Jesse's Café Américain: Stocks and Precious Metals Charts

"In 1929 Wall Street was dominated by trading pools run by groups of insiders managed by an 'operator'. One of the most common tactics was to manipulate the price of a particular stock, a stock like Radio Corporation of America. Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public.

Most major stocks in the 1920s were regularly manipulated by insiders. They were a little like musical chairs. When the music stopped, somebody owned the stocks and those were the ones who suffered the loss. One of the most successful pools was run by Michael Meehan in Radio Corporation of America. They were able to take the price from $85 in 1925 to $549 in 1929.

If small investors suffered, they would soon be back for more. They knew the game was rigged, but maybe next time, they could beat the system. Wall Street in the 1920s had its critics, among them economist Roger Babson. He questioned the boom and was accused of lack of patriotism, of 'selling America short.' He had repeatedly warned of the speculation. And people jumped on Babson from all around for saying such a thing, so that people who were cautious about their personal reputation, who did not want to call down on themselves a lot of calumny, kept quiet.

Babson was an MIT trained engineer who became a famous stock market analyst and financial theorist. I have acknowledged in the past that my own particular style of charting was in part inspired by his approach to force and resistance. He never really publicly codified his techniques, so they are not all that well understood. But in reading his works and considering his education background it is possible to deduce some of them.

On September 5th, 1929 Babson gave a speech to a group of businessmen. 'Sooner or later, a crash is coming and it may be terrific.' He'd been saying the same thing for two years, but now, for some reason, investors were listening.

The market took a severe dip. They called it the Babson Break. The next day, prices stabilized, but several days later, they began to drift lower. Though investors had no way of knowing it, the collapse had already begun.

Roger Babson had ten simple commandments he followed in investing and encouraged his readers to do the same. The shadier aspects of markets are most always cloaked in convoluted jargon and complexity.