The Washington herald., 1906-11-29

or the lines are part ana ptrCei OF the
Union Pacific system, without which the
Union Pacific Railroad would hardly be
a system at all, but merely a Western
line Of no great consequence.
With such properties taken away. the
mileage Of Union Pacific would shrink be
low the 1,C00-mile mark, and the gross
earnings, given in the annual report at
upward of S57,C0G000 gross, would fall
correspOndingly. There is much the same
kind Of duplication" OF capitalization
here that a Western lawyer, in his ignQr-
ance Of finance. charged against James j.
Hill and his Great Northern road, and in
both cases some Of the properties bought
could not be sold again without serious
detriment to the lines Of which they have
become part.
After all. il does not seem as if much
that IS new has been disclosed by the
Union Pacific annual report. The income
account is the same as in the preliminary
statement issued last August, except that
.'otber income" Is increased by the
amount of the Southern Pacific dividend
which had not been declared at the time
the earlier report was compiled in the
summer. As for the securities owned.
they are Of the same kind as a year ago.
only that a large portion Of what were
owned then has since been turned into
cash Possibly the company may ulti-
mately invest this cash 20 better advan-
tag1 but taking at par the assertion OF
AIr. Hill that in the past year Great
Northern paid dividends amounting 10 III
per cent. Il will not be easy TO invest
Jhe proceeds of the large amount OF Great
Northern sold in "a way TO get better re-
turn on the investment If the case was
wanted for other purposes than rein
vestment. that is a different matter.
a recognized expert. after estimating
that in the current year Union Pacific
viii possibly earn L per cent on its COM
mon stock, says regarding the so-called
analysis cf the report for the past year:
The extravagant figures Of equities
that have been put into circulation are
misleading when translated into per cent
on stock. These equities whether they
be undisturbed surplus on stock owned
(such as Southern Pacific or abnormal
charges 10 maintenance. can be best re
earded-certainlv in the case Of Union Pa
cific-as buttresses protecting other in
come and net earnings from too sudden
diminuuon in bad times.
The time is not yet in sight when
American railroads can safely divide sur
plus TO the Hit or limit maintenance
charges TO bare upkeep, and liberal mar
gin must be Kept in all but very bad
times. Union Pacific is dividing what
must be considered a very liberal proper
tiOn Of its profits in paying 10 per cent
dividends. although its ability to main
tain this rate would seem to be fairly
well determined in the annual report"
Mr.. HIl, who has frequently said that
he never pays attention to the stock
market, may be excused for his state
ment before the Interstate Commerce
Commission that Great Northern has dis
tributed evidences Of I47 per cent to its
stockholders in the past year, including
I per cent in cash, 40 per cent in stock
rights. and 1l9 per cent in ore certificates.
But he rights never sold at 40, and the
ore certificates never sold at par-though
they did sell at Il However. as Mr..
Hiu never follows the stock market, he
could not know about things, and if the
certificates do not sell at 1OO il is not his
fault, but the stock markets.
Any one in the kindergarten class of
finance should know that when Great
Northern purchased the stocks of the ST.
Paul, Minneapolis, and Manitoba, Wilmar
and Sioux Falls, and Eastern Railway of
the operators did not repre-
sent duplication Of capitalization. To all
intents and purposes il meant the retire
ment of the original stocks and the sub
stitution of another security. an operation
as old as American finance. and in the
abstract was absolutely beyond criticism.
On the grounds that there was a large
short interest III the stock, part at least
Of which could be forced to cover, New
York Central was moved Up sharply. and
not only vas there an appearance of
very fair buying for local account. but
London sent in quite few orders on the
same side. 1t appears that there has
been considerable selling OF the stock
within the past few weeks by large
spectators who bought the rights as a !
hedge.
This meant the creation of a technical |
short interest, which, pending the issue
OF the new stock, makes the market much I
the same as if the sellers had not pre- /
pared themselves with rights, because the /
latter are of no use TO cover contracts /
IN the stock until the new securities are /
issued But it is not against this class I
Ji shorts that the movement has been di- /
'ected. They could take care of themselves /
by borrowing until they receive the new
stock for which they have subscribed, /
and 1t is only those who are short with /
)ut any protection in rights that can be 4
forced to vince by a good, hard squeeze.
The general theory is that after new
stock IS issued the flowing supply becomes /
so great that covering is an easy matter. 4
but the exceptions TO this rule in the past |
seem TO have been rather more important 4
than the rule itself
After a rise of almost ten points. or
nearly 80 per cent in its price within three /
weeks, Missouri. Kansas and Texas be-
gan to show signs that for the present |
he movement was over. This was very
natural and in entire accord with prece-
ient IN such cases. Little doubt is now
-elt in any quarters that Missouri, Kan
as and Texas has been absorbed in guam