Holy Roman Empire-Chapter 1002 - 16, Painfully Cutting Losses

Chapter 1002: Chapter 16, Painfully Cutting Losses

The government’s method of stimulating the economy may have been somewhat crude, but its simplicity and effectiveness prevailed. As soon as the Vienna Government announced the “Ring Railway” plan, the market reacted.

On April 26, 1894, when the Vienna Stock Market opened, the construction sector surged ahead by opening 7 points higher, at one point even breaking through the 20-point barrier, finally closing with an increase of 11.6% in the sector.

Related sectors like steel, cement, construction machinery, and banking also followed suit with rebounds.

As a result, the Vienna Stock Market rebounded by 3.62%, marking the largest rebound since the onset of the stock crash.

But there was no follow-up. Ever since the crash began, the Vienna Stock Market had been on a downward trend, with the worst decline reaching 74.3% from its peak, even the rebound only recovered to 30% of the peak values.

With the market plunging so dramatically, one can only imagine the extent to which market confidence collapsed. There was no helping it, the free-market economy is just that capricious.

Relatively speaking, the construction and steel sector fared better. As a mature industry, the market’s ceiling was clear for all to see, inherently boasting lower valuations, and with the support of large post-war reconstruction projects, it naturally couldn’t fall too far.

After this rebound, it mostly regained three-quarters of its peak value, barely managing to emerge from the crisis.

The real disaster zone of the crash was actually in the emerging tech industries, which, lacking solid performance to back them, propped up their market value on just “good stories,” and once the bubble was pricked, they fell so hard they were unrecognizable.

Luckily, Franz had disguised himself well, otherwise he wouldn’t dare to show his face right now. Technological progress truly comes at a cost, and relying solely on individual effort was simply too paltry.

In order to accelerate the Empire’s technological development, Franz resolutely chose to have companies go public for fundraising. Scientific research always required luck, which is why there were often multiple research groups for one project.

Shearing a single sheep was terribly inefficient and clearly didn’t meet the needs. But this didn’t trouble Franz, especially since there was no internet around those days, repeating a story several times was of no consequence.

From Vienna to London, in every significant financial market in Europe, there were tech companies publicly listed by the Royal Consortium. Had the overseas markets been more mature, they probably would have turned the five continents into pastures.

Although the shearing may have been harsh, compared to his peers, Franz was definitely a conscientious entrepreneur.

Unlike the winner-takes-all high-tech landscape of the future, the industry was just starting out. Just passing one milestone on the track could establish a “great company.”

The only pity was the success rate, which was ever so slightly low. In the past thirty years, the Royal Consortium had invested in more than two thousand tech companies going public. A quarter of these had gone bankrupt, seventy percent were still struggling, and only less than five percent were thriving.

Looking at the data, the pitfalls of these high-tech projects were evident. It couldn’t be helped; after all, Franz had been an academic underachiever in his previous life.

Many times, the conception of a project was nothing more than a spur-of-the-moment idea from the Emperor. There was no specific technology involved, and most of the time not even a concept, only the functional requirements were defined.

For instance, a refrigerator that could keep food cold, an air conditioner that could cool and heat, a television set that could play videos, and the unfathomable computer…

A series of “high-tech” projects were proposed by Franz regardless of how far ahead they were of their time, leaving it to scientists to evaluate them. When they couldn’t find a starting point or figure out how to begin, they just packaged the idea and took it public for financing.

Every story is a good one, after all. Every family needs a machine to store food cold, and a machine that can adjust indoor temperatures has enormous market potential.

As to whether or not these can be developed, and when they might be achieved?

Sorry, this is the sacred pursuit of scientific research. As long as it can theoretically be realized, and the story told convinces investors, that’s sufficient.

The ultimate outcome was very clear, the more advanced the project, the more tragically it failed. Only a very few lucky ones managed to stand out. Moreover, a large part of these companies strayed off course, accidentally creating by-products that turned profitable.

For instance, they didn’t produce a refrigerator, but instead made a breakthrough in cold storage technology; they couldn’t make a television, but a movie projector came first; air conditioning was nowhere to be seen, yet fan technology was improved…

The lucky ones were always the minority. The vast majority of companies didn’t achieve a technological breakthrough in their main business or success in a side venture, and could only survive by constantly raising funds.

It was better before the stock market crash. With successful examples to stir them, investors were relatively lenient toward high-tech enterprises. Many capital consortiums were lured and jumped into the pit.

After all, high-tech enterprises created by the Royal Consortium indeed conducted scientific research. Their financial accounts were clear and transparent. Aside from not making a profit, they were truly conscientious businesses.

After the stock market crash, the true nature of things became blatantly obvious. Suddenly, everyone realized what kind of companies they had invested in.

Huge sums of money had been poured into these companies, which for several years, or even decades, had not turned a profit or were merely maintaining minimal profits. What were they if not garbage?

If it were just that, it could be forgone, as a series of specialized technologies still existed, perhaps one day to be utilized. But the valuation of these companies was outrageously high, with price-to-earnings ratios in the hundreds, nothing but a bubble.

In fact, these unprofitable enterprises weren’t losses, they were intentionally manipulated by the Royal Consortium. Using other fronts allowed these companies to earn some income on side ventures.

It was only when the hole became too big to patch, or when the research and development team was truly incompetent, that they’d be abandoned and left to go bankrupt.

This month a patent, in a few months another technological breakthrough. The market’s confidence was continuously stimulated by an endless stream of positive news. The enterprises’ financing grew more and more, and their market value kept inflating.

If not for the stock market crash, this game of hot potato could have continued indefinitely. Until one day, a technological breakthrough occurred, leading to another story.

Unfortunately, reality doesn’t deal in “ifs,” and now, with the bubble burst, those companies without performance to support them naturally plummeted.

A “halving” followed by another “halving” was just the treatment for the successful five percent. The overall decline in the tech sector was upwards of eighty percent, with some individual stocks even plummeting by ninety-nine point nine percent.

If wealth was calculated by market value, after the stock market crash, Franz’s paper wealth had evaporated by at least Eighty Billion Divine Shield, more than the total annual fiscal revenue of all the countries in the world combined.

The bubble he had blown up had to be swallowed by him as a bitter fruit. Of course, this was only on the surface. A deeper investigation would reveal that since the outbreak of war in Europe, the major shareholders of these companies had begun to sell off their shares.

A major shareholder remained a major shareholder, and the portion of shares sold was only a small part of their holdings. Yet, that small part could now buy the entire company.

Franz, though he had reaped considerable profits, now found no joy in his success. In the past, he was fleecing others, using their money to finance research—naturally, it didn’t hurt to burn through funds that weren’t his own.

But now, the situation was different; the market had no financing available, and these proud high-tech enterprises were on the brink of bankruptcy, about to collapse in his hands.

Franz had only two choices laid out before him: either inject his own capital to rescue these companies, or act decisively and dispose of these gold-guzzling beasts.

Without a doubt, neither option was appealing. “Investing” sounded simple, but in practice, it was a tearful affair.

Keep in mind that this wasn’t just one or two companies, but thousands needing money. Even with Franz’s considerable personal wealth, such reckless spending could not be sustained.

“Acting decisively” would indeed incur no short-term losses, but it meant that all his previous efforts were wasted. Moreover, after this lesson, it would not be so easy to spin tales and fleece others in the future.

There was no way out, the stock market crash came too swiftly, and as a major shareholder, he simply could not escape. Even more tragically, during the crash, Franz, out of conscience, missed shorting his own industry.

A single mistake led to eternal regret. Franz, who had missed out on many billions, suddenly found himself a pauper.

After much hesitation, a resigned Franz said, “Prime Minister, find someone to carefully sift through and declare bankruptcy for all the companies that are seriously in the red and show no results.

For the remaining companies, we must also cut expenses, reduce research funding, and develop as many profitable side ventures as possible.

The Royal Consortium will, within its capabilities, covertly support these enterprises. As a principle, we prioritize saving our domestic companies first; as for those overseas, abandon them if we must.

Also, send someone to gradually buy up shares of quality domestic enterprises on the secondary market. The bottom isn’t far now; we should soon see a rebound.”

The stock market, once the bubble had burst, was a mess. Compared to the valuations before the crash, which were often dozens or even hundreds of times higher, the current valuations, merely several times as high, seemed much more reasonable.

By acting decisively, cutting some deeply indebted companies, Franz’s heart bled as he urgently needed to bottom-fish some quality assets to replenish his holdings.

Prime Minister Mirabelon advised, “Your Majesty, the economic crisis is nearing its end. If we engage in widespread bankruptcy liquidations now, our losses will be immense.

It would be better to let these enterprises transform. When necessary, the consortium can help them to boost performance and share prices, and find an opportunity to pass them off to someone else.”

Indeed, this was why the consortium favored playing the financial markets. Running real businesses yielded slow returns, not to mention heavy losses in an economic crisis.

By comparison, playing the financial markets was much easier. An “economic crisis” not only presented “danger” but also “opportunity.”

For the average citizen and business, it was a disastrous crisis, but for the financial consortium, it was a great opportunity.

During a crisis, they could short sell; after a crisis, they could buy low; and after the recovery, they could sell the assets they had acquired and wait for the next cycle of crisis to play again.

In the capitalist world, an economic crisis every dozen years or so, while serving as the market’s self-regulation, also signaled that those behind the scenes saw ripe fruit ready to harvest.

Otherwise, with such evident signs before the outbreak of a major economic crisis, how could everyone have failed to notice?

Franz shook his head, “I think you’ve misunderstood. This economic crisis won’t be over so easily. Although we’re nearing the bottom, the end is still far away.

The most optimistic estimate is that the Empire won’t shake off the Great Depression until next year. As for other countries, it will depend on their individual circumstances. To fully emerge from the crisis, it will take at least two years or more.

The time needed for the market to regain confidence and find new buyers will be even longer. If we don’t shut down these heavily loss-making enterprises, our losses will continue to grow.”

Unlike before, this economic crisis had been artificially delayed. Following the normal trajectory of capitalist world economic development, signs of an economic crisis had appeared three years ago, initially in France.

Had it not been for the outbreak of war on the European Continent, the French would have been the first to implode. Perhaps it was the realization of the gravity of the crisis that prompted them to choose war before the bubble burst.

While the war diverted attention from the crisis, it also fermented a new one. If the Continental War had ended and the crisis been allowed to erupt, perhaps it would’ve been weathered within a year or so.

Sadly, for their own interests, the Anglo-Austrian governments took steps to delay the crisis, artificially extending the bull market by more than a year, doubling the market once more and inflating the bubble to unimaginable proportions.

The bigger the bubble, the more devastating the destruction after it burst, with the Vienna Stock Market evaporating three-quarters of its value. Other financial markets were similarly affected, with impacts far exceeding those of previous economic crises.

Hearing this dire news, Mirabelon’s face turned ashen. A Great Depression lasting over two years was as destructive as the revolution of 1848.

If the Holy Roman Empire couldn’t lead the way out and drive global economic recovery, there was a real possibility that the European Continent could see a repeat of the revolutions of 1848.

In some ways, the European world of today was even more ripe for revolution than in 1848.

Unemployment sweeping across many nations, deteriorating economic conditions, complex international conflicts, and hatred between European countries—all were breeding grounds for revolutionary ideas.

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The French, unwilling to accept defeat, Spain mired in the quagmire of the Philippine War, Portugal, where the Monarchist and Republican factions were at each other’s throats, and the recently independent but still unstable Italian States—all had the foundations for revolutionary outbursts.

The Holy Roman Empire, appearing formidable as the new superpower, was actually at a crossroads. Should a wave of revolution erupt across the Continent, the Vienna Government would face serious troubles.

Especially with a Britannia lurking in the shadows, eager to cause trouble; and a seemingly curbed but still ambitious Tsarist Government.

In this context, if the Royal Consortium didn’t swiftly and painfully cut its losses, there might not even be a chance to do so later.