Americus times-recorder., 1919-11-18
QEWS EXPLAINS
WHY DROP CAME
IN STOCK PRICES
(BY HENRY CLEWS.l }

been more notable in the market for
securities than those of any CORE
spending period for 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 influence be-
fore the end of the week, because
it was only then that the weakened
condition of the reserves of the Fed
eral Reserve System became known
through publication on the 9Th of the
condition of the system as at close or
business November Z. Weak market
conditions on Monday, were followed
by liquidation of increasing vio-
lence, which reached its elimination
on Wednesday, when extreme reduc-
tions, runnings in a few cases as
high as s65 to 70 points, We're noted.
This was followed by recovery on
the following day and the apparent
restoration of more normal condi-
tons. The directly influential factor
throughout this whole market situa-
ton was the high rate for call money,
growing out of the policy of the Fed
eral Reserve System and the knowl-
edge on the part of bankers that
they must conserve their resources
If they would avoid being brought
face to face with an inability to OBJ
tain more rediscounts at Federal Re-
serve Banks.
What has occurred during the past
week has frequently been the sub
ject of comment and the causes of it
are evident. An advance of market
prices in some favorite securities
considerably above investment values
naturally left them in a precarious
position, while the rapid shrinkage of
the free resources of the Federal Re-
serve System compelled bankers to
look to thir own safety by cutting
down the volume of their market
loans. Their method of attaining
this result has been that of fixing
money rates at high points and hold
ing them there in the effort to dis
courage undue borrowing. Mainte-
nance of large margins has been con-
sistently favored and those who have
followed the suggestion thus afford
ed have found the protection espe-
cially serviceable during the decline
of the past week. The question re-
mains whether a further recovery
may now be expected to set in, as IS
so frequently the case after a peri
cd of unusual weakness. In this con-
nection predictions are as usual haz-
ardous. The apparent buoyancy OF
the market, 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 emphasized-the fact that
quoted prices have in many cases ex-
ceeded investment values. Decline
of net earning power, due to high
costs of production and to continued
burdensome taxation, naturally de-
presses the immediate investment val
uation of shares which are affected
by these conditions. Taken altogeth-
er. the factors in the case once more
emphasize the need for caution ana
suggest the necessity of careful pro-
lection of all commitments for some
time to come. The warnings issued
by the banking authorities of the
county. with reference to the over
loaning of funds upon lands, COM
modities and securities, indicate a
disposition to curtail the volume OF
banking accommodation which, If ad-
herred to, will necessarily limit the
scope of trading.
Not the least interesting feature
in the situation during the past re"
days has been the movement of for
eign currency. Both sterling, lire,
marks and francs have reached rec
ord low levels and it may be expect
ed that the process of recovery VIII
be slow, although upward move
ments from time to time will not be
surprising. Essentially, the value OF
these currencies depends upon the
success to be anticipated in the plac-
ing of foreign securities with Amerl-
can investors. The advancing of the
Edge bill by congress brings that
measure nearer to enactment and
paves the way for the formation OF
financing concerns whose purpose II
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 curtall
or nullify various undertakings
whose success would otherwise have
been regarded as at least probable.
American investors have shown a
greater degree of Indifference toward
the applications of foreign countries
for credit than had been expected,
and the lower. levels of values es-
tablished in the securities market are