Evening star., 1921-01-23
BY STUART p. WEST.

Special Dispatch to The Star.
NEW YORK, January 22.-While the
highly irregular course of the mar
greater uncertainty over the outlook
| there has really been no change in the
! underlying sentiment of the financial
community. The note of cheerfulness,
of returning confidence, which was
| sounded with the new year and deep
ened as security prices rose in the
first two weeks of January has not
been diminished. Leading financiers
! and business men are looking forward
! just as much as before to trade con-
ditions getting back to normal with
; the course of 1921. The general bank
+; ing position, as shown by the reserve
ratio of the twelve regional banks, is
considerably stronger than it was at
gained all the ground lost since the
| middle of 1919. 1t is not to be ex-
pected that money rates will go much
lower yet awhile. The 6A per cent
quotation for time funds represents
the maximum reduction likely to occur
until commercial liquidation has gone
still further and commercial discount
rates have come down.
1t was significant that when Wall
street lowered its bid for call money
to 6 per cent banks out of town which
had been large lenders in the New
York market began to draw back their
funds. They were willing to take Z
per cent on the readily convertible
security offered by stock exchange
borrowers, as compared with putting
more money at per cent into mer-
camille loans in their own localities.
But when Wall streets rate fell to s
per cent the discrepancy became too
great and the interior banks called in
their New York loans in order to use
their money at home.
Credit Strain Passed.
The essential thing is. however,
that the credit strain in the serious
stages which it assumed for the
greater part of 1920 has definitely
passed. Bank reserves as compared
with liabilities are steadily mount
ing, whereas a year ago they were
just as steadily going down hill
When the reserve ratio gets some
what higher and when the reduction
been carried far enough to bring
these items back to level that NAV
be regarded as conservative, then we
may expect to see the Federal Re-
serve Board lower it's scale of dis
counts. and this will be the signal for
terest rates generally. Until this
happens it is probable that MANY of
the old line investment issues, which
have been on the upgrade since last
June, have about reached their limit.
The demand will more likely shift
to bonds of somewhat inferior rank.
which still offer an attractively high
return, and to bonds brought out
at high rates during the last year,
which are selling in the market at
prices where the yield is anywhere
from 81 to 8h per cent.
The chief objection fo tb;o Iottar
class of securities is that most Of
them have only ten years to run and
besides have provision whereby they
will be gradually called in at even
shorter periods. Naturally the long
range investor has preferred mort
gage issues of distant maturity. But
these have now had such an advance
that their yield has ceased to make
the extraordinary appeal it once did,
pand the investment buying movement
has turned to the shorter maturities
because the return on them is yet
abnormally high.
No Serious Drop Expected.
The stock market is moving strict
1y according to specifications The
violent rebound from the panic con-
ditionS OF December carried prices up
too fast. Investment buyers active
| while stocks were on the bargain
counter were entirely unwilling to
follow up a rise which covered 10 to
Is points in little more than a fort
night. These extreme high prices
| were paid by bear spectators who
had badly overstayed their market
and when this short covering was
| over a recession was quite inevitable.
Nobody expects any serious decline
from present level of prices. There
| is too much confidence in the future
and it is too much easier to obtain
money for Wall street uses than 1t
| was, for a downward movement to go
YerY far. It is simply necessary for