Evening star., 1922-12-10
j. S. BONDS STRONG
THROUGHOUT WEEK
Secretary Melons Skill in
Handling Finances Is I'M
portant Factor.
BY BYRON SELLER.
Special Dispatch to The Star.


Special Dispatch to The Star.
NEW YORK, December 9.@Secretary
OF the Treasury Melons assurance that
the additional taxation would not be
necessary and his announcement OF the
governments plan for meeting the end
Of the year requirements were helpful
influences in the bond market this week
The market moved through a very mar
row range all week. but in the main
quotations were higher.
1t is generally admitted that the
Treasury Department has shown great
skill in its refunding operations so far
In consequence, government bonds were
frm. although dealings were not on a
large scale. The fact that there has
been no great amount of new offerings
outstanding issues. Desirable bonds TO
yield ) TO Sig per cent are reported
scarce.
On the other side Of the picture have
been sales Of obligations of some OF the
weaker railroads. The commonly ac-
cel'ted explanation in Wall street is
tina. these sales Were for the purpos,
OF recording losses on account OF tne IL
come tax. This explanation seems log
cal. The effect on sentiment, howey
was
Disturbing Elements.
II was disturbing. for instance, to SO
The general mortgage bonds Of the ST
i,aui road offered at a sacrifice. for no
matter how great the difficulties at pres
ent, the security back Of these issue:s
cannot he doubted. Probably tho dis
FAVOR into which railroad stocks have
fallen WAS also a factor in the decline
OF railroad bonds. Much Of the invest
n1S-n 81 xya.Gx-
or the railroads. That condition may
, be summarized as follows:
Traffic continues in record breaking
proportions. Although car loadines
Tor the last week in November SHOW
decrease from october's high. III.
heavy traffic is holding up this .u-
tum longer than ever before. Despi,..
the consequent large gross earning
the net is lower than for the CORE
spohdine period year ago. showini-
the cumula>ivA effect Of the strike.
Many roads which early in the sun
mer expected TO show substastiaI sur
p!uses for their common stock hal.
MAD to revise their expectations. il
some instances instead of resuming
dividends there will be. from preset
indications. dippisg into surplus
meet fixed charges. There are som,
notable exceptions to these unfayor-
aoie results. The south and east ha..
Jared better than the northwest.
Wage Reductions Unlikely.
Railroad rates are admittedly vc,-.
high. Pressure in favor of a reductin
.s being brought to bear on Congres-
principally from the agricultural it,
terests. There IS no prospec, of an:
reduction in costs In fact wages O.,
one system were raised this week. NJ
one has had the hardihood to suggest
that railroad labor accept any lower
compensation.
II. then, net earnings are to be in
creased. or even maintained, thers
must be an increase in traffic. This
can only come from general business
Improvement. and how far such i'm
provement Will go appears very un-
certain. 1t is claimed in some quar-
ters that a reduction in rates would
stimulate traffic to such as extent
that net earnings would be increased
but neither the railroad executives
nor the Interstate Commerce Commits
sion Seem inclined TO make the eX-
pertinent.
Meanwhile .all the interested parties
are kept in state of uncertainty a.
10 the intentions of the legislators
President HarGings advocacy of th'
transfer of the Railroad Labor Boards
functions to the Interstate Commerc.
Commission is generally approved
But with one government body fixing
both wages and rates it is very
short step to government operation.
The result is that investors hes;-
!. tate before purchasing the obligation
Of any railroad unable to operate sue
ceSsfully under the most advers.
conditions.
Taxes Another Big Issue.
Aside from the railroad situation.
the chief interest of the week, a.
far as investment community was
concerned. centered in the discussion
OF the tax exempt security. Secre-
tary Mellon announced himself in
favor of the proposed constitutional
amendment to prohibit further issues
of tax exempt bonds. In this he has
the support of most of the progress
Sive element
Opposition from states and munich
palities which have been able TO bor-
row money at very low rates under
present conditions is to be expected
Fl: may come from another source as
well. The bonds of the Land banks,
both the federal banks and the joint
stock banks. are tax exempt and
theoretically at least. this enables IN"
farmer to borrow longtime mortgage
money on easier terms. Whether
the representatives of the farmer in
Congress will be ready TO give up
this advantage is "A question
1t should be pointed out that there
is sharp distinction between the
federal land banks and the joint stock
land banks. The former are Cooper
ative institutions, owned and opcrata1
for the benefit of the borrowers TIL,
latter are private institutions oper-
ated for private profit. Because OF
the cumbersome process necessary to
amend the Constitution. q long time
must elapse before action is taken.
but 1t would not he surprising to see
great increase in the demand for
these tax exempt securities and par
ticularly for the bonds Of the federal
land bank very soon now. II the
supply of tax exempt securities is to
be limited while the demand in
creases. the inevitable result would
be rise in the market price of these
securities.
Copyright. 1927