New-York tribune., 1920-01-26
Finance and Trade
Developments of the Week
and Their Bearing ON
the Outlook

announcement that the Federal Re-
serve Bank had increased redis-
count rates. The other was that ex-
ports from the United States in De-
cember were valued at $6O,OOO,O 900
less than November exports. The
stock market received both unmoveo
Nor is that hard to explain. The
news simply confirmed general ex-
pectations. And Wall Street specu
lators never wait for confirmation
when they are reasonably sure that
expectations are we'll founded. They
act in advance so that publication or
the news often fails to stir the mar
ket at all. 1t is only the unexpected
that disturbs prices. This time
there was no element of surprise.
The news had been discounted, so
far as its immediate effects were
concerned.
1t does not follow, however, that
the stock market has discounted the
full effects Of the news. There are
indications that the heavy liquda-
tion and extensive short selling of
recent weeks have left the market
in an oversold condition, so that any
definitely favorable development,
such, for example, as the enactment
of constructive railroad legislation
CT the ending of the treaty squabble,
might easily cause a rebound in
prices. But taking longer view, it
seems probable that the increase in
rediscount rates and what seems to
be the beginning of sharp slump
in our export trade, have yet to
exert their full influences on secur-
ity values. Neither is a factor of
merely passing Importance; it will
be months before the full effects are
seen.
The increase in rediscount rates
apparently was not aimed at the
stock market, which now is on a
saner basis than most Of the COM
modify markets. The object was
rather to curb excessive speculation
in goods, and thus prevent further
distortion of prices and to start
price deflation. There can be little
doubt that the action taken by the
banking authorities will prove eff
fective in these directions. tt is not
improbable, indeed, that, as result
Of the tightening of the business
I money market, very considerable
price declines in numerous lines will
be brought about. Goods must be put
on the market unless ample credit to
carry them is provided
There are two things which al
ways disclose uncounted stocks Of
goods. One is very high prices. The
other is the beginning of decline
from very high prices. The latter
is, perhaps, the more potent 1t is
due to the fact that many specula-
tors, reason-benumbed by the ecstasy
cf rising quotations, "overstay the
market Stock market experience
last fall supplies an analogy, though
not a perfect one. Prices were 60
ing up by leaps and bounds. New
high records were being established
every day. Seemingly everybody
wanted to buy and no one was eager
to sch. Stocks were bought without
the slightest regard for values, SIM
ply because prices were rising and
the sky seemingly was the only
limit. Then, all OF once, money went
to 80 per cent and the speculators
who had not altogether lost their
reason began to get out from under.
Prices started to fall, and since peo-
pie really had been buying prices,
and not values, there was mad
scramble to unload. In few hours
the price structure erected during
months of frenzied speculation was
wrecked.
| 1t is not likely that Tightening the
reins on business money will pro-
duce anything like the crash which
took place in security values. But it
would be surprising if considerable
stocks of goods were not put on the
market rapidly enough to cause
material price recessons. Already
manufacturers and jobbers are as
suming a more cautious attitude in
I the matter Of extending credits,
while in cases buying policies are be-
ing reshaped. Some leaders in the
textile trades assert that goods soon
will be dumped by spectators and
by small manufacturers who have
been operating largely on borrowed
capital. There is certain momen-
tum to such movements, impaired,