The Washington herald., 1919-11-17
Henry Clews' Review

New York. Nov. IS. The events
of the past week have undoubtedly
been more notable in the market for
securities, than those OF any cor
responding period for a long while
past. Advances in the discount rate
at Federal Reserve banks. which
had been ordered on November 4.
did not begin to exert their full In
fiuence before the end of the week,
because 1t was only then that the
weakened condition of the reserves
OF the Federal Reserve System be-
came known through publication on
the Sth of the condition of the sys-
tenn as at close of business Novem-
Der Z. Weak market conditions on
Monday were followed by a Iquida-
ton of increasing violence, which
reached its elimination late on
Wednesday, when extreme reduc-
tions, running in a few cases as
high as SIS to 10 pointS were noted.
This was followed by a recovery on
the following day and the apparent
restoration of more normal cOnm-
tions. The directly influential factor
throughout this whole market stu
alton was the high rate for call
money. growing out of the policy
of the Federal Reserve System and
the knowledge on the part of bank
ers that they must conserve their
resources IL they would avoid being
brought face to face with an inabiI-
ity to obtain more rediscounts at
Federal Reserve banks.
Cause OF Shrinkage.
What has occurred during the past
week has frequently been the sub
ject oIcOnment in this circular and
the causes of it are evident. An ad-
vance of market prices in some ia
Vorite securities considerably above
investment values naturally left them
in precarious position. while the
rapid shrinkage of the free resources
OF the Federal Reserve System COM
PEELED bankers to look to their safety
by cutting down the volame of their
, market loans. Their method of at
tanning this result has been that of
fixing money rates at high points and
holding them there in the effort to
discourage undue borrowing Mainte-
nance Of large margins has been con-
Ststently favored and those who hay,.
followed the suggestion thus afforded
have found the protection especially
serviceable during the decline OF the
past week. The question remains
whether 4 further recovery NAV now
De expected to set in. as is so fire.
quently the case after a period Of un-
usual weakness. In this connection
predictions are as usual hazardous.
The apparent buoyancy of the mar
ket exhibited whenever money rates
will permit, indicates that traders are
strongly confident in the industrial
future of many shares. On the other
! hand. the point already referred to
deserves to be especially empha-
sized-the fact that quoted prices
have in many cases exceeded invest
ment values. Decline of net earning
power. due to high costs of produc-
ton and to continued burdensome
taxation, naturally depresses the i'm
mediate investment valuation of
shares which are affected by these
conditions. Taken altogether, the
Factors in the case once more en-
phasize the need for caution and sug-
gest the necessity of careful protec-
ton of all commitments for some time
to come. The warnings issued by the
banking authorities of the country,
with reference to the overloaning 81
funds upon lands. commodities and
securities, ipdicate a disposition to
curtail the volume of banking ac-
conUodation which. IL adhered to,
will necessarily limit the scope of
trading.
Foreign Trade and Exchange.
Not the least interesting feature
in the situation during the past
few days has been the movement
OF foreign currency Both sterling,
lire. marks and francs have reach =
cd record low levels and il may be
expected that the process Of recoy-
cry will be slow, although upward
movements from time to time will
nots be surprising. Essentially. the
value OF these currencies depends
upon the success to be anticipated
in the placing of foreign securities
with American investors The ad-
vancing of the Edge bill by Con-
gress brings that measure nearer
TO enactment and paves the way for
the formation OF financing concerns
whose purpose it will be to further
the shipment of goods. On the
other hand. the high money rates
and Stringent conditions in the
market have tended to curtail or
nullify various undertakings whose
success would otherwise have been
regarded as at least probable
American investors have shown a
greater degree Of Indifference to-
ward the applications of foreign
countries for credit than had been
expected. and the lower levels of
values established in the securities
market are likely to discourage the
placing of foreign issues before
American buyers. Nevertheless, as
current announcements have shown.
foreign borrowers stand ready to
take American capital at high
rates whenever conditions seem to
be such as to warrant an Offering
Of securities. One or two such Of
ferings have lately been put before
the investor, but have been abb
sorbed only slowly.
The Railroad Situation.
During the past week the appearances
of new form of the bill known as
the Esch measure indicates the
probability that the Cumnnins bin.
heretofore considered the leading rail-
road proposal before the country, may
be superseded. Both measures are
long and compiler and involve. many