Evening star., 1921-11-05
INVESTMENT VALUES HAVE f.
...., >.-.- MADE LARGE ADVANCES
of Money and Lower Reserve
Rates Have Been RESPONSIBLE Factors.
= Speculation Depends on Earnings.
BY STUART r. WEST.

BY STUART r. WEST.
NEW YORK. November 5.-During
the past week the extraordinary
] strength Of the, investment market
has been the dominant feature Of the
financial situation. Bond prices since
their low Of last Juno have risen on
an average Of 10 to is points. This
| advance represents two fundamental
changes in the financial situation.
first. the downward tendency Of in
terest rates coincident with the re-
markable recovery In bank reserves.
| and, second, the increased purchasing
In commodity prices. Under the new
conditions investments capital must be
content to accept a smaller return. and
this means that investment securt-
ties must seek a permanently higher
level.
How far has the realignment of the
investment market gone and what
are its further possibilities? The
answer to this in the opinion OF most
good judges Is that while the rise
temporarily may have been some.
what too enthusiastic. bonds and
high-grade investment stocks have
still quite bit Of room to work
higher.
This opinion is based upon the broad
facts Of the money situation. The
cut their loans down nearly two.thtrds,
but hold today approximately half
billion dollars more gold than they did
a year ago. Nor does 1t appear that
the gold flow to this country in settle
ment Of trade balances ia at an end.
defiation and a still greater gold in
flation, and the ultimate result has GER
| tainly not been measured by the re-
duction in federal reserve discounts to
the level at which they stood in the
fall of 1919. when bany loans were
no tremendous addition to the coun-
! try's gold stock.
| Free supply OF Money.
| The reasonable assumption, there
fore. is that federal reserve rates will
not stop at the ~ to per cent scale
| put into effect this week.
! The general money supply Is the
freest in over four years. while with
the falling off in business activity the
demand for funds is the smallest since
! before the war.
! This implies that the money market
must eventually get back to the pre-
| war level and the significance Of this
for the bond market and investment
! values generally lies in the fact that
they are still some distance away from
the selling prices prior to 1914.
Earnings Determine Speculation.
The speculative market is not gov
erned by the same influences as the
| investment market. The suf1ciency
| of credit at low rates is, to be sure
| an important consideration where
| pools and syndicates are engaged in
| a prolonged campaign.
| But the values OF speculative stocks
! rest upon corporate earnings, and If
these are poor it does not matter
how easy Is the situation in the
money market
! Some of the worst declines have
| occurred when funds available for
Wall street purposes were going beg
! ging.
The lowering of federal reserve dis
| counts and the decline. actual and
| prospective, in outside money rates
have. consequently. provided very lit
| ment.
; The market continues to discrimi-
nate carefully in favor of the stocks
| Of companies which have turned ths
! corner and are doing we'll in thei.
! earnings. Where industrial enter
advance in stocks has been slight
This undoubtedly will be the charac-
tertstic IN future operations as it hat
been In the past. Everything de.
pends. so far as further Improvement
in the share list is concerned, upon
the course Of trade.
Trade Situation Unchanged.
| The trade news of the past week
has scarcely been Of much importance.
Outside of crude oil, where prices
have risen again, so that they have
| regained half the entire loss from
last years high, the position is
essentially the same as a week ago.
Copper cannot get through the l3-
cent level. and while the steel mills
are operating at 40 per cent capacity
which is fair considering the great
increase in plant capacity since the
beginning Of the Wharf.-The demand is
! lighter than usual.
The one thing which the steel
trade needs more than anything else
to help it on the road toward further
recovery, is readjustment of freight
| rates. The uncertainty on this point
| naturally tends to hold back ship
| nents and to make both producers
and consumers feel like delaying all
they can.
wheat . Disturbing Factor.
Tho wheat market--at the loves.
since 1s1e-is the most disturbing
feature at the moment Still It Is
not as serious as it would have been
three months ago, because the bulk
| OF tho crops. both new and old, has
| been marketed in the meantime, and
the farmers. while making little or
no profit. have been able to pay off
a good many Of their debts and have
something left to buy with.
| The meaning Of this weeks decline
below the dollar mark is simply that
| the world is facing an oversupply of
| wheat and that Europe has almost
ceased buying in America, because the
heavy indicated yields Of Argentine
and Australia have made it independ-
ent. relatively speaking. Of the Amer
| lean harvest.
Marks Continue to Fall.
| Generalization in German exchange
has continued without any signs Of a
! check.
Two things have to be consider
in this connection. One is that il the
German government were to cooper
ate now with German business men to
check the decline in the mark. there
would be no longer ground for the
appeal to postpone the next indem-
| nifty payment. The second is that
| German investors having exchanged
| their money for securities at tremen-
| douaIv }nHatAd or{ceR anv recoyarv in