The New York herald., 1921-01-03
PROSPERITY FOR
RAILS PREDICTED
Security Holders to See Seven
Years or More of Plenty,
Says Financier.
BY JAMES SPEYER
OF Speper & Co.

by IA MES SIZE Eh
OF Speyer & Co.
Many holders OF railroad bonds and
shares are disappointed because such
securities are not selling at higher prices
A calm consideration of all the circum-
stances however, warrants the opinion
that they should not feel discouraged.
and that, after seven or more lean years.
the owners of our railroad securities
may look forward to seven or more fair
years.
Prices of securities always are influ-
enced by general economic and financial
conditions. The destruction of capital
and the waste of labor in economically
unproductive enterprise during these last
years all the world over have naturally
denced by the general rise in the inter-
est rate, which in turn. has found its
expression in comparatively low prices
for fixed interest bearing securities.
If one considers the enormous issues
of Government bonds--some with special
tax exemptons-and the very large
amounts Of our securities which Euro
pean holders had to sell back to us and
for all OF them new purchasers had to
be found. it is to be wondered at perhaps.
that our railroad bonds did not decline
to a larger extent. That decline, of
course, does not imply a corresponding
decrease in their intrinsic value.
The shares of industrial corporations
have experienced heavy fall in price.
partly through forced liquidation and
partly as a reflex OF the violent price
readjustment of all commodities.
or course railroad shares have been
affected by that general liquidation, but
in spite of all this. their holders will
find that they have not declined as
much as have industrials, and that, in
fact, some of them are selling at about
the same prices--or even higher--than
they We're n year ago.
The first six or twelve months under
resumed private operation of the car
riers cannot be taken as a fair cri-
terion of what results may be obtained
under the new. conditions. 1t is admit
ted generally that roads were returned
by the Government to the owners un-
derma intained and overmanned, and
considerable work will have to be done
to roadbeds and equipments to bring
them up TO former standards. The gem
eral price readjustment which has taken
ing up in business, which naturally af-
fects the volume of railroad traffic.
This may prove blessing in disguise,
as it enables the managers of our rail-
road companies to put their houses in
order. handle business more economi-
cally and buy necessary material and
equipment for lower figures. The higher
rates have only just gone into effect,
and there are still some legal questions
to be settled between State commissions
and Federal authorities. But they are
temporary factors which should not OBJ
scure main points.
Two Important Events.
The year 1920 has brought two events
Of far reaching Importance for railroad
security holders. which should have an
increasingly beneficial effect on their
properties and the prosperity of the
country.
First--1n spite of attempts at delays
and contrary to proposals of men like
Mr. Plumb. the railroad properties were
promptly returned to their owners, in
accordance with the overwhelming de-
sire of our people. For the time being
this disposes of Government ownership
and operation. and the country is to be
congratulated, not only because they
would have proved very expensive un-
dertakngs to all taxpayers but also be-
cause they would have proved extreme
ly dangerous politically TO our country
at present. The owners of railroad Sc
curities. in common with all Americans,
ought TO benefit through the cessation
Of Government operation. and 1t becomes
their duty. more than ever. to provide
efficient and progressive management.
Second-Last year also brought the
riara Of rea1 conefritcffya larriaia tiOn
affecting railroads passed by the Con-
gress in twenty years. viz. the trans
portation act of 1920. Without fully
anayzing the provisions of that meas
ure. four of its main features may be
mentioned:
(a) The act provides for adjustment
OF labor disputes by creating a labor
board of nine members. on which not
only employees and the owners but also
the public are represented.
(b) It provides for control Of stock
and bond issues. which should stabilize
Securities and prevent past abuses on the
part of managers, which have been dis
astrous to innocent holders.
Cc) II provides that no new lines be
constructed without approval of the In
terstate Commerce Commission. pro-
vision which must be of great protective
value to the owners of outstanding Sc
curities.
First Definition of Fair Rate.
(d) 1t defines for the first time what Is
fair and reasonable rate by charging the
commission with the duty of fixing rates
to provide a return to equal 5 n per cent.
plus y per cent, or per cent. year on
tho aggregate value of the roads. taken
countrywide or by territories, which. Of
course. is not guarantee on outstanding
securities. The commission. however,
has acted under this law and has or
dered an increase in rates of 40 per
cent in the East 25 per cent in the
South 80 per cent in the West and 25
per cent. I'm the mountain Pacific groups
IL is estimated that that increase will
yield Si.134 100000. which is about
800, 600 0C5 a year less than the COM
panles asked. On the other hand. that
return is estimated 10 yield about $780,
600, 900 more than the standard returns
granted by the Government while II
operated the railroads.
The commission has based that rate
increase on an approximate aggregate
value OF SIS. 900. 100000. which is about
s1,140,000.0 900 less than the property In
yestnnent account or book value of the