The New York herald., 1921-01-17
FINANCIAL NEWS
AND COMMENT
Money Situation Reflects I'm
proved Major Markets as Re-
suit of Liquidation.
MUCH TENSION REMOVED
Stocks Act Logically and Are
Not Affected Greatly by
Loan Rates.
by WILLIAM w. CRAIG.

Any one who examines the money
situation Is able to see now some inn
portant fruits of the great liquidation
of 1920 in the major markets. The sig
nificance of last weeks fall of rates
under the pressure of extensive offer
ings reaches far beyond the environs
of the stock market and has applica-
tion TO investments. foreign trade and
the needs of industry and transporta-
tion generally. But the time has not
! yet come when the prediction may be
made that money and credit have be-
come so much easier that rates in the
open market can hold all of the ad-
vantage gained. While call money lent
at a figure as low as Az per cent. off
the Stock Exchange, with a fair amount
placed at 4 per cent. the official
rate on the Exchange grudgingly yielded
| from to 6 per cent. and no further.
It rests in part with the policy of the
| Federal Reserve banks whether call
funds shall remain below the per cent.
| level. II the reserve banks continue
| W lOlWdld lic pan VI NOANhieCb w
| flation of loans-and there Is every rea-
| son to believe that they WILT is con-
ceivable that member institutions may
not be able to expand their balances at
New York with the rapidity noted re-
Gently. Even though money quotations
may become firmer before they settle
around the level reached toward the
end of the week. great deal has been
gained since January ].
! The relaxing of collateral time loan
rates from III and IA to 61a and per
cent. and the easement of open market
discount rates on prime sixty and ninety
day aeceptances from 67s and 6ls to 57s
and 54 per cent. has acted to remove
much tension over the uncertainty of
the money and credit outlook. 1t re-
mains for commercial paper to recede
from the long maintained level of 7h
and per cent. to complete the picture
of a broadly improved situation. but 1t
is possible that so long as the reserve
banks decline to rediscount mercantile
bills at a figure under per cent. the
banks which borrow of them will be un-
willing to lessen the cost to their GUS
toners.
Stocks and the Money Market.
An interesting commentary on the
stock market situation was supplied by
events which preceded and accompanied
the relaxing of money. Probably there
had been so thoroughly grounded an ex-
pectation that the usual January decline
of call and time loan quotations would
vance what came to pass. That there
was no really close relation between
money and stock quotations during last
week was admitted by the most optimis-
tic followers of industrial shares in the
sharp advance of Monday and Tuesday
The reactionary movement which fol-
lowed the spectacular bulges Of Crucible
Steel, Baldwin Locomotive and severai
other volatile issues certainly was not
directed by the course of money. What
happened to cause the advance were the
writings of trapped bear interest out
of position which had become too hot
to remain in. and after the rapid short
covering movement came to an end there
came natural reaction
The stock market processes were alto
gether logical, considering the occur
rences OF last December. Emboldened
by continued success in forcing prices
lower during the weeks when much sell
ing to raise needed cash and for the
purpose Of income tax records was done
in great volume. bears in Industrial
shares became so thoroughly convinced
of their strength that they ignored patent
signs OF a change of sentiment. The
change came through the reopening of
many mills and factories which had been
closed before Christmas, either because
Of lack Of orders or for the purpose OF
taking annual inventories; 1t came
through the practical certainty that,
owing TO seasonal liquidation of goods
and TO liquidation which had preceded
the mid-winter season. money rates
would soon become at least little easier
than in the autumn.
The cessation of that very necessitous
and expedient selling of securities which
helped make effective bearish effort was
another factor that gained In sentimental
influence as time passed. especially as
many earlier sellers proceeded to buy
back their stock early In the new year
The reports by commercial agencies OF
slightly Improved demand from retailers
with stocks OF goods to replace played
their part In the betterment Of business
sentiment. all OF which those congenital
followers Of the destructive side OF mar
ket values ignored until a rapidly rising
scale OF prices and stiff premiums on
borrowed stock produced signs which
could not be ignored.
Undcrtone of stocks Healthier.
But It should not be thought that inn
proved sentiment last week did nothing
In the market except prove to a num-
ber Of stubborn spectators that they
could be wrong. There was undoubt-
edly a much healthier undertone to
stocks at the week end than a the be-
ginning, albeit n great part of the pre-
limnary advance Of prices was lost.