A Holiday Parable

A free market is an economic system in which prices for goods and services are determined by unrestricted competition between a willing buyer and a willing seller.  The stock and bond markets are examples of free markets where prices for financial securities have been traditionally “discovered.” For many years now the Fed has set interest rates artificially low, which has severely impaired the financial price discovery mechanism.  Artificially low interest rates have driven stock prices to all-time highs, so it seems timely to share a particularly relevant parable that has been told by iconic trader, Art Cashin.

The two main characters of this timeless tale are Charles Lewis Tiffany and John Pierpont Morgan, both of whom were famous free market participants.

Being the astute jeweler that he was, Mr. Tiffany knew that Mr. Morgan had an acute affinity for diamond stickpins. One day, Tiffany came across a particularly unusual and extraordinarily beautiful stickpin. As was the custom of the day, he sent a man around to Morgan’s office with the stickpin elegantly wrapped in a robin’s egg blue gift box with the following note:

My dear Mr. Morgan,

Knowing your exceptional taste in stickpins, I have sent this rare and exquisite piece for your consideration. Due to its rarity, it is priced at $5,000. If you choose to accept it, please send a man to my offices tomorrow with your check for $5,000. If you choose not to accept, you may send your man back with the pin.”

The next day, the Morgan man arrived at Tiffany’s with the same box in new wrapping and a different envelope. In that envelope was a note which read:

Dear Mr. Tiffany,

The pin is truly magnificent. The price of $5,000 may be a bit rich. I have enclosed a check for $4,000. If you choose to accept, send my man back with the box. If not, send back the check and he will leave the box with you.”

Tiffany stared at the check for several minutes. It was indeed a great deal of money. Yet he was sure the pin was worth $5,000. Finally, he said to the man: “You may return the check to Mr. Morgan. My price was firm.” And so, the man took the check and placed the gift-wrapped box on Tiffany’s desk. Tiffany sat for a minute thinking of the check he had returned. He then unwrapped and opened the box to remove the stickpin. When he opened the box he didn’t find the stickpin – but rather a check from Morgan for $5,000 and a note with a single sentence – “JUST CHECKING THE PRICE.” 

Happy Holidays!