Evening star. [volume] (Washington, D.C.) 1854-1972, 1907-06-02
Financial News Letter
By W. G.. Nicholas.

| NEW YORK, June 1.-The market has
| ftful declines and recoveries, but the
| spectators for the decline seem to be still
very confident and making predictions
| of very much lower prices when the coun-
try begins to feel the effects of turn in
| the commercial tide. The feeling of de-
! spondency that is so evident all through
| the financial district is difficult to analyze.
| Wall street has the blues. Men who have
| been years in the street and have seen
bankrupt railway properties built up into
| prosperous companies shake their heads
| these days and point to the fact that, de-
| spite the great prosperity of the country.
| standard railway and industrial stocks are
| selling lower in proportion to their earn
| ing power than in years. Some stocks are
| cheaper today than they were seven years
\ ago when Wall street was nearly thrown
| into a panic by the free silver campaign
| Conservative interests in Wall street, who
| believe that prices today will seem absurdiy
cheap in another year or so, II not before,
| say that it is idle to expect that we can
| have any permanent rise in prices until
! there is a change in public sentiment Pub
| lie companies, especially the railroads, are
| under attack, and their securities are
scorned now by many people who were
anxious to buy them year or SO ago at
| much higher prices The feeling of de-
spondency in Wall street is in sharp con-
! trast to the cXuberant optimism a little
while ago.
But Wall street always overdoeS things.
| Bull markets are always overdone and
bear markets are always overdone. The
Spectator, who in a bull market starts to
seel stocks when their income return goes
below the money rate usually runs out of
| capital before the turn really comes. Lead
! ing railway stocks in a big bull market
often sell anywhere from twenty to fifty
points-even higher-above what the money
market would designate as normal level.
These high prices are due very largely to
! the fact that the spectators for the rise
| clear up the floating supply of stocks by
purchases made on their own paper profits,
| and deceive themselves as to the real cause
of the high prices. When the reaction
| comes the reverse operation takes place.
| Stocks then go below the normal level and
become cheaper than money, largely be-
| cause the decline in prices impairs private
| fortunes and forces the holders of stocks
| to throw them over to preserve their credit.
| The lower stocks sell the more precarious
| becomes the condition of large holders VINO
have extended their credit on the basis of
the high prices.
The forced liquidation of owners of Sc
curities who can no longer protect them
also induces selling by other holders who
| are frightened by the decline and who
prefer to stand from under until they see
| a change. There always comes a time in
! bull markets when men of large wealth
begin to convert their overpriced securities
| into cash, knowing that they can replace
| them later on lower down. This was the
| kind of selling that started the decline in
| this market last winter. And there always
| comes a time in bear markets when men of
great wealth, who have kept a good part
| of their capital in liquid condition, realize
| that absolute bargains are being offered,
| that the adverse factors have been dis
| counted and that the market is sold out
and who then go in and buy securities. This
| is the kind of buying that we may expect
| to see in the present market before long,
and this buying will mark the turn OF the
| tide. One of the bad features ABOUT the
present market is that some of the wealth.
| lest and shrewdest capitalists in the coun-
| try misjudged public sentiments this WIN
| ter and refused to believe that big de-
cline in the market was possible. 1t Is a
matter Of common knowledge In the street,
for example, that after Union Pacific had
declined $50 from its top price some OF the
| most conservative capitalists connected with
| the property began buying 1t In large
| blocks, believing that the reaction had run
| it's course. They entirely misjudged the
effect Of the government attack on Mr..
Hartman and his properties They beheved
that investment buying in this country and
abroad would protect this stock from any
further decline. But it didn't Ihey were
hung up with something like 100000 shares
Of the stock around $3.50.
~
Values and prices are not adjusted with
any uncomfortable niceness in days like
these. If values and prices always went
| hand in hand there wouldn't be much spec
ulation The game would be tame. In bull
| markets prices run away from values In
| bear markets prices sink far below values.
| In prolonged declines in the market not
| only do prices sink below values but values
| themselves decline. We have had a de-
| cline in value, due to various causes-high
rates for money, confiscatory legislation.
! increased cost of labor and materials, and
| so on. But We have had a much more vio-
lent decline in prices-largely due to the
peculiar cumulative effect of forced liquida-
| ton. The result today is that prices are
| far enough below values to warrant the
assertion that standard American railroad
shares while they may become stu. cheap
er, are now on the bargain table. Here
are some of the bargain table offerings In
dividend ying stocks
Div Income
Rate. Return.
Atlantic Coast Line. ............... Ga
Baltimore and Ohio. ............... 6.3