New-York tribune., 1920-03-01
1hSO-DAY is rehabilitation day for
the American railroads.


H. the American railroads.
After twenty-six months under the
command OF the Federal government
uAey are once more under private op-
eEatlon. This government has relin-
quished exclusive control, vet it has
not withdrawn completely. In addition
10 guarantees and provisions for finan-
clal accommodations to the roads. the
government through the greatly ex
panded powers of the Interstate Com
merce Commission, is to determine
rates and standards of service and
earnings.
The traveller who happened to be rid
ing on train at the nom ent of transi-
Iioh 1rom government to private oper-
ation perhaps was aware of no physi
Cal change. And the security holder
probably will find on gancinr at his
railroad stocks and paper that the nm
pearance and texture of his invest
ments seem to-day exactly as they did
Yesterday
AND yet the change marks perhaps
the great domestic economic event of
the year Railroad stocks have spurted
a little in recent days to signalize the
change, but the future of the railroads
has not yet been foretold in the Sc
ourity marts.
Uncertainty Still Prevails
Private operation per sc is not bull
lsh for the immediate future. The in
vestor and the speculator want to know
whether the roads will be permitted to
earn sufficient to restore their credit
and to become paying business propo-
sitions. Up to the close of trading last
week uncertainty clouded the issue.
The fate Of the bill in the Presidents
hands still was unknown, and the ef-
feet in actual practice of the provisions
on every individual known was regard
ed as something that only experience
could define
On many lips the query "Are rail-
like asking care women pretty?" or
Are Europeans bright" The question
i. far too broad to be answered. even
If all the ks" became known quanti-
ties. This discussion will be confined
to railroad bonds-to criteria by which
the value Of the bonds may be Judged
under the new era in railroadng
II the twentieth century were to end
to-day, it could be said that railroad
bonds on the average are now at the
lowest level OF the century, SO far
IS the last twenty years are concerned,
rail bonds are now at the bottom.
fallen? Why has their unrivaled
prestige to some extent diminished?
The decline has been due both to in
ternal and external conditions.
In the last six weeks the downward
movemer Of railroad bonds has been
particularly fast. Selling, though not
especially heavy, has come at a time
when sho buying power was Feeble, and
hence quotations yielded. Domestic
sellers, needing cash under present
conditions Of tighter credit, liquidated
their bonds, as did European holders.
who in The face OF the spectacular
smash in exchange rates were able to
make q hinge profit on the sale of their
bonds, despite relatively low prices, in
terms o. pounds, francs, lire and
marks.
But behind the Immediate market in
fluences lie the fundamental facts Of
tho situation. Railroad bonds are long
time issues that were first offered to
the public at time when different
economic conditions prevailed. From
the beginning Of the present century
up to 1914 good railroads were able
per cent. At the beginning of the
century, the cost of money was so low
that such low yield bonds sold at
premium But with the destruction of
capital during the years of war and
tho unprecedented demand for credit
both for rebuilding abroad and for ex-
pansion at home. interest rates have
greatly riseu. To bring outstanding
bonds in line with the new situation,
the sailing prices of such bonds de-
cline. This is what has happened to
the railroad bonds which were other
wise excellent. The price of new funds
1U0uli dpppOd on the individual credit
Of the roads. but bankers estimate that
even the good companies would have to
pay the puolic in excess of 7 per cent
on long time bonds and perhaps ola
per cent or more on short time obliga-
lions.
Classes Of Bonds
Practical bankers for working pur-
poses divide outstanding railroad
bonds into four rough classes.
First, there are the we'll secured
mortgage bonds Of companies of good
credit. Such bonds are the best and
are selling to yield about 5 ~ per cent,