New-York tribune., 1920-02-09
Finance and Trade
Developments of the Week
and Their Bearing ON
the Outlook

1
covered the foreign exchange mar
ket. It had been there all the time,
but spectators and investors SEEM
ingly were unaware of the fact.
True, there had been good deal of
discussion of the declining quota
tions on sterling, francs and the
other European moneys, but foreign
exchange is notoriously a complex
subject and its relations to security
values are not easy to trace. It had
been going down for months without
seriously upsetting prices, so why
worry about It? There was an in
clination to regard it as a thing
apart-interesting enough in it's
way, but hardly of vital moment.
But suddenly it stopped just declin-
ing and literally tumbled in a most
sensational fashion. Then all at
once people apparently awake to the
fact that it 1oas Of vital Importance,
not in itself, but as a barometer Of
condition that could not fail to
react in serious way on the whole
| domestic business structure. They
suddenly realized that the collapse
of sterling and the other exchanges
meant that great slump in export
trade must inevitably follow. And
a slump in export trade meant that
general reaction in business must
Ike place. All this had been said
over and over again, but the story
fell on unlistening ears until it was
given point by break in exchange
rates without parallel in history.
Then spectators and even !nves-
tors found it no longer desirable to
continue the struggle against high
money. Some of them sold stocks
and sold in large volume. AS their
sales forced stock prices downward,
other holders became frightened or
were unable to respond to brokers'
calls for more margin and their
holdings were thrown on the market.
! Each fresh decline brought more
stock out, until the decline assumed
the proportions Of small panic.
And all the while money remained
scarce and high. The call loan re-
newal rate for two successive days
was II per cent, the highest re-
corded in more than twelve years.
Time money was not obtainable at
all. Brokers bid as much as 10 per
cent for ninety-day collateral loans
without securing the desired funds.
At the time when money was needed
most it was hardest to get. This, of
course, added to the decentralization
of the market.
But on Friday, when stocks were
dropping points between sales and
brokers were preparing for the
worst, the banks came to the rescue.
Call money was offered freely as low
as 10 per cent. 1t was not in great
demand, owing to the fact that brok-
ers had already obtained the greater
part of their requirements over the
week end at higher prices, but the
psychological effect was important.
Those working for lower prices had
taken advantage Of the stress Gre
ated by the great volume of liquida-
ton and for three days had ham,
mered stocks almost without a let
up. Fearing that easier money
would cause an overdue rally - a
fear that was realized chiefly be-
cause of their own purchases-they
promptly began to cover. The de-
mand from the shorts was large and
urgent, and it caused an uprush in
prices almost if not quite as sensa-
tional as the preceding decline. In
a brief period fair part Of the
losses previously recorded had been
wiped out.
1t was significant, however, that
the upturn was caused chiefly by
short covering, although purchases
by spectators who foresaw the rally
contributed to the improvement. But
short covering, unfortunately, weak
ems the technical position of the mar
ket, and traders who buy for the
turn are usually satisfied with a
small profit. Therefore the advance
in prices at the end of the week was
not convincing. There was less talk
Of panic, but sentiment generally
was rather pessimistic. Few traders
or brokers were willing to venture
more than an opinion that the worst
of the decline had been witnessed.
The slump was, as has been stated,
precipitated by the collapse of ster-
ling exchange; but before it had
proceeded very far the shortage of
yoaroVy hooo xo~ ALo =.