Evening star., 1923-12-02
TRADERS IN STOCKS
ARE FACING PUZZLE
Spectators Wonder if Trade
Gains Have Already Been
Discounted.
GOLD SUPPLY PILES UP
Tax Reduction Discussed-Possible
Action by Congress Will Hit
: Rail Stocks Before Bonds.
GOLD SUPPLY PILES UP
BY GEORGE 4. UUGHES.

BY GEORGE T. HUGHES.
Special Dispatch TO The Star
NEW YORK, December 1.-wall
street remains absorbed in the prob
lem of the relation of the security
markets to the state of trade
The question is whether the recent
advance in stocks measures improve
ment in business. actual and prospect
tive, or whether 1t is the effect of
increased dividend disbursements and
favorable earnings statements, all of
which represent conditions in the
past. The turn in the stock marke t
came simultaneously with the dec!ar4-
ton of an extra dividend on the COM
mon stock OF the Steel Corporation
and with an earning report much
more favorable than had been antici-
pated. This example has been follow
ed by the boards of many other large
corporations, greatly to the benefit of
the shareholders and, consequently. to
the market, but there are many
doubtless who point out that all this
represents is disbursements out of
profits already made, and is no indi-
cation of what may be expected next
year.
Business Encouraging.
AS to busines itself, the evidence is
encouraging. There has been a re-
markable show Of buying in pig iron,
although trade authorities are of two
minds how long this activity may be
expected to continue. Automobile
manufacturers are going ahead with
great confidence.
-;
increased buying power in the south
and the securities of railroads oper-
ating there and southern corporations
have been correspondence helped.
Retail trade the country over is
good. and the best information is that
merchants are buying steadily, but
cautiously, with no accumulation of
goods. All these signs point to a con-
tinuation of reasonable prosperity.
IL Is still a question, however, of
now much of these Favorable indica-
tlonS has been discounted in the stock
market.
Gold Causes Alarm.
Meanwhile there is one considera-
tton of vital Importance in any dis
cuSS1on of the future of the markets.
That is the steady increase in the
gold supply Predictions of a turn in
the tide whereby the gold which has
been pouring into this country the
last few years will begin to go back
have all proved unfounded The gold
keeps coming. The result is that we
have in the United States a dollar in
gold for every paper dollar of every
description In circulation. According
10 the latest available figures gold
coin and bullion totals s4.16S,091621,
while the paper money in circulation
totals S4,121.597.237.
The reserve ratio of the federal
reserve bank stands at record fig
ures. Here then is Fundamental
condition with which any forecaster
huenceS may from time to time con-
ceal or modify this one, but, acting
alone. In the long run the effect Is
TO stimulate business and speculation
and to raise the general price level.
How far this will go, of course. no
one can tell. The rule of experience
Is that such expansion is only check
ed by rise in the money rate and
a. substantial rise at that. OF this
there is now no sign.
New Securities Thrown Over.
The week just closed has been one
or heSltating movements in SeCuri-
ties. The market for investment
bonds has heen fairly steady and
reports of overSubscription of new
issues are the rule. 1t is little dis
turbins to bankers. however. to have
a new issue which had been heavily
"oyersubscribed" slump two or more
points when the syndicate support
was Withdrawn. Dealers and Specu-
Iators take large blocks of new
bond issue. hoping to make a few
points profit. and the easy terms on
which money may be borrowed facili-
tate the operation. When it is seen
that the expected profit does not
materialize the securities are thrown
over for what they will bring. The
trouble Is that this class of sub
scriber is too eager for quick gains.
AS far as Investments of the high
est grade go. a position of stability
seems to have been reached. Buying
by banks and financial institutions
supports the market but does not
advance the quotations. and the for
etgn purchasing is very irregular
For private Individual investors the
railroad bonds of the savings bank
grade with its Az to ) per cent
yield offers no attraction. The man
of large wealth finds a tax-empt
security more profitable and others
demand higher yield.
Tax Reduction Discussed.
In this line there has been a good
deal of discussion this week with
regard 10 the effect of a reduction
In the surtaXes on higher income on
Inc market for municipal and state
bonds. One of the arguments in
favor of such a reduction is that
capital now diverted to the non
productive tax-exempt security would
De available for productive industry
SO far, however, there has been no
sign of weakening in the demand for
high grade municipals, by the fact
In speculative railroad securities
the tendency has been to favor the
bonds as against the stocks. No mat
TER what Congress may do in the
way of railroad regulation, the bond
holder is not likely to be affected.
AT any rate, the brunt of the attack
will fall upon the stockholders. AS a
matter of fact this is the whole
trouble with railroad finance. 1t is
so much more attractive under pres
ent conditions to be a creditor than
30 be a partner.