Evening star., 1924-12-31

The number Of smaller and less i'm
portant foreign offerings was too
great to be considered in detail. One
point, however, is clear. The tradi-
tional timidity with which American
investors have regarded foreign Sc
curities has been in large measure
dissipated. The success of the three
loans above enumerated is alone sur
ficient to establish this point. OF
course, the prompt sale of these new
foreign bonds was made easier by
the vast amou2t of capital available,
even begging for employment, and by
the high return all these foreign
obligations bring. On the other hand,
there Is now a wide and stable mar
ket in America for foreign bonds
1t is reasonable to expect that
American investments abroad will
grow as the years go by. Already
predictions are made that 1925 will
see an enormous amount of new for
eign financing in this market. So far
the results from the standpoint of the
investor has been good Excluding
Russia and Mexico. all our foreign
creditors, at least as far as private
investments go, have been reasonably
regular in the payment of interest
and principal There is still risk con-
nected with these commitments but
for the most part this risk is politi-
cal rather than financial.
IndustriaI. Are Different.
little different state of affairs ex-
lists with regard to the securities Of
foreign industrial and utility enter
prises. With obligations Of this ma
ture II is not enough to have the facts
regarding political and economic con-
ditions in the country in question, but
also some information with regard to
no INV ho
under consideration is essential. This
Is not always easy to obtain when the
creditors place of business is SO far
away.
1t is to be hoped that the proposal Of
the Investment Bankers Association for
the establishment of a bureau of in
formation covering the credit standing
Of foreign borrowers, actual and pros
pective. may be put into effect without
delay. It would take only few serious
mistakes to undermine this recently ac-
quired confidence.
Investors Turn to Railroads.
The reversal of sentiment toward
railway securities is SO recent that
all interested are familiar with the
facts. The turn came directly after
the election, and, while it had for its
impelling motive the apparent assur-
lowed to work out their own saliva
ton unhampered by adverse legisla-
ton, IT was helped along by prospects
of consultations and by the dividend
outlook. OF these the most important
was the political situation. The fun
damental facts with regard to the
rails were quite as favorable in Mid
summer as in November, but they
were without effect upon the market
nrfu sn%t hal
been cleared away.
Railway car loadings more than
once during the year broke all rec
ords and the movement of traffic con-
tinued heavy up to the close. The
confidence of directors of railway
boards was manifested long before
the election in the restoration to a
dividend basis of the common stock
OF such roads as the Southern Rail-
way.
The great Nickel Plate combination
was planned and the details publish
ed long before the presidential choice
had been made, but II was not until
radical sentiment was demonstrated
to be in a minority that investors and
spectators came to the conclusion
that no obstacle would be placed in
the way of such consultations by
Government authorities at least.
Inevitable Excesses Crop Out.
Railway stocks were the leaders in
the post election upturn, but railway
bonds of the speculative type were a
close second. AS is always the case,
the movement was carried to excesses
in some instances, as when a prefer
red stock and an adjustment bond
both paying the same rate were quot
ed at the same price, notwithstanding
the fact that payments on the bond
were a prior charge.
In the excitement Of the hour GER
tain preferred stocks were bid up to
record highs when there were large
accumulations OF back interest on the
adjustment bonds, which would have
to be cleared up before any dividend
could be declare on the preferred. All
these are familiar phenomena of spec
ulation. Eventual correction is sure.
AS far as the advance was based
upon earnings 1t was sound. There
is, of course, with the junior securi-
ties always chance of a falling off
in traffic and the consequent decrease
in net income. That is the risk that
investors have to take. The compen-
sation is the rate of return, and care
should be taken to see that this com-
pensation is adequate. The benefits
to be expected from consultations
are more problematical, and too much
confidence should not be placed
therein.
Mergers to Take Long Time.
For one thing these consultations
are going to take a long time to work
out. Even granting that the Interstate
Commerce Commission is complacent,
there are many conflicting interests
to be reconciled. Nor Is there any-
thing in the law which can compel the
owners of one road to sell out to an
other.
If, therefore, an investor or a specu-
lator Is basing his operations not
upon intrinsic merits. but upon the
price some other railroad is going
to take over his holdings he is on un-
safe grounds. One reason that might
induce large and prosperous road to
take over a small and weak one arises
from the so-called recapture clause
of the transportation act.
The small road may have low earn
ing power in proportion to valuation
and the reverse may be true with re-
gard to the large road. When the two
are combined these conditions are
equalized and the merged carriers do
not have to turn over excess earn
ing to the Government. There are
cases like this, but they are excep-
tioAs- AZ AL events tnere Is gong TO
be lot Of bargaining before results
are obtained, and in the meanwhile
spectators may get tired of waiting.
Outlook Brighter for Coming Year.
This is not to infer that the rail-
road outlook Is not much brighter to-
day than 1t was a year ago. Granting
reasonable prosperity and conserva-
tive management the railroads will
make satisfactory earnings. They
have nothing in the way of foreign
competition to fear as have some in
dustrials. What the railroads need
most of all is the good will of the
public and of their employees.