# The New York Times/1929/10/24/Says Stock Slump is Only Temporary

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SAYS STOCK SLUMP IS ONLY TEMPORARY
Professor Fisher Tells Capital Bankers Market Rise Since War Has Been Justified.
ECONOMIC REASONS CITED
{{c|"Public Speculative Mania," He Declares, Is Least Important Cause of Price Inflation.
Special to The New York Times.
WASHINGTON, Oct. 23.—Fears that the price level of stocks might go down to where it was in 1923 or earlier, engendered by recent breaks in the market value of securities, are not justified by present economic conditions, Professor Irving Fisher, Professor of Economics at Yale University, said this evening in an address before the District of Columbia Bankers Association. He repeated his recent statement that security values in most instances were not inflated to the extent which some commentators have asserted.
Professor Fisher classed the "public speculative mania" as the least important of a dozen causes for the enhancement of security values witnessed in the upward movement of stocks for three years preceding the present bear market.
He gave as one reason why security values were high, "that we are living in the age of mergers under the Coolidge and Hoover Administrations and the old 'trust-busting' sentiment has lapsed almost completely, as is shown by the inability of the opponents of these administrations to get the public excited on the subject."
"These mergers," he declared, "have effected great economies and have therefore increased the profits of corporations to a great extent. Every merger boosts the stock of the merged companies because of this expectation. A considerable part of the rise in stock prices in the last two years has been due to the increased rate of formation of these mergers and the anticipation of future economies arising from them."
Assails Market's "Lunatic Fringe."
Professor Fisher said he did not see how a collapse of "60 to 80 points on the Dow-Jones barometer" could be expected, unless it was brought about by shakedowns of from 5 to 12 per cent. followed by recovery.
"These will probably be required," he said, "as thousands of small and inexperienced investors try to scramble aboard the stock market bandwagon from time to time, hanging on by their eyelids, that is, inadequate margins and lacking needed specific knowledge of the stock they thus overbuy. It seems impossible ever to shake the market entirely free from this lunatic fringe of reckless speculation."
In the face of the bad break in the market today Professor Fisher argued that the smash would be followed by a recovery, based upon the changed economic conditions which enhanced the value of common stocks in the eyes of investors.
"We may summarize," he said, "by saying that the stock market rose after the war above the pre-war level by from 50 to 100 per cent because of war inflation, and that since then it has doubled because of increasing prosperity from less unstable money, new mergers, new scientific management and the new labor policy of waste saving."
Puts Prohibition Among Causes.
He added to these causes "new inventions, prohibition, the magnification of effects of all the preceding causes to the extent that bonds and other senior securities do not share in the increased earnings; investors new confidence in common stocks through diversification, through investment trusts, investment managers and mergers; the investor's recent loss of confidence in bonds because, being in terms of dollars, they impose on the investor a risk of a loss in the purchasing power of the dollar; an income tax which has been perverted into a capital tax and a public speculative mania. Of these dozen causes the last is in my opinion among the least important."
Professor Fisher characterized tax on gains in the stock market as "this silly taxation system which counts realized capital gain as income."
"A holder of Allied Chemical and Dye stock," he said, "told me he had acquired it at 35 and now would like to sell it at over 300, but avoids doing so because he would be 'soaked' in his income if he shifted the investment to something else. This means stocks which advance the most will not be sold, or sold the more reluctantly, or only on a still greater advance."
Discussing the utilities, which he said had been selling at twenty-five and one-half times their earnings, Professor Fisher said it was asked why the prices of such stocks were so "inflated" as compared with the larger yields of bonds in the same companies.
Stocks Get Benefit of Economies.
"But it should not be forgotten," he continued, "that bonds will not share in future great savings and economies, such as are reasonably expected from the recent mergers in the utilities field. Stocks will get all of these greater earnings, for the bond return is fixed.
"Moreover, should the purchasing power of the dollar diminish, the real return of bonds, both principal and interest—that is, its power to purchase goods—would shrink, while the margin of its shrinkage would be transferred to the increased dividends on stock.
"So if the stock market is now inflated it would be only because the earnings apportioned to the account of stocks, both distributed and undistributed, have not increased or shown any likelihood of increasing in the ratio of the increase of the price level of stocks, but the contrary is the case."
"As to the expectation of future earnings," Professor Fisher said, "one reason why earnings in money have been greater than in 1913, and will be so in the future, keeping the stock price level on a higher plateau, is that the dollar has only two-thirds of its 1913 purchasing power."
Professor Fisher contended that the true measure of the proper height of security values was not of the prices but of the price-earnings ratio.