Evening star., 1923-03-11
MARKETS ENTER
PUzzL|NG STAGE
How Far Present Advance
| Will Go Is Now Biggest
Issue in Finance.
MORE CAUTION Is NOTED
Business Still Booming, But Over
doing of Speculation May
Cause Break.
MORE CAUTION IS NOTED
BY BYRON SELLER.


BY the Associated Press
NEW YORK, March 10.-Com-
mercially and financially the weeks
secord may be summed up in a SEN
Ience. Business Improvement went
ahead at an accelerated pace. stocks
hesitated and investment securities
reacted.
As to the progress of business there
can be no two opinions. Production
steadily increased and just as steadily
goods went into consumption. Labor
of all classes was in demand. Wages
tended 10 rise. There has been conf
dent buying for forward delivery
study fo fundamental conditions per-
haps may throw some light on the
tation III the speculative and reaction
in the investment markets.
First then as to speculation. which
has grown more and more cautious in
stocks if not in commodities. Prob.
ably the chief influence has been
psychological. Stocks have had a
long rise and all experience teaches
that some time the advance stops anG
the tide turns. ON the first of the
1ncnth zoo repre- sentative stocks haC
scored gain from the 1921 lows
amounting to over 80 per cent. That
certainly is large advance. 1t JUS.
titles, if not caution. at least sobe.
reflection.
Decline Relieved Near.
But for the most part just suct
sober reflection has been lacking anC
there has been substantial blind faitl
III the so-called cycle theory now Sc
widely accepted and according tc
which, business and speculation fol
low each other in orderly procession
from lows to highs and back again
So it is argued. that simply because
Hfe rise has been so long maintained
f!le decline must be near.
If, however, economic history, or
the reading of which the SoundneSs
of the cycle theory Is founded, is ex-
amined il will be found that specu
latfVe movements for the rise IN tbs
past have come to Il halt because
been carried to an excess SO that il
toppled over from its own weight, ol
because the markets were forecast
ing Il substantial business reaction.
As to whether the first eXplana
tion answers in the present case
only analysis of prices of specific Sc
CuritieS in comparison with earnings
present and prospective. can reveal
on this point opinions Will probably
differ. but il would he difficult fol
the most part, to sustain such con-
CiuSion on the facts. AS to the future
for general business. all that can bs
said is that ii the speculative mar
kets can fOreSee a reaction, there
is no indication thereof elsewhere.
Higher Money Rates Feared.
The case with the investment
market is some different. Here th'
III U Of
And quotations for high grade Sc
curitieS show a definite trend TOWARD
lower levels 1t should be observed
however, that the weakness has beer
most apparent in railroad bonds o
the savings bank class 1t may bt
that the process here is merely &
readjustment of market value as {
result of the competition of govern
ment securities.
There does not seem to be any
good reason with liberty bonds sell
ing on a 4 25 to a $50 basis for firs'
mortgage loans of even the strong
est railroads selling to yield only 6
little more. The tradition that rail.
road securities. as class. are su.
perior to industrials, still lives il
the bond market although long dis
carded by traders in stocks. Never
theless, all such explanations aside
il must be admitted that there is {
steady pressure of liquidation which
can not be accounted for in any othel
way than by the expectation O
higher rates for money. Insofar a:
the legitimate demand of busines:
for more funds is concerned this ex
pectation is justified.
Study Of the weekly returns of thu
federal reserve system. however
show that no kind of stringency il
anywhere near at hand. And 81
long as gold continues to pile I'll
the effect must be to sustain if no
TO advance prices. 1t is also to b.
borne in mind that savings and pro
fits due to full employment for th'
working man and to prosperity TO
the business man, will sooner or lat
or flow into investment channels ant
so support the market for invest
1neIt securities.
Caution shown In Business.
So far this diScussion has beel
confined to purely investment bonds
When the case of the Secont
grade and speculative bond is takel
up, the opposing forces of anticipa
tion of higher money and TIL
strengthening of security because o
the improved financial condition o
the debtor corporation. ought to b
found to balance one another.
The more speculative the securit,
the greater will be the effect of i'm
provement in earnings. Just tha
is shown in the present market wher
obligations, fixed interest bearing o
railroads, the financial future o
which looked very dubious a yea
ago, are now rising against the gen
eral trend of the market.
Going back to the business situa
fion, one of the most favorable in
dications is the conservatism mani
tested In the face of rising price
for commodities While buying j
free. there seems to be no danger o
merchants or manufacturers accum
ulating high priced inventorie:
Moreover it is Well realized that tn
upward trend in raw materials mus
sooner or later he translated into
higher price for the finished pro
duct, This higher price the consum
er must accept and there are Yer
definite limitations along this linz
No one wants to see another buyer
strike.
Two Vital Points.
Two points are being watche
carefully. First the outlook fo
building operations and secondl
crop prospects, particularly winte
wheat A combination of a goo
grain crop with good price woul
mean much to business generally a
we'll as to railroads in particula
Therefore official crop reports al
anxiously awaited.
Copyright. 1923,
STEEL REPORT GOOD.