1928: The rise of giant merchants

September 20, the 18th year of the Republic of China (1929).

The first person to react to the U.S. stock market was not the United States, but the great power in Europe, the United Kingdom.

This morning, the Bank of England suddenly announced that it would increase the discount rate from 5.5% to 6.5%.

Discounting refers to the transfer of bills in which the bill holder pays a certain interest to the bank in order to obtain cash when the bill is not mature.

Discount interest rate refers to the interest rate charged by banks to discount applicants when they accept discounts on commercial bills, treasury bills, etc.

So why would anyone want to discount?

The purpose is generally to obtain a capital position.

Because enterprises will incur various expenditures during the production and operation process, and the payment of these expenditures is usually not immediate.

This means that companies need a certain amount of liquidity to cope with these scheduled cost payments.

In this case, companies can use discounts to achieve financing.

In other words, in the current era, many companies and individuals see the high stock market and want to throw as much money into it as possible in order to obtain extremely high profits.

But your capital is not sufficient.

Especially when you find something profitable and the principal in hand is not enough, you have to borrow money.

There are two ways to borrow money, personal loans and bank loans.

But if you tell anyone that I borrow money to speculate in stocks, do you think they will lend it to you?

Therefore, in the UK, many companies and individuals rely on discounts to finance.

Although most banks know that you took the money and invested it in the stock market, but you didn’t tell me, and I didn’t make it clear, and everyone cooperated tacitly, it was just like you swiping your credit card. I knew you were cashing out to invest, but turned a blind eye. Close one eye and act like you are consuming.

You get funds, the bank gets interest, the stock market and housing market get hot money, everyone is happy.

The problem is that this is only true when the economy is on the upswing and everyone wants to make money.

Once the national economic agencies have a premonition of economic crisis and bad conditions, they will no longer turn a blind eye to your illegal behavior.

To curb this trend, the conspiracy is to increase the discount interest rate, increase your hidden cost of cashing out, and prevent you from freely obtaining hot money.

Don’t underestimate this 1% interest rate increase.

The $1 million originally paid $55,000 in discounted interest, but now it pays $65,000, which is an extra $10,000. And if you invest 1 million in the stock market, if you buy a high-priced stock at $100 per share, you can buy 10,000 shares. If the price rises by $1, your income will be $10,000. This does not deduct other costs, such as giving Exchange commissions, etc.

Even if the primary trading market such as the New York Stock Exchange does not have stamp taxes like those in China in later generations, there are many other scattered commissions.

But even in a bull market, a high-priced stock of $100 per share may not necessarily rise by an additional $1 in a day. If it does not rise by this amount, you will lose money. At least it will have to rise by $2 before you can make a profit.

Speculators did not understand this policy at first, but when they experienced it for themselves, they discovered that simply increasing the discount rate by 1% would require the stocks they purchased to rise by $2 more than before in order to get the same return as before. It's so hard.

Therefore, as soon as the Bank of England introduced this policy, the local stock market plummeted.

Of course, it will take some time for this news to reach New York, USA, and let the vast number of crazy bottom investors know about it.

But upper-class people like Ye Luo are different.

Hearing the fierce knock on the door, Ye Luo gently pushed Hui Xin away from her body like an octopus, leaned over and kissed her eyes, then stood up, put on her pajamas and opened the door.

"Ye! Instant news from England!" Livermore didn't care that this was Ye Luo's private bedroom, and rushed in, panting heavily while showing him the telegram.

Ye Luo took the telegram and read it carefully. On the radio beside the bed, a male announcer with a deep voice was laughing and talking about Walt Disney's new work "Symphony of Silly Symphony": "At least now, this animator? Should That's what he calls him. He found an audience for his Mickey Mouse, after so much hardship."

"In 1927, the economies of Australia and the Netherlands began to deteriorate, and in 1928, Germany and Brazil entered a period of depression. In the first half of 1929, Argentina, Canada, and Poland followed suit and entered recession. The new global monetary system came under severe pressure."

"In response to the loss of gold, the Bank of England raised interest rates to the highest level in eight years. This is what Philip Snowden, the then British Chancellor of the Exchequer, told the media, but everyone with a discerning eye knows that they raised the discount rate" Livermore Er's voice was extremely excited, and his body was trembling violently.

"The move is really about preventing capital from flowing into a speculative orgy 3,000 miles away."

Ye Luo interrupted and got straight to the point.

The two looked at each other.

"As sterling strengthens, gold outflows from the United States are increasingly likely. The Bank of England's timing of rate hikes will unsettle U.S. investors."

Ye Luo added.

Livermore thought so.

Such an obvious signal that the real storm is finally coming!

"I have to go to the New York Stock Exchange immediately. Many stocks are still rising. Even if the Dow Jones Index is falling, it is difficult to suppress their rise. Going short now should be" Livermore couldn't sit still.

Ye Luo stretched out his hand to hold him down and shook his head with a smile: "Don't be impatient. It will take some time for the news to come through. Even if it comes, do you think the people in the White House will not have any coping strategies? At this time, short selling, a small Shocked, our US$130 million was wasted.”

"Then" Livermore couldn't wait.

"Pay attention to Hartree's stock, maybe this is a good opportunity." Ye Luo reminded.

Livermore nodded and had no choice but to do this first.

While the two were talking, the London Stock Exchange suddenly suspended trading in Hartree Group's shares.

Sudden sanctions are hard to guard against.

Clarence Hartley, who was still partying in his mansion, was arrested and imprisoned at the speed of light. He was quickly prosecuted and eventually sentenced to 14 years in prison, which is the longest sentence that can be obtained by "white collar criminals" in the UK. .

Hartree's shareholders naturally lost all their money.

After the company was suspended, approximately $12.5 million in unsecured loans were frozen.

Due to the complex related-party transactions within the Hartree Group, the actual losses far exceeded this figure.

Many London stockbroking firms declared bankruptcy in an instant, and several banks, including Barclays, announced that their profits would be severely affected.

The London stock market suffered as a result, capital flowed out, and the Bank of England also lost a large amount of gold.

This sudden trading suspension caught all stock market speculators off guard, and the British stock market exploded!

And just as London was holding a heated "Give me back my hard-earned money" demonstration, some keen speculators suddenly realized that Hartree Company was also listed on the New York Stock Exchange in the United States (End of Chapter)