Chapter 17

Monday, July 2, 1894

By the time Malik and Peng returned from lunch at home, Pete Pottinger and Arnie Yeats were already in Castillo’s office.

“Sorry,” Malik said. “We noticed a cracked hub on the buggy just as we were leaving.”

“One of our buggies?” Pottinger asked.

“Yeah, but I’m pretty sure it cracked when we hit a pot hole on Third as we were headed home.”

“That’s getting to be a real problem. What’s going on with the public works department?” Arnie grumbled. “There’s cobbles missing all over downtown.”

Shifting slightly in his chair, Pottinger said to Yeats, “It was all that rain we had last month. The water collected wherever there was a low spot and it softened the substructure. I think the city’s been working hard to catch up with it, but there’s been a lot of damage.” Then he looked toward Malik. “So, what did you do about the hub, Emil?”

“I just put a few windings of heavy cord around it and took it easy coming back. I pointed it out to Billy when we got here.” Billy Clarke was the head hostler for the Kanzona headquarters.

“Lucky you noticed it,” Pottinger said.

Malik chuckled. “Credit for that goes to my daughter. Aspen saw it and said it didn’t look right.”

“Ah,” Pottinger said, “a budding engineer.” He looked around at the others and asked, “So, what’s this meeting about?”

“Yes, Raul, what’s on your mind?” Malik asked. He had joined Pottinger and Yeats, taking one of the guest chairs in front of Castillo’s desk. Peng had seated herself in a straight-backed chair near the wall.

Castillo turned to her and said, “Yan, would you take notes, please? Not so much as minutes, but more to record ideas we may suggest. You can move that chair up to the end of my desk, if that would suit you,” which is what she did.

Castillo, in his suit coat, as always, leaned forward, his hands folded on the desktop, briefly studying each of the others. Seemingly satisfied with his audience, he said, “Just as we prepared for the current financial crisis in which the country, even much of the world, now finds itself, we should likewise prepare for the return to prosperity which will inevitably follow.”

“Whoa,” Pottinger exclaimed. “That’s nowhere close to what I thought you might want to talk about. I thought maybe it was about that Battle Brothers business.”

“I will get to that later.”

“So you really see a light at the end of the tunnel?” Yeats asked. “Is this depression about over?”

Castillo frowned, “No, I am not saying that, not at all. Whether we see the light or not, believe me, it is there. It always is, and we will eventually reach it, sooner or later. Arnie, the important thing to recognize is that the record of such events clearly demonstrates that our economy has a recurrent pattern. To put it simply, boom follows bust follows boom follows bust, and so on and so on, though not to the quick cadence that might suggest. The booms grow slowly at first and the busts happen as rapidly as we are now undergoing.” Castillo shrugged, then went on.

“Our problem, that is, our society’s problem, is that we are short-sighted as a race and we always assume that the current set of circumstances is permanent.” He chuckled, darkly. “It seems likely to me that, if man had not invented the calendar, we would forget that our climate is seasonal.” He shook his head in apparent disappointment.

His demeanor, so focused the moment before, now turned contemplative. “I have sometimes wondered if the lack of seasonal change in the tropics may be a reason that those cultures who live there depend less on technology than we do, in our more varied clime.”

Then Castillo seemed to shake that off and returned to his former intensity. “But that is neither here nor there. My point is that, experience teaches us that our financial patterns recur in a cycle of prosperity and poverty, in relative terms. The remarkable fact is that the real wealth of the nation is actually fairly stable, if given to overall growth.

“Keep in mind that, when a bust occurs, no factories have been destroyed, no cities burned, no farmland salted, no railroads demolished, no precious metals dumped into the ocean’s depths. Every item of a physical nature is exactly the same as the day before. The only thing different is that, as a group, we humans have decided that, what was worth our while yesterday is no longer worth our while today. The real wealth of the nation persists, we just see it as less worthy.”

Yeats looked skeptical. “You’re telling me that everyone in the nation changes their mind all at once? Don’t give me that.”

“No not everyone, nor exactly all at once. But the majority of investors do, followed by the majority of people who keep their money in banks. The process might takes days or, more likely, weeks, but there is a reason it is often referred to as a panic. Once someone begins running in fright, it is very difficult, nigh impossible, to interrupt that headlong flight by means of reasoning or other non-coercive approach.”

“And what do you suggest people are supposed to be so afraid of?” Yeats persisted.

“Of themselves, Arnie, of themselves. They suddenly fear that their own opinion might have attributed too much value to the real wealth of the nation. Moreover, that is actually the fact of it. We can see that over-valuation at work in the actions of so many railroads that helped plunge us into this quagmire. They seriously overextended their fiscal wherewithal in the misguided belief that they could expand ad infinitum, as if the continent itself did not have actual oceanic limits.

“However, at some point, it is likely that an astute member of a some bank’s loan committee noticed that there actually were limits, and that those limits had been exceeded. And so a railroad was refused an additional loan. Word got out to other banks and, within a few weeks, no railroad could get a loan.

“Instead, sensing that they are on uncertain ground, some banks begin calling in their paper. The railroads, overextended as they are, have insufficient cash to satisfy the banks’ demands, thus decapitalizing the banks. The people hear that the banks are short of cash and that starts a run on the banks. Of course, this is a simplification, but it illustrates the process.”

“And the return to prosperity?” Pottinger inquired.

“Like that anonymous banker who first noticed the over-expansion of the railroad, there will be those who notice that all of the country’s major business assets are still there, and that many of those assets may be available for purchase or investment at bargain basement prices. I simply want us to be among those first buyers and investors. That is what I wish to discuss here, today.”

“You’re kidding,” Arnie groused. “We are facing another round of either pay cuts or work force reduction, and you want to talk about investing?”

“Let’s hear him out, Arnie,” Malik said. “Remember, he’s the one that has kept us solvent while so many other roads have been forced into receivership.”

Abashed, Yeats said, “Yeah, I apologize, Raul. It was the wedding that got me to worrying about Dixie’s and Frank’s future.”

“Go ahead, Raul,” Malik encouraged.

“I was not offended, Arnie.” Castillo assured the marketing manager. “You raised legitimate concerns. Truth be told, we have chosen to swim against the current in these difficulties, so a degree of unease is to be expected.

“What I want to suggest is something I have been thinking about for several weeks. However, what with recent events -- the problems on the Medicine Bow and on the Kansas Southern Divisions and then Dixie’s wedding -- it had slipped my mind. But we received a settlement offer from Battle brothers yesterday, and my interest was rekindled.”

Malik asked, “Do you plan to tell us about the offer?”

“Immediately, in fact. The Battle brothers have offered us their River City Shipping business, lock, stock, and barrel, in lieu of a cash settlement.”

“What’s it worth?” Arnie demanded.

With a neutral tone and expression, Castillo said, “Right now it is worth about eighty percent of the amount in our suit. In a few years, it could easily be worth, conservatively, four or five times that amount.”

“So are we going to sell it?”

Castillo smiled. “That is the question, Arnie, is it not? Do we grab for the ready cash, or do we build for the anticipated prosperity of a few years hence?” The others were quietly thoughtful.

Castillo added, “The matter of relative revenue value is not the only question demanding resolution. Another matter we must decide is, what is our business? Are we a railroad company, or are we a transportation company?”

That introduced a long moment of silent contemplation.

Then Pottinger muttered, “Damn, I wish Ming wase here.”

“You and me both,” Malik agreed. “When do we have to answer them, Raul?”

“By the end of July. They are allowing us sufficient time to inspect the assets.”

“Oh, wow,” Pottinger said. “Who are we going to get to do that? What I know about boats wouldn’t fill a shot glass.”

Malik said, “What about Langfelder and Ducey Engineering? They’re in Saint Louis. If they don’t provide that sort of service themselves, I’ll bet they know some outfit that does.”

“Yeah, I reckon you’re right, Emil,” Pottinger allowed. “They’re a pretty straightforward bunch. I’d have no problem following their advice.”

“So what is your preference, gentleman?” Castillo probed.

Yeats said, “I’m in the same boat with Pete, so to speak. What I know about river freighting would leave us all high and dry.”

“Nice, Arnie,” Malik said. “You really made that boat metaphor work for you. If it had been Raul, he’d have said what he knew would fit on the head of a pin, or something.”

“Au contraire, mon ami (French: On the contrary, my friend). I would have said the subject left me all at sea.”

“Yeah, right,” Malik scoffed.

Then he turned to Pottinger and Yeats. “So, are you two saying you think we should sell River City then?”

Pottinger said, “Not at all. But I’d like to find out if they’re offering us a white elephant, first. As far as Raul’s other question, about the nature of our business, I think I’m going to pass that back to you, Emil. The reason Ming handed you the reins to this buggy is because he respected your vision of the future. I don’t mean to unload the burden on you, but it’s like with Langfelder and Ducey, I respect their opinion. They’ve never steered us wrong. Same with you, Emil. Tell us what you think and, unless it’s totally insane, then I’m on board.”

Yeats was nodding. “Pete’s right, Emil. If you recommend something, and we agree to it, then we’ll back your play through thick and thin.”

“Oh. That’s good to hear, fellas. I appreciate it, ‘cause I was about to suggest I get a raise.”

Pottinger said, “Uh, remember that I mentioned an exception for insane ideas?”

“Well, it was worth a try,” Malik rejoined. Becoming serious, once more, he turned to Castillo. “Raul, how do you see this?”

“None of us have any experience with river shipping,” Castillo said. “Its customs, equipment, work force, customer base, cargo, passengers, pricing, as well as the effect of seasonal river fluctuations are all unknowns.”

“So you’re in favor of keeping it?”

Castillo looked at Malik with and incredulous expression. “I did not say that.”

“Yeah, I know,” Malik said. “But you always present the arguments against what you really want to do. Then I argue the opposite, and so it appears as if I’ve talked you into it. But not this time. Thus is too important. It needs to be addressed directly.

“Fact is, I reckon I’m in favor of adding a river shipping division, but this is a really big leap for us. I don’t mean to minimize that aspect. And it’s obvious we’re going to have to find someone exceptional to run it. In any event, the first thing we need to do is have the books audited and the equipment checked out. I reckon we can use our auditors, but we should probably ask Langfelder and Ducey about the rest.”

Pottinger said, “Whoever ends up doing that, I’d want Quincy, Tsosie, and Raven to be on hand to understand what it’s about. And we’d probably need to add one or more marine engineers to the staff. I know that hiring someone good is a problem for our finances, but we can’t just wander in blindly.”

“No,” Castillo said. “What we should do is incorporate this separately, as we did the former Oglala Division. Then we can treat its employees and whatever else under a separate set of policies. But, before we get into too much detail, we still have not touched on the reason I asked to speak with you.”

“This wasn’t to be about the Battle brothers?” Yeats asked. “Then why did you bring them up.”

“As an example of planning for a more prosperous future,” Castillo replied.

“Go ahead, Raul.” Malik said. “What’s on your mind?”

“To put it into that nutshell you mentioned earlier, I want to talk about Investing in the future.”

“I’m all ears, Raul,” Pottinger assured him.

“The future’s what’s had me worried,” Yeats admitted.

“Fine, then,” Castillo said.

“It occurred to me, a few weeks ago, that all of us gave up our salaries when we entered this crisis because we could afford to. As I reflected further, I realized that we could do so because, thanks largely to the wisdom of Chen Ming-teh, we were all, to a greater or lesser degree, wealthy. Each of us possesses a reserve of cash, mostly in the form of gold ingots, sufficient for the rest of our lives, several times over, if that life were lived economically.

“With that in mind, I began a correspondence with Judah Deering, vice-president of the Isabella Valley Home Savings Association in Waypoint. I had met him when he assisted in our business advisory consulting as we sought to help prepare local businesses on our divisions for the depression. Though a young man, he impressed me with his knowledge and foresight.”

“I can vouch for him,” Malik added. “In some ways, Judah Deering reminds me of Emmet Quincy. Though they work in different fields, Judah displays that same sort of intelligent enthusiasm. I know his father, too. He was my faculty advisor at law school, another very able man.”

“That is a good characterization, Emil. Thank you,” Castillo said.

“With that said, in my correspondence with Mister Deering, I introduced the topic of anticipating the return to prosperity. As it happens, he was aware of a number of individuals and groups in Jackson County who also had gold reserves, mostly the result of the silver mining that went on in the western part of the county over the past eight or nine years. But some others, like Emil’s brother, Andy, and their business partner, Missus Matilda Tsosie, have had other lucrative business interests besides the consortium-owned sliver mine.

“In conjunction with Mister Deering, we estimate, from simple inquiries or the common knowledge to which we were privy, that those we have indicated, including yourselves, control liquid financial assets of between fifteen and eighteen million dollars.”

“Wow!” Pottinger exclaimed. “But what do you mean by ‘liquid financial assets’?”

“Liquid means that the assets are already in the form of cash or are readily convertible to cash, such as is the case with gold. A non-liquid asset would be something like your house or other real estate. Though it might be sold and converted to cash, that process usually takes longer and may present the possibility of a disadvantageous sale at the time the cash is required.”

“Okay,” Pottinger said, nodding, “Thanks. I’d not heard that term before.”

Castillo smiled. “Nor had I, until I encountered it recently in an article in the Wall Street Journal.”

Malik asked, “So, what’s your notion about all these liquid assets, Raul?”

“An investment trust, with the purpose of investing in short-term projects with an expected return within one to five years. We would bring all interested parties together and suggest that they contribute up to half of their liquid assets and elect a board of trustees to find worthy investments.”

“What sort of investments?” Pottinger asked. “Can you give some examples?”

“Certainly. Are you familiar with Wichita Metal Castings? It is the foundry at which Moira Daley’s husband was employed, before it closed.” At Pottinger’s nod, Castillo went on. “They had an excellent reputation and, barring further complications, I would anticipate their reopening within a few years, as the economy recovers.

“Let us assume a company of that type and reputation had an opportunity to expand, adding more furnaces, perhaps relocating to larger facilities, perhaps just requiring the wherewithal to reopen their doors sooner rather than later. They need capital to facilitate those purposes. However, what few banks that will be open, after last year’s panic, will be very reluctant to risk their depositors’ cash.

This investment trust, on the other hand, would actively seek such opportunities. Its staff would investigate the circumstances of those opportunities. Its trustees would assess that information and, if deemed appropriate, make an offer. But, rather than a loan, it would invest in the business, buying a defined share, with a provision that the business must buy that share back, at then current value, in, say, five years. The trust’s return would be based on the success of that business rather than on the interest on a loan. In the meanwhile, the trust would share in the profits.

“Another example might be to purchase stock in a business: railroad stock, for example. Such stocks are a bargain now, while the market is depressed, and could be sold four or five years from now, when the economy has improved.

“Those would be the most common types of investment, but the trustees would be interested in finding likely prospects of practically any type. The key would be in the gathering and assessment of information. It might even occur that the trust, itself, would instigate the actions that would require financing, encouraging a business to take advantage of an opportunity.”