Evening star., 1920-03-20
BY STUART p. WEST,

cline from November through February
was not a downward movement based
upon any fundamental change in con-
ditions affecting values, but rather an
interruption in a period of advancing
prices. This interruption was due to
the strained credit situation. and. just
as soon as 1t became evident that this
strain was passing. recovery was rapid
and complete. 1t took less than three
weeks for the representative Industrial
shares to regain all the way from two
thirds to the entire amount Of what it
had taken them four months to lose.
This is sufficient commentary upon
ership on the one hand and upon the
superiority of tthe factors making for
rising prices over the factors making
for decline on the other.
Possible to Frlghten Public.
The position taken in this column
all along has been that we could not
have a real bear market until stocks
had been distributed from strong
hands. Temporarily the money mar
ket could shut down upon specula-
ton and outside speculative accounts
that were being carried on borrowed
money could be frozen out. 1t was
possible to frighten the general pub
lie by the talk of imitation and it's
| dangerous sequel. 1t was possible for
men in high places to Lex themselves
be quoted SO that their opinions were
spread broadcast. to the effect that
grave commercial crisis was i'm
pending. Finally, al a still more ef-
fecttve weapon driving unsuspecting
outsiders into throwing over their
stocks at tremendous sacrifice was the
mischievous circulation of predictions
of panic attributed to unnamed but
powerful bank representatives.
But all this campaign of terrorism,
some of it secret and some of 1t open,
could not avail to make wealthy in
siders sell stocks which they were
able to carry and which they knew
were not overvalued, even at the high
est prices reached in the bull move
| ment last autumn.
| Dfstrfbutfve Stage Not Reached.
The real turn will not, we believe.
take place until the rich corporations
have paid out their vast accumula-
tiOns of war profits in stock dividends
| or, what amounts to much the same
| thing, have multiplied their stock out
standing SO as to convert high-p priced
shares not easily salable into medium
! or low priced shares which the public
can be induced to buy. These changes
will mark the beginning of the dis
tributive stage, and when this stage
is well advanced it will be time for
the public to ieok cut. 1t will be time
optimistic all through the recent dis
orders to become pessimistic. For
when stock dividends have been paid
out and deducted from the market
prices and when the recapitalization
schemes are put through it will mean
that the great sustaining element in
the market of the last four years
! namely, the accumufa ton of undivided
| war profits-has been removed.
The Supreme Court decision ex-
empting stock dividends from taxa
ton has naturally been a great i'm
! mediate stimulus But it must not be
forgotten that this decision by speed
; ing up plans. for the distribution of
treasury surpluSeS has brought the
distrfbutive stage closer to hand.
Much depends upon the course of the
money market during the next few
months. There will have to be a
chance after the stock dividend and
recapitalization projects have been
carried through for insiders to unload
their stocks in the new forms and
this cannot be done without a money
supply adequate to sustain an active
speculation. If money becomes suffi-
ciently easy late in the spring and
continues SO during the summer this
would be the time to look for the
dlstrlbutive campaign and next
autumn would see the Inauguration
Of the real bear market.
Unpleasant Phase Cited.
There is one unpleasant phase to
! recent events, which. in the public
/ interest. cannot be passed over. As
, late as the end of February, when
stocks were at their bottom, bank
ing opinion virtually was unanimous
that there was no room for any spec
ulative expansion under existing
credit conditions. The call loan re-
| newal rate was lacked up to 16 per
unobtainable. In the three weeks since
| then there has been some improve
ment in the federal reserve. ratio, but
very slight one Why is it that the
banking attitude has so changed that
no effort at all has been made to dis
courage the speculative upheaval Of
the last fortnight with it's violent ad-
vance in prices and it's expansion in
dealings to the scale Of activity reach
ed in the busiest times of last year? :?
Why is it that. with so little improve
ment in the bank reserve and with
call money should suddenly become
SO easy to obtain and people who
were not able to secure any time
loans at, all should find themselves
accommodated on terms which. at the
beginning of the month. would not
have been thought possible? Is it any
wonder that the unhappy outside buy
ers. who sold out three weeks ago at
a tremendous loss. ask themselves
whether this money market game has
been played on the square?
Railway Shares Disappearing.
Railway shares have been a disap-
pointment in the weeks market
. put them up they have been discour-
aged by the ample supply encountered
as prices have approached the recent
high. Some have thought that this
may seem that the benefits OF the new
railway bill, plus the Supreme Court
valuation. have been overrated, but
we do not think this is the case. The
more reasonable explanation for the
sIuggishness Of the railway shares is
that their market is getting ready for
the early announcement OF large
finance long-delayed improvements
and equipment purchases These new
issues will take the form probably OF
short term notes for the most part.
In some few instances perhaps 1t Win
be possible to float mortgage bonds
placing large amount OF new
capital ahead Of the present stocks.
The ultimate prognosis for the raff-
way shares is just as favorable as
ever, but the immediate speculative
standpoint has to take into account
the customary depressing effect which
announcements Of new capital fota-
tions usually have upon the old Sc
curities Of inferior rank.
ProEress slow, Il Belief
The Indications are that the turn
for the batter in the general credit
FINANCIAL.
L IA /