The Washington herald., 1912-07-27
THE COUPON AND
THE COST OF LIVING.

Copyright 1872 by C. VI. KEYS. New Yort)
The other day a stranger from a small
town In New York State visited a bank
ing house in New York with which he
had been doing business from time TO
time for the past twenty years. The oc-
casion for his visit was the desire to go
over the list Of everything he owned in
an investment way and see whether it
was wise to make any changes This de-
sire had been stirred up by the fact that
he had found his income from invest
ments not sufficient to meet his expenses
this year unless he cut down on some OF
the necessities OF life.
As he went over the list the banker
told him about his various securities. He
came to an item Of si.Go0. New York
Central first mortgage 3ls per cent bonds
due in 1897. which he had bought in 1899.
The banker said, reading from his list:
They sold yesterday at ST.
The customer glanced at his list and
said:
1T cost me I3. What is the matter
with that bond?''
The banker found himself in for long
explanation. He showed how in 1899 the
prices Of all bonds were abnormally high
because the cost of living was low and,
therefore. the Sa5 OF annual income which
the buyer got from this particular bond
would buy a great deal of the necessities
OF life At the present time, on the con-
trary. the cost Of living is very high and
the purchasing power OF this s35 is very
much less. Therefore. of course. the
value of the bond is very mrch less be-
cause. after all, the price OF bonds or of
any other form of income producing prop
erty depends in the long run upon how
much food or clothing the interest or
dividend will buy.
The customer listened patiently and
finally got TO understand this simple fact
He was very much reassured TO find that
there was nothing intrinsically wrong
with his bond but that he was suffering
from n general malady rather than from
a particular complaint He was also in
terest"d TO observe that the very thing
that had brought him into New York
TO consult, namely. his inability TO make
his income meet his expenses was also
at the bottom of the great decline in all
low Interest-bearing bonds since 1899.
II never realized" he said. that after
all bond is only a means Of getting an
income and that its value depends upon
its power to produce bread and butter
for my family
Going on from this point he discovered
to his amazement that his biggest losses
on paper We're in all the securities that
he had deemed the best in his list The
bonds that were relatively weaker SEEM
ed to have held up better than any others.
The banker explained 10 him that this
was due to the fact that in most cases
these secondary bonds represented prop-
erty that had improved very greatly in
credit and that therefore had tended IN
advance or at any rate not to decline:
whereas the bonds that represented simp-
ly a safe income had declined with gen.
eral conditions and the rising cost of liv-
ing.
He found. in fact. that a bond buyer
to-day can buy TO yield 5 per cent or
more the same class OF securities, so far
as interest and principal are concerned.
that would only yield from to AZ per
cent in years gone by In other words.
he realized that there has been a tre-
mendous economic change in the world
and that the science OF investment had
adapted itself to that change He de-
cided that In order to adjust his own in
come TO this change he would have 10
sell lot of securities that only yielded
him about 3.90 to 40 per cent and buy
per cent issues.
He also asked his bankers opinion as
to whether or not prices would recover
in the course of time. The banker was
guarded in his opinion. but he did say
that in his Judgment the cost of living
must turn downward during the next
year or so and that undoubtedly IL 1t
does bonds bought at the present time
will turn out to be cheap. He was
strong. however, in his statement that
the tendency Of the times is toward a 5
per cent income or better and that the
best bonds to buy at the present time
are bonds to yield about that rate.