The Birmingham age-herald., 1924-03-16
BUSIN ESS AND BONDS BASED ON PRICE INCREASE
By ]. x. MITCHELL

For several months past it has been has been decreasing; that is to say. where time loans some months ago were made in certain sections at per cent, they are now being made at per cent; and demand loans, or loans for short periods, have decreased accordingly.
 The new investor should know that the price of money as expressed in in- terest rates influences materially the prices at which bonds are sold. When money is plentiful and cheap, the large supplies available for investment seek out securities in which they can earn good return. More securities are therefore demanded and the price of these securities is increased by reason of this demand. Exactly this effect Is now being seen in the listed bond mar kets. Bond prices are rising slowly due in part to this very condition of a plentiful supply of money.
 Another reason for this increase in bond prices Is that, with interest rates declining in the open market, funds naturally seek investment in bonds which offer a higher rate that the cur rent quotations for money. For i'm stance, if time loans are being made at 5 per cent because of the plentiful supply of money, it would obviously be to the investors interest to buy bonds which would yield him around 5h per cent or per cent, or more This is happening now, and naturally tends, because of the need for bonds of this character, to raise the price on all sound securities.
 Fluctuations in bond prices, however, must not be understood to mean any such radical changes as take place in stock quotations. Good bonds vary in quoted values only to a small extent, whereas stock prices often fluctuate violently. This is because of the es- tablished value of bonds and the specu- iative nature of stocks, speaking of both in the general sense.
 The influence of money rates and of | business conditions as a whole is all ways manifested in both stock and bond quotations. Generally the trend in prices of stocks and bonds Is exactly opposite; 1. e., when stocks are going up bonds are tagging behind, or are actually going down, while when bond prices are gaining stock prices are slumping.
 Boom times bring about boorns in bonds are neglected. The reason for this is easy to see. Ownership of stocks carries with it participation in the profits of the business, which are naturally greater in boom times, while on the other hand the ownership of bonds brings only fixed rate, no mat ter how much money the business may make. For this reason. investors at such times reap the greatest profits from stocks, although their investments in bonds are just as secure and even more so than in periods of depression.
 In hard times, however, stock prices fall, because most businesses at such | tfTT1Aa and therefore are paying small returns to the stockholders, and often even jeopardizing the stockholders' invest ments. Bonds, on the other hand, go up during periods of depression, pro- vided the bonds are safe ones to begin with. This advance is caused by the fact that a bond yields a fixed amount of money, and in hard times this amount of money Is worth more than in periods when money is' plentiful.
 The above brings out, incidentally, the fundamental differences between stocks