Albuquerque morning journal. [volume] (Albuquerque, N.M.) 1903-1926, 1921-11-06
iBY STUART p. WEST.)
1921 by Albuquerque journal

(Copyright lS2l by albuquerque 'ouii"'
New York, Nov. 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 June
have risen on an average of 10 20
IL points. This advance repre-
sents two fundamental changes in
the financial situation-first, the
downward tendency of interest
rates coincident with the remark
able recovery in bank reserves;
and second, the increased purchas-
ing power of the dollar due to the
decline in commodity prices. I'm
der the new conditions investment
capital must be content to accept
a smaller return and this means
that investment securities must
seek a permanently higher level.
How far has the realignment
Of the investment market gone and
what are it's further possibilities?
The answer to this, in the opinion
of most good judges, is that While
the rise temporarily may have
been somewhat 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 federal re-
serve banks have not only cut
their loans down nearly two-thirds
but hold today approximately a
half billion dollars more gold than
they did a year ago. Nor does it
appear that the gold flow to this
country in settlement of trade bal
ances is at an end. We have had
at once a great credit deflation
and a still greater gold initiation,
and the ultimate result has cer-
tainly not been measured by the
reduction in federal reserve dis
counts to the level at which they
stood in the fall of 1919, when
bank loans were nearing their
peak and there had been no ire
mendous addition to the country's
gold stock.
Free Supply of Money.
The real assumption, therefore.
is that federal reserve rates will
not stop at 4 1-2 to per cent
scale put into effect this week. AS
for the general money supply, ii
is the freest in over four years |
while with the falling off in bust
ness activities 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 sig /
nificance of this for the bond mar /
ket and investment values gene !
orally 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 gov
erned by the same influences as !
the investment marhet. The-suf- |
ficiency of credit at low rates l.. |,
to be sure. an important consid- !
Grafton while pools and syndicates |
are engaged in a prolonged cam
paign. But the values of specu- f,
lative stocks rest upon company !
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 F.
occurred when funds available fo-
Wall street purposes were going !
begging. The lowering of federal |
reserve discounts and the decline !
actual and prospective in outside
money rates have. consequently. |
provided very little stimulus for
the speculative movements. The |
market continues to discriminate
carefully in favor of the stocks nf
companies which have turned tho
corner and are doing we'll in their
earnings. Where industrial enter
prises are making little money the
advance in stocks has been slight |
This undoubtedly will be the char.
acteristic in future operations as
1t has been in the past. Every.
thing depends 90 far as further
improvement in the share LIST ie
concerned on the course of trade
Trade Situation Unchanged.
Inc trade news Of the past week
mas scarcely been of much imnort-
ance' Outside Of crude oil whern
prices have risen again, so that
they have regained half the entira
loss from last years high. the no.
sitlon Is essentially the same as n
week ago. Copper cannot get
through the 13-cent level ana
whlle the steel mills are operating
at 40 per cent capacity, which is