it's okay! It's just one insurance company that went bankrupt!"
"What do you mean it's okay, you idiot! Wake up! Even banks are going bankrupt!"
People who were drunk on stocks that had only gone up endlessly slowly woke up from their dreams. In particular, British capitalists, one of the pillars supporting the American financial market, properly took the red pill.
"...Is this railroad company really okay?"
"Except for the core lines, the profit margin doesn't seem that great, does it?"
Britain was already struggling with capital procurement as military spending increased significantly due to the overlap of the Indian Rebellion and the Second Opium War. In this situation, the financial situation in the United States became unstable, so they pulled their money out without any lingering attachment.
"Huh-huh-huh? W-wait a minute."
"Damn it, no! Stop falling!"
New York Central stock, which had surpassed $90 in July, fell to $70 in an instant. Illinois Central, which had set a new record of $140, plummeted vertically to $110. Since even the main lines with solid profits were in this state, there is no need to mention other junk stocks.
As railroad stocks crashed, those who had taken out loans with railroad stocks could not repay them, and if they could not repay them, they went bankrupt, so the stock price fell even further. Falling stocks have no wings.
"Uaaaaaah! Uaaaaaak!"
"This makes no sense! This is a nightmare! It's a dream!"
"If I jump into the Hudson River, the dream will break, right! Please wake up!"
Capitalists in the North who had been excitedly shouting about "railroad invincibility." Southern planters who had persuaded James that he should hold onto stocks with guts to make big money.
Everyone had no choice but to watch their stocks, which were becoming half-price, together in harmony.
With guts.