Evening star., 1923-05-26
BY ROGER w. BABSON.

Special Dispatch to The Star.
WELLESLEY HILLS, Mass, May 20.
SHOULD the investor buy long-term
bonds now or wait in hope of get
ting them at lower prices?'
-'Le question is uppermost in the
minds of the investing public. A gain
of two points in conservative bonds
since last March has been welcome
enough, but there seems to be great
deal of discussion as TO whether it
is the beginning of the long swing
upward or whether it will be offset
by another reaction such as that rui-
ing in the bond market of the first
three months of this year.
Money rates are easy" according
to Mr.. Bahson. land will continue at
about their present position for some
time to come.
January saw commercial paper at
A y per cent on the average. In tep
ruary it rose to 4 "A per cent March
brought it slightly above per cent
In April it ruled at o1s per cent.
Early May brought it back TO . pei
cent. Present indica tions are that II
will continue at about TINS alie III
level throughout the summer Ilne
loans have been made by the DanhS
on about this same basis, while mort
gage money is available in the east
at 5 to per cent.
Banks Bnyins Back Holdings.
From the point of view OF lne
bond market this easing IN nioilsS
rates indicates a Slackenlns III the
demand for commercial loans, an IN
crease in reserve on the part or our
banks and a shrinking up OF the IN
creased credit necessary to nnance
the sudden squirt in business at thf
beginning of this year. Since it is
the habit of our banks to invest sur
plus funds in bonds as reserves sroM'
and to liquidate these bonds ~he1
commercial needs demand Increased
borrowing on the part of the general
business public. it means that the
banks of, the country have turned
from a policy of selling their hold-
ings to a policy of buying them back
again. While there are no ngureS
available on the effect that bank pur,
chases and sales have on the general
investment market, it stands to rea-
son that the banks represent the
largest single customer for bonds IN
the country, and that their position
must have an effect on bond prices.
when the banks were selling they
not only removed their purchasing
power from the bond market, but
flooded it with their own holdings.
When they reversed this position the
stream of bonds that has been COM
ing into the market from the bank
Is shut off and they offer. purchasing
old issues As long as they are buy
ing and holding their bonds, prices
cannot very well go below present
levels. and should evidence slight
strengthening.
Two Factors in Outlook.
when we examine the outlook
as to the possibility of the banks
changing their present position we
sec but two factors which might
cause such a shift during the balance
of the year.
"If in reaching the peak of its long
swing bull movement the stock mar
ket develops into Il feVeriSh Spurt. it
NAV he necessary for certain of our
banking interests to liqutdatc bond
holdings in order TO provide the cash
necessary for stock loans on higher
price level. This might cause tenn
porary sag in bond prices. which
would be recovered as the furry sub
sided. If the advance in the stock
market does not develop into spree
of speculation. but proceeds on an
orderly basis, it probably will have
slight effect upon bond PRICES.
The other factor to be considered