Evening star., 1926-10-17
PUBLIC IS TURNING
TO BOND MARKET
Prices Hold Firm as Stock
Values Tumble on Raids
by Bear Traders.
~ BYRON SELLER.
&peclal Dlspatch to The Star.

R1RON SELLER.
speclal Dispatch to The Star.
TEW YORK, October 16.-The bond
market gave remarkably good ac
count of itself this week. Prices for
securities of investment grade held
<-m all through the weakness in
A,ocks. More significant still, quota
tions were maintained despite cumu.
lative evidence of the withdrawal of
increasingly large sums from the Sc
Testimony of the weekly statement
of the Federal Reserve Banks was
eloquent on this latter point. 1t
showed rediscounts secured by other
than Government collateral at the
highest figure of the year to date,
and "A decline in the Reserve ratio for
the system as a whole from 1871 per
cent a week ago to 1871 per cent and
for the New York bank from 82.5 per
cent to 1873 per cent. But bonds were
as little affected by money as they
were by speculative sentiment.
Turning to Bonds.
The explanation that naturally oc-
ours is that investors are turning
from stock to bonds because at pres
ent prices and dividend rates the
WELD on the stocks is no longer at
tractive in comparison with that on
bonds. An advancing market in
stocks generally eliminates when
this position is reached.
Probably this is a partial eXplana-
Ton. ~but H. does not clear up the
" hole matter. for the bonds which
have been strongest have been the
highest grade. first mortgage rails
selling on 4.50 to AIS per cent
basisi, and. to some extent, securities
welding around per cent. If, then,
money is going out of speculative
stocks into bonds it is going into the
most conservative descriptions. 1t
is too early, of course, to say how
far this movement will go. 1t may
re only temporary phenomenon and
4, may be checked by further rise
in money rates, but at least at pres
ent the demand is sufficient to more
than maintain quotations at prevail
dng levels.
More attention is being paid to the
trend of commodity prices. Prob
ebly the break in the stock market
helped to emphasize this feature of
the situation. A prolonged down.
ward movement in commodities
would mean higher purchasing pow
er of the dollar and so enhance the
rate of return, that is to say, bonds.
Wholesale Prices Down.
1t is doubtful whether the average
man would admit that there has been
any reduction in the cost of living,
and proba bly,, as far as retail prices
go, he would be right in denying it.
If, on the other hand, values at whole
sale are examined. it is difficult to
find indications of an advance any
where, while signs of the opposite
tendency are seen on every hand. If
any particular commodity is taken
there is always a good reason for
the lower price. a reason that seems
to apply in that case alone, but that
does not alter the situation.
The advocates of the theory that
common stocks in the long run are
better investments than bonds, be-
cause. granted sufficient diversified
tion, they compensate for depreciation
in buying power of the dollar, are
not going to have the argument all
their way for a long time to come. if
the price movement now apparently
under way gains momentum.
All this has a bearing on the queS-
ton of whether new fina nCing shall
be done by stocks or bonds. some
thing of Importance to the railroads
and the utilities alike. The latter
are in far more favorable position
than the former as far as their capi-
tai structure is concerned. Compare.
for example. two corporations which
have announced this week their in
tention of selling additional stock
Detroit Edison and Southern Rail
way When the first named disposes
of the proposed additional shares. the
total of funded debt and of capital
stock will be approximately the same.
After Detroit Edison sells $S,0O0.O0O
to it's shareholders. outstanding stock
capital will he about $S,600,000,
against the total of mortgage bonds
of SS4 .4S4 900.
Position Vastly Improved.
Southern Railway proposes to sell
so 900. 900 new common stock out OF
an authorized total of $30,OOO,O0O. but
the comparison in the case of the rail-
road is between a present total of
funded debt of about $297.ooo,o00
against a total of capital stock. COM
mon and preferred. of $1S0,0OO,0O0.
not counting the proposed new offer
Ing. Southern Railways position is
so vastly improved that it will have
no difficulty in enlisting new part
ners in its business, but il, like all
other railroads. is in greater need
Of new partners than are the utilities.
Turning TO the foreign field. the
position is confused. European obli-
cations have found increased favor
this week. but South American ohli-
cations have felt the competition of
new offerings. In the former group
some of the French bonds have sold
this week at the highest of the year
and this Notwithstanding the belief
that ratification of the debt refund
ing agreement with the United States
Government is still doubtful. 1t
looks as if the question of the inter
national war debts is not as i'm
Dortant factor in determining the
market valuation of the dollar bonds
of the countries concerned as has
been generally supposed.