The Janus Factor by Gary Edwin Anderson

Author:Gary Edwin Anderson
Language: eng
Format: epub
Publisher: Wiley
Published: 2012-10-15T16:00:00+00:00

Call money began to dry up during the decline, and rates rose, forcing traders to scramble for capital to protect their margined long positions. Livermore became convinced that the market would decline further, so he began to build a new short position as 1906 drew to a close. Stocks continued to weaken, and by early 1907 his trades showed substantial profits. He closed out his positions and left for a well-earned vacation in Europe.

While in Paris, Livermore read in the Paris Herald that Smelters Corporation had rallied on news of a dividend increase.

I knew that all bull manipulation was foredoomed to failure in that bear market. The instant I read the dispatch I knew there was only one thing to do to be comfortable, and that was to sell Smelters short. Why, the insiders as much as begged me on their knees to do it, when they increased the dividend rate on the verge of a money panic.6

Jesse returned to New York immediately and began to sell short in earnest. On October 24, 1907, panic struck.

Reports from the money crowd early indicated that borrowers would have to pay whatever the lenders saw fit to ask. There wouldn’t be enough to go around. That day the money crowd was much larger than usual. When delivery time came that afternoon there must have been a hundred brokers around the Money Post, each hoping to borrow the money that his firm urgently needed. Without money they must sell what stocks they were carrying on margin—sell at any price they could get in a market where buyers were as scarce as money—and just when there was not a dollar in sight.7

Near the end of the trading session, a representative of J.P. Morgan strode to the Money Post and announced a $10 million line of credit. Morgan had halted the decline, but Livermore knew that the market was still vulnerable and contemplated adding substantially to his short positions on the next day. That afternoon, a mutual friend of Morgan and Livermore approached Jesse. Morgan requested that Livermore not only close his short positions but start buying. Jesse began covering immediately and continued his buying on the next day’s open.

Livermore’s one-day profit at the end of trading on October 24 exceeded $1 million. Perhaps of even more significance to Jesse, J.P. Morgan had personally acknowledged Livermore’s success and influence. “He was a man, J.P. Morgan was. They don’t come much bigger. . . . That is why I said to my friends that my dream had come true and that I had been king for a moment. . . . It was a day of days for me.”8

Seven years later, Jesse was broke.

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