The Sun from New York, New York • Page 48

4 THE SUN, SUNDAY, MAY 12, 1912. BAROMETER TO TELL OF STOCK MARKET'S FUTURE 6 James H. Brookmire Has Worked Out a Chart Which He Believes Forecasts the Business Future JAMES BROOKMIRK of St. Louis, who lia devised composite chart ft'id br.romctur of fundamental con-(lltloitM from which he bellexm he wn forecast stock conditions, In the city explaining his churl to tankers and broker. Ho consented the other duy to explain to Tun Hvs the way In which he became Interested in thn subject and how he has developed hiu Idea.

For several years prior to 1004 Mr. Brookmire was the general manager of a manufacturing concern In Hi. Ifoul. Karly In thr.t yer.r ho became a purtnor in i hanking tirm that, had a Now York Kt out. Kxcluinge membership.

TIipii for the fii-Ml time ho got nn liiaight into the ttock market. "I soon noticed thnt most of the tupn buying r.nd tilling Mocks were trading Imply on unsupported ideas, or tips, or on information which oven though It might Ik correct w-s not Important enough to Justify backing with hard earned money." said Mr. Brookmlrp. "It wasnU hard to see that Invariably these so-called speculators were really gambler, whether I hey knew It or not, and the result wan usually disastrous. politics and banking condition) Invaria bly must be favorable before a period of prosperity, tlie presence of one unfavorable factor, that of an overextended banking condition, overcame all favorable factor.

This condition necessitated liquidation in securities first, and then about a year later came thn Inevitable i depression in business, "Many people still believe that it in impossible accurately to forecast the future In business, aa well as thn probable prices of eeourities, since there nro so many factor to produce puzzling complications. While it is not at ull dimcult to prove tho direct Influence which some individual factors are certein to have on the hecurlty market and business conditions, I have found that a dellnite result can lie obtained by combining these definite business factors: bunk dealings, not Alone in New York city but In the entire nation: railroad earnlnc. nie iron 'production and prices. Imports and ex-1 porta, immigration, building construction statistic, and the average commodity prices. 1 combine litem into an index which gives more accurate and satisfactory guide than I could havo had from any one business factor.

In order to make an accurate comparison October's earnings must be adjusted with the other months, so that February, which la normally tho poorest month, will be adjusted to a common level with the other ontha. In this way, with the seasonal fluctuations eliminated, the course of the composite will Indicate a curately the tendency toward prosperity or toward depression." When asked how he worked out his composite chart without using a "line of growth," which Is a feature of other methods of forecasting movements, Mr. Brookmire said: "I found out years ago that the factors that have to be weighted require separate adjustment. For Instance, the normal ircreiuwi In bank clearings and railroad earnings is by no means the s.ime, while other factors, such ai money rates and pig iron prices, require no weighting at all, If I made up my figures, even Allowing for seasonal variations, and Uien fried to place a so-called 'line ol I would have a chart of ditto value. It would be Impossible tn get any 'linn of growth' compensating fcr factors which increase at different ratios, mid attempting to compensate for such factors as money rates and pig iron prices, which mean the same now as they did, ten years ago.

"Now here Is another point, and 1 can't emphasize it too much. 1 want you to notice carofully I havo used separate busineaa and banking indices. It is the relation between tho business and the banking indices that tell tho story. "Tho money tliut the stock market and called, and the liouso of cards just naturally collapsed. Start and End of Panics.

"Karly In February I decided that the year of 1907 was bound to bo a year of drastic liquidation. Before I made public my views I camo to New York and talked with bankers, and found my opinion verified. Tho wlldness of the speculative boom In stocks and business, together with an overextended banking situation, had made It seem clear to me that a collapse was bound to oome; but so few people believed It possible that I wanted to see what others who followed conditions believed. I went back to St. Louis and sent out a letter staling the reasons why I believed every one should put his house In order and be prepared for what; was going to happpn.

You know what did happen," "Can you forecast the beginning or und ofa panic?" Mr. Brookmire was asked. "No one can actually tell when there will be a real panic," he replied. "We tan tell whon there will be drastlo liquidation, but this liquidation does not always culminate iu real panic. Special cuucs, such as the runs on two great trust companies, with the circumstances that brought about these runs, contributed to tho panic of 1007.

We had fairly drastlo liquidation In 1010, but no panic. "As to stopping a panic, stocks will keep on going down when there are adverse conditions until these conditions change, no matter how low the prices may drop, just as they will keep on going up months after the stock market starts upward, "You notice that the three factors necessary before Improvement was possible weiu indicated in a very pronounced way in 1004 and 1 90S. You will observe, by following these conditions on the Chart, that there was a rapid rise In tho security market followed by decided Improvement in general business." As to Crops and Polilks. In explaining why he did not include crops and the political situation on his ohart of fundamentals, although holding that they have a great Influenoe on business and security prices, Mr. Brookmire said, "It Is simply impossible to ohart political influences, and it Is impracticable to ohart crops.

The Influenoe of crops is sometimes entirely contrary to what may lie expected. "For Instance, In the fall of ItOfl the enormous crops simply stimulated the optimism of the nation at a time when business and credits were already in a feverish and over extended condition. The additional credit required to move these crops and to handle the increased business was an additional burden which the banks were not able to carry. We have to consider crops and politics separately in relation to bank and business conditions and the security market, mak ing deductions as the facts warrant. "With the fact established that the three prime factors, crops, politics and hanking conditions, must be favorable before tnere is an expansion in Business, Crop, Political and Banking Conditions Foretell Prosperity in Four Year Stock Market Run Cycles On the subject of improvement Mr.

Brookmire said: "Following each panlo and depression with its liquidation In business you will And a low level of prices and a stagnant security market. Deposits in the banks and trust companies will be large, mad the amount of loans will be small In proportion to the amount of deposits. Interest rates will be very low. Iron and copper prices will be much depressed. Just as soon as there Is a favorable crop condition and a favorable poUtloal situa tion the three prime ronton necessary for Improvement will be favorable.

Tht Interior's Opportunity. The stock market, perhaps already slightly' advanced, spurts upward, discounting the future prosperity, and as the stock market advances it beoonea more aotive. Business start to Improve, railroad earnings increase, metal prices advance, and there la an increased demand for bank credits. "There is sensational increase la the price of stocks coincident with public buying and great activity. The length of time the market has been advancing, the extent of the advance and the time "The following period of liquidation lasts from four and one-half to fifteen months, a period of great danger to thi investors and business men.

Decline la the security market Is violent ami persistent; not infrequently a panlo period with downward course of market values. At the beginning of this third period of security liquidation busing still continues high for almost year but as old loins are called in new one refuted prices finally start on a down grade. After little the markets tn many Unas, for example iron and copper, become demorallned. Weaker Arms in all lines suspend and the dividends of many of the more prosperous oompantej are towered or suspended. There are always failures of importance.

"At the end of this period there will be heavy short selling of stocks, but also buying by shrewd odd lot investors. The Ust part of 1003, the first half of vxa, the year of 1907 and the first half of 1909 were such years of liquidation. The Present Outlook- "The fourth period of the cycle lasts from eight to twenty months. Business IB ec Ui tfl BROOKMIBE'S COMPOSITE OF FUNDAMENTAL BUSINESS BANKING AND INVESTMENT CONDITIONS. 5 1 5 1 i i i i i a i i i i i i i i ki i i i i i i i i r-a-i 1 im i i i i i i i mi i i i i i i 'f i i i i i i i arv i i i iiii invii si iimi i ii r-i mi i w-yiiiiiiiii avi ui Lsm BUSINESS i CYCLc'or BANKING Cnfo.T1! CYCtlB OF ''SAlMKfNd CBFDIt'.

'a CCLE 'or' p'f-flrG'CReDlT 1 'i BANKING -rHi" iTi Tf9trHr ihf FFVEHISHP- ZWE pUiffi-r-i Iff l-fc ljL I OAMUKW ACTIVE i 4UllMvi. HonMAi. JL "jlf jTT NMMAl ouet -irT-n' i finhlf "PWS5ro5o iliilr T- 5o.mnwtB S-M ihlfr --L So Wlfi POoR CiRrJ til CR FAiRCRbPS PROSTBAH QQ te poorw fAt I I I JgQ CRTCAL Cn vt COPYRICHT Qn 90 AtL 5ERVEP -a-. i 11 i THE BROOKMIRE1 -1 (j 100 i II -y ECOW0MJC CHART CO ,2 1 100 IU 1 riirmMTilTtil 1 1 1 1 1 1 1 i inT-tt lil 1 1 11 1 1 WE ACTiVf HMMAti GWItT btmssti ftOHMTI 1 1 1C 601 30 A 20 10 0 10 2d rterteMi (IKSVtt iMtMstW I VUanTS KtiNnru larrnniiy Did 0VM exTfiwt "I litinmi' roiviiiud that tlu decided changes ho mcket inuld not lo tim r-fiilt of tho of few illHldI'. illlt till'' V.CIP ly iinriTlyiiii; ntidilloiiK.

Of roiir.i tliti marki't was orrcsiMmvlly, lint 1 oltx'rved tlmt tli'i nmnipii-Intlon hiwl t'i lio nl'ing linon of lirM in-HiManio. i in rontormlty with the ru tvi iudicffted by ItiHnetvi l-nnk-inft couditicntf, of which I will siv you ifxafnpl" "There iwn't nnything now foro. cantinn tinr.iicir.l coiidltionn that ciui lo relied upon. I umrcover, thnt imch forcir.itliii; is lin-, lwvn dotin in tho pr.st r.s tiv work of men of practirnl i.rid IiiivkI upoa conditloiiK of crops, tin! political nltur.tion unci their actiml uxponosuo. Kconomifitn havo proved that mutty factorn which arc of great Itnportcnce often, dominant in dolerniinitiK thecourhe of funeral liuainoss r.nd titii Koctiritir-j wwi not and coiuiJured by thn tverago peihou "In studying all Une factors I was Kurprixcd to nee how accurately loadinR hucIi as tho Fron'li economist Juglar, liHtt outlined the condition! under vhich proHpority will Mirely follow, and tho ronverwi of which will jut tut certainly cuuxu a poriod of drr.Htio llimida-tion and probable pnnic.

1 ho economlHts had not Kono much beyond the realm of theory, und 1 bad to cot tho utati'UtcH for different and for enough yearn, and then study actual condition! to roo whothor the theories held good in every instance. Fundamentals 0 Dusir.esi. "I havo worked at this exhaustive study for eight years, puttinx in several hours overy day, but keepiiiR up my own business. The first thing I had to do was to secure an accurate record of tho security market. You know tho stock market anticipates both rlfws and decline in general business and is moat sensitive to all tho various iifluouces Burroundini; if, whether cro, oliti sor hanking oon-' ilitions.

Then I took each business und iMUiking factor, such as crops, railroad earnings, pig iron lunik clearings and money rates, and carefully trueed tho influence ot each one on tho fpcurity market and notod Htiy peculiar henomena "It mkii) developed that preciiriB every period of gr- at pius erity llinsi (actors, crops and tho political unci banking situations, wen invariably favornblo, 'Ihou found that just before all eriods of severe such aa tho panics of lhiiil, IH03, two, and III07, tho nun tuctor which weninl lo doiuinatu was tho overeiten. aion of So It dovelotiil tluit 'hlle the three great factors of crops, "Th-n I took these leading banking factors: loans, deposits, specie, reserve, tho iercentage of reserve to deposits, tho rate of commorrial paper and the ratio of reserve to loans, and put them into a combined index with the same advantage 11s with tho business index as a guide, i When I placed tho business and tanking indices together on a churt with tho stock marki't record, I tiad a true chnrt of fundamentals, which you will seo by the chart illustrated works out in a surprisingly accurate way," When asked if lie made any allowance for the growth of the country in plotting his indices, Mr. lirooUmiro said lie had found it necessary to make such allow ances In regard tocertnin factors, such us railroad earnings, bank clearings and pig iron production, Commerce and Banking. Tor example," said Mr. Ilrookmire, "railroad earnings havo increased at the: rate of about i per cent, a year normally.

but it was necessary to get tho average yearly record over the period studied. This average yearly earning is represented at zero on tho churt. Thou we taku tho earnings by months, and weight thorn to alio for seasonal variations, "Without exception October la always tho record month for railroad earnings. general business use comes out of thB banks. As stocks and business go up the banking index goon down.

Before businesii starts to increaso after a long depression, you will rind Ihr.t tho Imsiuivs index has risen into thn area of abundant or plethoric reserves. "Tor instance, take tho tmmmer of ttrn. Wo llnd that titisinesi waa depressed, and that tho hanking reserved were morn than abundant, they won plethoric. Itnniodlr.tely r.ttor the President ir.l no'ni-uUions the stock im.r.tet began to advance, followed later by a decided improvement in business. This improvement continued until the summer of IikiT.

"Bushier. had reached into tho ht.xard-o'is area by tho fall of ItWfl, and tho banking index hud dropped down to the overextended urea. This v.as a certain Indication that tho tanking resources were not sufficient to support such a tremendous volume of business transactions. "Business remained in tho hazardous arpa from tho full of won through August, ltW)7, This was tho natural result of the momentum from gonsrully favorable conditions and enthuriastlu optimism, Tho overextension ot crediUi made necessary tho drastlo liquidation which followed, liontm from Kurope, which had been mudo to finance, tho sfiectacular iiarriman boom iu the fall of louu, were with favorable conditions. When Mr.

Morgan and his syndlcr.to of tankers poured money into the stock market they restored conlidence tnd thus stopped tho panic of 1IK.7. "After tho pr.nic the tanks r.nd trur.t. companies filled up with money, but luislnosn kept right on dropping alter it got started on tho down grade. Iliuinc-H iuluays follows tin- stock market, but I business men as a whole will not taliove that drastic liquidation in tho mr.rkft can afreet them personally, and since people an always most enthusiastic when prosperous they rnako contract which keep butines going after the stock market bubble has hurst. When business does get started down for s.

depression It stays down until after the market starts upward, as you know. "People are afraid to put their money into business or Into securities. They put it into tho banks and then conditions tacome favorable for a rise in stocks sooner or later. Just as soon as die banks aro in good shape Again, the crop condition favorable and tho politico.) situation cteured the market Is in line for a certain vise and busimyis will follow closely. While business does not start downward for about r.

year after stocks tagin to slide we find that business always starts good improvement within six land studying closely the course of business and the prices of securities, I noticed that thoso movements came In clearly cycles. Then I bogan to apply tiioojdcyolo theory to these movements. "I found that these cycles in no Inrtancc ran longer titan four years. 1 considered each stick market cyclo as the poriod between the beginning of tho upward moement in stocks and the end of tho low lovol following. The businasn cycle simply begins rnd ends later in each case than does the stock mat-jf cycle.

Since 1 lss'i there havo been scvon financial end I business cycles." I Mr, Brookmire sr.id that there arc two vnusescontributing tn fix tho stock market cycle within four years. One is tho Fresi-'dcntlal election end the otlur Is tho fact that tho development of the country is so rapid and the ntturr.1 wealth so jjreat that within three years from the bosin-ning of a prosperous period there is slfte of ovcrexpansion of credit that makes liquidation of securities necessary. Tho four )arts of this cyclo as dhided by Mr. Brookmiro aro Improvement pror.porlty, liquidation and readjustment. Tho parts are all clearly defined, although the timo required to pass from one tn the other of theso parts cannot be fixed arbitrarily.

It depends upon how rapidly I conditions dovclop. of tho year also assist In determining who.t the ond of this period has been reached. "The great oportunity for the investor will bo found in the first period of tho upward movement, of the cycle. In this period stocks cdvance from to 83 per cent, ar.d sometimes moro of the total advance nude daring tho entire cycle. Tills tlrtt period lias not occupied more than mivcii months of any of the cyclea.

"The second pericd of tho stock market prosority hich lasts from flvo to tv enty-four months, usually carries Hocks to a still higher level, hut under les favorable conditions stocks mnv show a decline. During this 1 oricd stocks must be purchased with care. As bi'slnoes expands, deposits end rceervos decllno tho proportion of leans to deposits incrciFcs. Interest ri.les for Ivti, WHi and lone timo inonev nrlviinri. uv.li and copper prices rfee rapidly to un- rcusoname iiguros.

"liueinrs in nil lines hrwnm ishly active nr.d general commcdity fiiKvx reoi'ii nign lovew. imports nrd exports Increase greatly, with Imports increasing moro than the exports. In tho lout part of 1001 and the llwt half of IIW2, in 1903 and 1006. and in 1907 we had the periods of prosperity in the stock market cycle, NEW GRAND CENTRAL AN ENGINEERING MARVEL Continued from Fifth I'aoe, of several novel features In train despatching. Instead of arriving trains backing out after discharging passnngors, as done under the old system, tho empty trains will continue around a loop nnd swing over to tho yards at one side, which uro located far Ih-Iow the street level, Outgoing trains will bo backed onto the trucks after leaving tho yard.

Kleclriral oxratlon will havn much to do with tho easy handling of trains. An all electrlo signal system is to Imi installed which will include tho latest devices for disposing of either outgoing or incoming trains. Comforts for Passengers. All train gates are to bo operated by tlcctricity and their nKuiug and closing signalled automatically. Passengers will bo notified by elect rtcally oHrated signal and announcers when trains aro lo leave or arrive, Baggage will Im handled on electrically operated elevators.

Outgoing or iiuoni-ing passengers, after leaving their homes or hotels, need not sec their baggago until they arrive at their destination, while In tho case or pussengors arriving their hasKii.ie too will need no attention until It is delivered at their residences or elsewhere. Kxlts and entrance to the terminal have been planned with grout core. Tho architects assumed that on frequent occasions, secially on days when travel is particularly heavy, tho crowds might spread out on either side of tho entrance to tho concourses or waiting rooms to the distance of porhaps a hundred feet, Basing their calculations on this, tho evils and (iitrunocs were pla-rd the ueu-est lu) i'eet apart and tho furthest 00 1 ft Hie latter of couise Is-ing at locations where it is least likely they will be 10-(tiired, An innovation which will he particularly uccojii 1 bo to outgoing or incoming pas. sengers, nro 11 number of small dressing rooms where a man or a woman may change his or her olothlng immediately upon reuniting tho termiual. This will avoid the itcacstlt of engaging a room in hotel.

lu additlou thers will be rest rooms for wo lien and also an emergency with dootore and nurses iu constant ut tendance, when person token suddenly ill or who may arrive on inoo.ning trains and need immediate medical attention I can bo cared for without delay. Tnose seriously ill can bo taken dlreot from the train to a waiting ambulance without I the (act coming to the notice of the public. Public laborers and immigrants, who it may bo thought odvisable should not leave or arrive ut the terminal through I tho main waiting rooms or concourses, 1 will be providod for In separate waiting I rooms aud lookod after by special ut-teiidiints. inn Biltmoru Hotel, which is to be built by the New York Central and New Haven cojipaulos, is to bo 0110 of the finest I in tile world. Occupying tho block bounded by Madison and Vanderbilt 'avenue, Forty-third and Forty-fourth 1 streota, and towering twenty-four stories high, it is to be purt of the extensive 1 Buhelne covering the terminal yards with i.nmenhu buildings.

It will not be i directly over the tracks, aa in the case of many other buildings provided for iu the general plan, but will face the syf station and bo connected directly with' I It by underground passage. The five floors below tho btrect level arc to be I devoted to store purposes. The hotel I proper Is to have l.ooi) rooms nnd will uecom.noduto guests, Passengers arriving at or departing from tho hotel may proceed directly to the teiminal without passing through the streets. Their baggage, too. may be taken directly to or Ircm their rooms tu trains without needing the attcntlcn of guests.

A new feature In hotel structure is tho location of tho ballroom and banquet hall on tho twenty-third floor. High windows will be provided on three aides, so that in summer the mums may be converted Into oien ulr roof gardens for ilineru and others. Here, far above the street ive. and well above the roofa of neighboring buildings, they will havo the lienellt not only of any cool breuxe that may Ui blowing iu hot weather but a magnificent, sweeping view of the city proper, of ug Island, the Hound, the Connecticut shore and of part of Westchester county. There Is to be a Turkish bath establish- 4 ment on one of the lower floors, which Is to have one of tho largest Indoor plunges In tho United States.

Separate accommodations aro to be arranged for each class- of the hotel's employees. Parlors will be provided lor them where they may meet each othor or their friends when not on duty. The project of building a ma Her and more moderate prioe hotel on the plot of tho teiminal headhouse, fronting on Forty-second street and extciidlnir from Depew place to Lexington avenue, bus been abandoned for the prist nt. but may receive turiher consideration luter. Mtarvlav Out TrcmbTeseme PlsaaM.

From tht fhiladfliihit Public hrdar City hall pigeons am once more under the ban, and Director Porter Is the man who is trying to net rid of thorn. Instead 01 Mayor Reyburn and Director Clay did. by p.iitlnt- up" stieeas at the iatranis-nd tuiiiitic tt hoso tipou ike pigeon rooms, the Dlivctor lie has' Irtiiftl order lo (lit city hall "1' h.l"n iwrspns Horn teed ug tho turds in tn cuurtysrd und on ita nortn. eat plura and lu ainxt those who jwriUt is thoroughly liquidated, tho banks lie-come unusually strong, but there many failures. After a general readjustment of prices to conditions, tho country simply waits for cropH and a political situation to be favorable.

Then with thn tanking conditions good tho new cycle starts in. These movements aro thoroughly indicated on the chart." Questioned ns to whether a great din-aster such an tho San Francisco earthquake would not disturb the indlcatiom of the chart, Mr. Brookmire said: "All we can do is to discount normal conditions. If such a disaster occurs when other conditions uro Aound. this accidental development would have hut a temporary effect.

Following tath tlw San Frnnolsoo earthquake and th Northern Pacific panic, tho stock market was higher than over within a short time." As to tho present irdlcations of the chart, Mr. Brookmiro sud: "The situation us shown by the chart above proveH that business has been in liquidation hr.s been readjusting Itself to new political conditions i-inoj early in 1010. Business is thoroughly liquidated and ready to respond to any favorable developments, nnd it w.iulj also withstand with stubbornness any ndverso developments which may reasonably be expected. "The bonking nituation is satisfactory. The banks are in a position to moot tlis needs of normal expansion in busluos, as shown by tho barometers at tho sldo of tho chart.

This barometer allows thel position of tho business security banking indices at tho end of March. 'I he combined chr.rt and barometer show clearly tho actual iMMitlons or tho three graphics ut cjiy particular time. "We still have decided uncertainty as to the two other factors which must bi favorable before sustained advance cm iiosslbly come cbaut crops and politics. Neither cros nor politick conditions are sunicieutly ad van cm I at the prment time to justify a prediction. "in the caio of crops tha conditions today are favorable owing to the satisfactory condition or the soil, us moisture is th first eeaentir.l and good crop normally fellow soil saturation such ui we huva this spring.

Wo should ussumo until there is a definite indicntinu to the contrary that the results or this year's harvest will bo bbtisfuctory. "As May and June aro alwuvs month of irregularity and of uncertainty, especially in Presidential years, it would he a good plan to await the results of thn national conventions und the July crop reportu before becoming too as to the immediate future. When have a clear idea as tn the croiv ai.d political situation thero will still bo tini to prepare for tho upswing in tho stock market and the business exiwtiMim which would certainly follow If they art.