Evening star., 1926-02-21

ing the present period OF easy none
ana low interest Yields, according /"
n survey made by John Nickersolt
& Co.
The profits made during the ad-
vance in stock prices over the past
year have been legislated out of the
reach of banks by restrictions which
limit bank investment to bonds. The
usual type of bond held by banks
affords limited opportunities for ap.
preciation as compared with stocks
so that a restraint IS placed on tn"
banks facilities for making profits 10
offset any losses on bond investments
Legal common stocks for banE
investment, continues the survey. are
to be found in convertible and war
rant attached bonds which offer tof
banks their only opportunity fol
building up an investment surplus
account as a reserve against any
losses on investments.
The desirability OF creating such
Il surplus through profits on invest
ments is dictated not alone by sound
business sense, but also by the far
that there constantly exists the possi
bility Of losses on securities which
are considered rs sound investments.
II, therefore. seems practical and Ge
sirable for the banker TO take ed
vantage of oppOrtu unities which eAiS'
in convertible and warrant attached
bonds for building up an investment
profit reserve. particularly as a safe
guard against any Of the following
eventualities.
Special Points Presented.
!. Issues which are considercI
prime investments may have tho.
position fundamentally changed. iU
substantiation Of this mention need
only be made that Chicago. Mil
waukee and -. Paul bonds 70 tho
par value OF many millions are held
by banks throughout the country WI"
now face serious losses on their hold
ingS. Scores Of New England bani~
who held New York. New Haven ami
Hartford bonds took their losses "r
experienced endless days Of unce.-
tainty respecting the future Of these
securities. Both these situations a.
one time were regarded as ;hor-
Oughly worthy Of conservative ill.,
VeStment.
> During a period of risinG stoCE
prices. strictly investment bond ;
often have 4 tendency to decline ia
market value as funds are diverted
from investment to speculative chen
nels. However, during -uch time
bonds 1hdt are CbnNcttlDic or li,Nt =
stock purchase warrants attached
usually appreciate i'll market price
through enhancement in the value of
the conversion or warrant feature, d
movement which runs parallel to the
rise in the corporations junior secu-
rites.
8 Imitation is also a threat to bond
prices. and. with the huge gold re
serves now in this country. the
danger of imitation exists in a create
degree than perhaps ever before i'll
oar history. Rising commodity prices.
which reduce correspondence the
| purchasing power of the dollar. bring
| liquidation of investment bond hold
/ incs by those who recognize that the
fixed income from bond investments
! at such times also has u reduced pur-
1 chasing power. This lIuidatiou
| causes declining bond prices. 1t i
! true. also. that in such periods Of
! imitation and rising commodity prices
| corporate earnings are usually larger
as business is done on an advancing
scale and stock prices tend TO sld-
vance. In the same measure THAT
this general advance is reflected III
the stock Of a corporation which mas
convertible bonds outstanding. viii
it also find reflection N he com
pany'S convertible issues i"resDec-
tive OF basic economic influences.
which may tend L. dcp..e.-S ihe price
! of purely investment bonds.