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March 7, 19l*5* The March issue of Fortune contains an article entitled "The Wall Street Situation", which cites -what is stated to be an actual case of a speculator who got in and out of the market on a number of low priced stocks between 19U2 and the end of 19U3 that were moving upward along with the general trend of the market. It shows how this speculator ran less than $2000 of his own money up to $250,000 by the end of 19U3, and that if he had held on to his profits to take advantage of the 19U* highs, he would have had $1,200,000. The article states« "A speculator named Morris Blumberg, who has bought and sold in these and other stocks, says he has done much better, and modestly remarks that somebody else might have done better still. In other words, a few thousands could have been run up into millions. "What may seem even more remarkable, around 75 per cent could have been kept after income taxes* The tax law since 19l|2 has said that money realised from the appreciation in securities held for more than six months is taxable not as income, sometimes over 90 per cent, but as a capital gain, at a maximum of 25 par cent»" March 7 , 1914-5 • TO Chairman Ecoles. PI Mr, CLA\ The March issue of Fortune contains n iyn;i?ti «fri iLing article entitled "The Wall Street S i t u a t i o n U i e p&ji iliuluglial affisot of whioh io vmvy .likely to "whip up .int*™»«* jr\ «¡-^pf- Trrfcrt ** ^-rr^n n number of instances of ^-^^nii^iji prefifrs yealiaed.fr'*olMMMfjffr, ^pftftnl a-hnrs taking advantage of the", ca^f^g^jg' of Uiia b&cause the .„article is • in 1 invest or speculate in same*' b tiliai wofti'flimi'toQoolng "the seoond leiagoot yt iiuU uf Uiu lQgO'j) in urn Twwmruiii cmiUuj/ i •n ftflgins u p u u i P I m l l y stated to b e an actual case of a speculator,, who got in and out of the market on a number of low priced stocks^xnax were moving upward along with the general trend of the market. It shows how this speculator ran less than $2000 of his own money up to $250,000 b y the end of 19U3 a^d that if he had held on to his profits to take advantage of the I9I4I+ highs, he would have had $1,200,000 v The article s t a t e s s p e c u l a t o r nameji Morris Blumberg f who has bought and sold in these and other stocks, says he _ has done much better/ and modestly remarks that somebody else might have done better still« In other words t a few •fchrmR«^« ^ n i H v>qYft into! "millions.* "What may seem even more remarkable, around 75 P©** cent could have been kept after income taxes. The tax law since 19U2 has said that money realized from the appreciation in securities held for more than six months is taxable not as income, sometimes over 90 per cent, but as a capital gain, at a maximum of 25 per cent." x . A f t e r stating that the capital gains tax has been criticized jets a deterrent tcNfche flow of capital, the article remarks that, "But i t ^ i d not deter the speculators much. IVhenever possible, and especiallyjadrter their appreciation was sizeable, they kept their securities for sitffmonths. Since prices were almost uniformly on the rise, this was botjv^easy and pleasant." The article significantly points out^-IU. though doing so as if it were in the past tense, the fact th^t "thepefwere reasons for suspecting that the boom, if not stopped by Governmen?b^timbn, might last. Deprived by high personal income taxes of the s t i m u l i tota^vest, people were waking to the fact that the capital-gains tax was different, iferor had they had so much money, so little to spend it on, and sp/Iittle incentive to save it. Cash in circulation — or in the pocket - ^ w a s about $25 billion,Naiore than five times the 1929 figure, and dema^draeposits were some $69 billion,Vvmore than three times the 1929 figure. Investors, indeed, were still able to ^ay for a big part of their s e c u r i t i ^ ^ i n cash. Few new stocks had been issued.\ And when the Government citSsed race tracks and clamped down on sports, wbi^n it made its gloomy and hence inflationary predictions of consumer shortages without taking finoj^teps to keep down living costs, it probably made a risk investor out of many a bank depositor or bond owner." - 2 - The article gives a good many highly illuminating instances of how smart money has taken advantage of the capital gains tax loophole, frequently operating in unlisted as well as listed securities, and recognizing that the Governments war expenditures would make what had been a collection of dogs and cats highly profitable for speculative operations. There is one lfadditional quotation from the article which is worth particular attention: We have noted that the great majority of Wall Street people live on securities trading. The trading set-up depends on volume, volume depends on the prospects of a market rise, and a market rise worth anything must be preceded and followed by a fall. No matter how much Wall Street suffers in depressions, in a sense it also depends on depressions. If the economy can be rigged to eliminate or cushion depressions, there will be less room for securities to fluctuate."
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