What Makes Us Tick? (1952) [video]
loc.gov
loc.gov
This 1952 cartoon is a very good explanation of the theory behind the New York Stock Exchange. The first few minutes are a bit of humor to set up Mr. John Q Public who is trying to save up his nest-egg for retirement (roughly the first 3 minutes). This naturally leads him to look into stocks, which the video then explains what stocks are.
The remaining 8 minutes of the 11-minute cartoon then goes into the theory of stocks: how stocks raise money for a business (a hypothetical oil-barrel company). First, a private equity raise with a bank ($3-million), and then later, the company IPOs on the NYSE directly for even more money ($20-million). The numbers are small by modern standards (showing off the last 70 years of inflation), but the concept remains the same: investment banks get earlier rounds of investment... and eventually an IPO on the stock exchanges brings in even more money.
There's also a good segment about what exactly goes on a ticker-tape, who looks at ticker tapes (the various partners of NYSE across the country), who places orders, and what happens on the NYSE floor (how buyers / sellers meet up). Modern computers do the same job and faster: broadcasting the last price sold on the exchange, and automatically matching up buy / sell orders with each other. As such, the ticker-tape analogy with humans is actually a very good mental model for what these computers are doing.
Though many things have changed in the last 70 years, it seems as if the stock market still plays the same role and function today as it did back then.
Seems that they use Cloudflare for their video distribution, it'll be fine.
Does it, though? The cartoon (which was probably a little naive even back when it was made) presents a world where corporations have a duty to provide good jobs and to serve the national interest in times of crisis. It describes the stock market as the mechanism for these corporations to raise money for growth and to share their profits with public shareholders. It talks about how carefully the NYSE vets the companies going public, and how a company must have substantial real assets and profits to be considered.
But I would argue that today, the tail is wagging the dog. Capital uses the market as a way to aggregate more capital, and if it happens to provide some money for growth and some of the wealth gets spread around, that's just a happy side effect. Those considerations are secondary to the game. Companies go public now with virtually no assets other than name recognition, and no profit in sight. There are public companies with billion-dollar valuations and less than 200 employees. There is no implicit or explicit expectation of social value, a company is judged solely on its return on capital, a judgment that will always be weighted towards those with the most capital to begin with. The idea that it contributes to the national standard of living, or can provide some value in a national emergency, doesn't enter into the discussion at all.
The cartoon is goofy, but at least it has a notion of civic obligation that no longer exists.
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That being said, the cartoon is correct about the fundamentals of how the stock market works, and its theoretical benefits. I'm sure companies existed back then that were terrible, but we gloss over those facts in propaganda to make the audience feel better about their society.
Be careful with this point. Inflation is the value relationship between money and non-money.
Part of the reason companies raise more now is because they are bigger and more profitable, not just because dollars are worth less relative to goods.
For example, Ford went public in 1956 on a market cap of $3bn (one of the largest in the world at that time) on net income of c. $200mn, for a c. 15x P/E ratio.
Today, Ford is worth c. $80bn and its net income is c. $4bn, for a P/E of c. 20x.
The only inflation there is the move from 15x to 20x.
EDIT: and to make this point more clearly, new cars have only inflated 3x since 1956, even thought Ford is 25x larger. https://fred.stlouisfed.org/graph/fredgraph.png?g=JbBS
Yes
> I assume that's quite a lot of data that was processed, even 70 years ago?
“The New York Stock Exchange in 1954 had the most prosperous year since 1933 with its volume of business totaling 573,374,622 shares. This compared with 354,851,325 shares traded in 1953.”
https://www.nytimes.com/1955/01/01/archives/54-stock-market-...
So in 1953, not even 1 million shares per day traded on average.
Odd-lots would not occur on the exchange. The "local" broker will handle odd lots, group them up into round lots, and only once a large enough round-lot was collected would the broker call up NYSE and actually do the exchange.
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For example, if Alice was selling 32 shares of FOO, and Bob was buying 10 shares of FOO, the local broker would give Bob 10 shares (from Alice), and then take the remaining 22-shares for themselves. It was somewhat risky because if the share price changes dramatically, the broker could lose money... but this risk was compensated by brokerage fees.
Eventually, Eve sells another 180 shares, meaning the brokerage now has 202 shares on hand. At this point the brokerage would telephone in to NYSE that they're selling 2 round lots of FOO.
Once the broker confirms the sell order, they hand the money to Eve, and are left with a 2-share odd lot for themselves.
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A brokerage could hold some stock in larger quantities if they were very popular in a town. Maybe Detroit has a lot of Ford / General Motors traders for example, so the local brokerage in Detroit would hold more Ford / GM to help speed up transactions.
When transacting with odd lots, they simply use the last price on the ticker-tape.
Regarding the Library of Congress website, it seems to me that leverages a well greased global CDN and will serve the video just fine.
At the same time, it feels infuriating that in order to afford medicine, clothes, food, shelter, and defense once you're past your working prime you must attach your fortunes to companies that have very little to do with the actual services you require in retirement. Personally, I think that the American middle class has been totally taken hostage by Wall Street via the 401(k) and the IRA; anything that threatens "market performance" (e.g. a series of metrics made up and owned by the market owners) threatens their ability to provide for themselves. In this way, any serious large-scale action that might mend a social ill is off the table if its implementation damages large-scale market performance.
This feels like the worst possible argument against public corporations. There's a whole sector of the stock market for health care, and you can easily buy funds that only invest in that. What other services to retirees need? You will be able to find listed companies providing all of those services.
There are some technical imperfections in a basket of equities. If your intention is to exactly hedge living costs, then you would also seek to own bonds from those companies, much of the economy is not public, and so on. There are valid points to be found, I don't think these are what you're concerned about.
In the big picture, owning the means of production is the only game that makes sense. What's the alternative? The best store of value is a collection of things that people are paying for, because that's central to the economic definition of value. Otherwise, everything is gold or bitcoin.
I get the rationale: it's set up that way so that it's a "safer" investing option, because they're afraid people will make bad choices and lose their 401K balances. But the flipside is you don't get much flexibility in making the wisest or most self-interested investment decisions. The 401K -managing firms love it though, as they get to sell a bunch of funds that are often in-house and have fees, and the real free-market-trading investors like it because the 401Ks put a bunch of very predictably-timed money into predictably-common choices, and they can rely on this to gain a little advantage/arbitrage.
That site gets tossed around like candy and I don't think every graph they throw up is perfectly explainable by their central point, but what the invention of the 401(k) and IRA, both of which were released to the public only after the gold standard had finally been abandoned, really did was to allow wealth managers to pump completely unimaginable quantities of money into abstractions of value that are not actually related with physical wealth that materializes for Americans in the form of skills, a strong manufacturing industry, and robust supply chains. Michael Burry (Big Short guy) notes that the amount of money stored in indexes and funds tracking the S&P 500 are many orders of magnitude larger than the money that actually moves around between the shares of the S&P 500 companies themselves.
Once you're retired, you can roll your 401K into a self-directed IRA which you can invest with not many restrictions.
For example, you can put all your money into hospital stocks.
Just as a single example, many of the descendants of the merchants who made their wealth off of even something as far back as the Middle Passage [0] or supporting slavery in the US are often in elevated status today (both politically and with wealth). Wealth diffuses with time and transactions, but still - it spreads outwards from social proximity.
> today's markets are quite rigorously monitored
Wealth acquired by slavery (or descendents of feudal nobility) can absolutely be used to purchase a stock. Unclear what you mean by the provenance of the share - I am talking about unethically acquired money used to buy ownership which is then "laundered" through ownership stakes in legitimate companies.
This seems like an incredibly weak argument for an incredibly good point. Its crazy that you must attach your fortune to companies that have very little to do with you in general. A wealth manager, or annuity or other similar service (pension) seem like a very reasonable (conceptually) place to attach your wealth - their job is to provide for your retirement. Saying "buy stock market indexes and government debt" seems like a very indirect way to hedge your retirement.
I think the fact that the cartoon portrays this in comedy and exaggerated form (just as the man's car is comically Too Small, and his "built to last" house's door falls off) underscores that the woman's role was perceived to be _infinite housework_ (rather than, say, coming home from _her_ job). Consider that her "help" includes the man washing a floor. In contrast, the wife (now relaxing) has handled dishes, meal planning + prep, laundry, ironing -- and the appliances there are portrayed as making that all that work take less time.
As someone with all those tools now, I can confirm that I have a hard time even keeping up with what housework I notice needs doing, let alone all the work that my wife does (and arguably should have to do less of). It feels like that implied portrayal of "wife sits at home goofing off all day because machines do all the real work" couldn't be the norm.
The history of women's work is a history of unpaid labor. The reality maintenance machinery supporting this is powerful. From devaluing industries which see a change in gender participation, to not classifying certain tasks as labor, the mechanisms of maintenance range from insidious to ridiculous. Understanding what happens if that reality is not maintained is important to understanding why it is maintained.
does it reduce volatility by requiring a larger outlay to participate? (a sort of requirement to put more skin in the game). if so, does its elimination increase systemic risk? does it mean that every stock becomes a penny stock- subject to unpredictable price moves as a result of cheap speculation?
Yes. Absolutely. It also makes it less appealing to retail investors. Eg. Berkshire Hathaway A stock is 431,536.38 at time of writing. Amazon is 3,608.66, Apple is 163.27. Apple is supposedly the most popular consumer-held stock. It also makes it harder to use derivative products. eg. Options require buying/selling 100x shares, so Berkshire Hathaway would literally require millions of dollars for one option contract. That surely impacts trade volume.
> Does [fractional shares] mean that every stock becomes a penny stock- subject to unpredictable price moves as a result of cheap speculation?
Yes and no. Not all companies are available as fractions. Also, the Robinhood investor who is day trading from his phone at work is probably using fractional and driving price movements (eg. GME), but the day trading full time investor class is not using fractional shares nearly as much. A lot of more professional-focused platforms either don't allow fractions (or don't for pro users), or don't make full features available. Eg. IBKR is a common platform for Algo trading and their api doesn't allow fractional shares (but their manual GUI with app allows it).
This is likely due to technical and liquidity reasons as much as pragmatic ones. When a fractional share is available, that basically means the broker owns the shares, and gives you partial ownership. They need to basically own n+1 across their platform for all users (round up). If you're doing large trading volumes, that's impractical to keep up with on their end - especially if you quickly buy a lot and sell back.
> does it mean that every stock becomes a penny stock
Just to repeat, usually brokers only support the most popular stocks as fractional, which already have high volume. This means it may not have a huge impact on the system - but that's just speculation, i don't know if it has had an impact on the stocks like you suggest.
There is no causal relationship between nominal price and volatility. There are correlations between price and volatility, but it's that cheap stocks (such as those below 5 dollars) are usually much more volatile than expensive ones.
The same goes for liquidity, there is also no causal relationship between nominal price and liquidity.
You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A which trades at ~300,000 dollars with BRK-B which trades at ~200 dollars:
https://finance.yahoo.com/chart/BRK-B#eyJpbnRlcnZhbCI6IndlZW...
As a quant it would be nice of this property didn't hold, would be an easy arbitrage... but alas no such arbitrage opportunity is readily available.
I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity.
I think a better test would be to compare a single ticker before and after a split.
agree. what couples their prices is actually a bit of a mystery to me though, conversions from class a to class b are non-taxable so that keeps class b from mispricing above class a, but i think if you want to go from b to a you have to sell and then buy on the open market which then means that the misprice would have to be greater than any cap gains plus trading costs for an amount equal to one share of class a, which seems like, a lot.
skimming the internet sure makes it sound like splits are associated with increased volatility and reverse splits are associated with decreased volatility, which seems to check out a bit with respect to the idea of increased or decreased minimum bets on the options markets.
Tax is a percentage of the profit or loss. At the time-scale you're talking, it would be ordinary income rates.
If the difference between what you pay and what you get is $100 (after expenses), you pay taxes on $100, no matter how much you paid. Yup, even if you paid $10M and received $10M+$100.
But all of these cartoonists were good at their job _because_ of WW2 propaganda cartoons. US Government practically bankrolled Disney (and other cartooning groups) to ensure we had unity throughout the War.
What changed is politics. We're no longer in a World War nor a Cold War... and propaganda techniques such as this cartoon are now frowned upon.
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This is "good propaganda" though. I think our country needs more of it these days. But it'd be a difficult political battle to get people used to propaganda again, especially because there's no communist threat anymore for us to point to.
If we were to ask the US Government to spend $50 million bucks making a similar production cartoon today on a variety of US-subjects (imagine an up-to-date version of this cartoon on the modern Stock Market), can you imagine how many people would be pissed off?
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In any case, as US Government propaganda money dried up from the post-war period (1960s), the quality of cartoons dropped down. People still agreed upon the commissioning of educational cartoons for children (ex: School House Rock), but not upon educational cartoons for adults.
> Was it Hanna-Barbera and how they commoditized animation?
Hanna Barbera needed to commoditize animation to save money. With less money flowing into the industry from the post-war period (much less propaganda being made), the quality of cartoons suffered.
[1]. https://www.popsci.com/why-nasa-helped-ridley-scott-create-m...
[2]. https://www.wired.com/2009/12/americas-army-budget
[3]. https://www.washingtonpost.com/news/early-lead/wp/2015/11/04...
https://en.wikipedia.org/wiki/Walt_Disney%27s_World_War_II_p...
>> During World War II, Disney made films for every branch of the United States Armed Forces and government.[13][14] This was accomplished through the use of animated graphics by means of expediting the intelligent mobilization of servicemen and civilians for the cause of the war. Over 90% of Disney employees were devoted to the production of training and propaganda films for the government.[13] Throughout the duration of the war, Disney produced over 400,000 feet of educational war films, most at cost, which is equal to 68 hours of continuous films. In 1943 alone, 204,000 feet of film was produced.[11]
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This is _JUST_ the cartoon propaganda. There's also posters, commercials, movies, documentaries, etc. etc.
We don't do this today because we're no longer at a major war between world powers, and too much propaganda is probably bad for our brains and ability to think for ourselves.
It was a different time that called for different measures.
One minor quibble (which I don't think diminishes your main point at all):
> We're no longer in a World War nor a Cold War...
I don't think that's 100% correct. My impression is that PRC is waging a cold war against the U.S., but the U.S. government hasn't accepted that yet.
I'm certainly no expert on the matter, though. I'd be very grateful for any correction.
China is trying to rival us economically, and at best is aiming to maybe increase its sphere of influence out into the Pacific Ocean a bit. But back in the Cold War, Capitalists and Communists were splitting the entire world into two spheres... a communist sphere and a capitalist sphere.
China isn't trying to spread its breed of nationalism across the world. Sure, its picking up African influence and Asian influence, but not quite in the same manner as NATO or Warsaw was picking up influence back then. If the influence is "just" economic influence, I wouldn't really worry too much.
Unfortunately, there's a degree of "hot" war and saber-rattling going on that I find dangerous. Its very different from the Cold War: its entirely focused on Chinese interests and not so much a battle of ideologies around the world.
I agree that it's unlike the actual Cold War in several important ways:
- The two sides aren't engaging each other via proxy wars, e.g. Vietnam.
- The two sides haven't formed clear multi-national alliances, i.e. NATO vs. Warsaw.
Things that do strike me as similarities:
- Like the USSR, China's mood appears expansionistic. E.g., South China Sea, Taiwan, and (arguably?) Tibet.
- Like the USSR, Russia also seems expansionstic. E.g., Georgia and (maybe) Ukraine.
- Maybe less relevant, but China and Russia are to some extent authoritarian (removal of presidential term limits) and seemingly use state-sanctioned violence to suppress political opposition. So as with the Cold War, there's some degree of ideological divide between the two sides.