Perhaps no other one thing influences the movement of stock prices so much, in a large way, as money conditions. It is impossible to have a big bull market without plenty of money. During a bull market nearly all stocks are bought on margin, which is explained in Chapter XVI. This makes it necessary for brokers to borrow large sums of money. When money is tight, it is impossible to get enough to carry on a large movement in stocks.

You will see, therefore, that the Federal Reserve Bank has it in its power to regulate the stock market to some extent. In 1919 speculation was carried very much further than it should have been, but undoubtedly it would have been much worse had the Federal Reserve Bank not raised interest rates and urged member banks to withdraw money from Wall Street. While there was considerable criticism of that action, it certainly was a good thing for the entire country.

In a period of depression, the banks accumulate money, and there always is an abundance of money at the beginning of a bull market. During a period of prosperity the banks' reserves decrease and their loans increase. When you see these reserves go down to a very low point, it is usually time for you to sell your stocks.