Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-12-31


Cheap Money Plays Rig Part.
II is unnecessary here to so into
the technical details of tho money
! situation, which was the dominant in.
tiuenCe in the market the year
through. In brief il was the huge sup.
! plies OF gold held in this country, be-
tw zen 45 and 80 per cent of the supply
Of the entire world, that was the foun-
dation on which the structure of ris.
Ing stock quotations WAS built.
The effects of this surplus of gold
was intensified by the deliberate policy
, OF The Federal Reserve Bank designed
I" keep money rates low. There were
! economists who disputed the expedi.
encN of the course adopted. The con.
troNerSy that arose when the reds.
count rate OF the Federal Reserve
Bank of Chicago was reduced bv di.
raction Of the Reserve Board at
. Washington and over the protest of
the local authorities is fresh in the
minds of all who follow such matters
/ But whether the policy was justified
or not. the result was the same
Week by week and month nv month
brokers loans mounted to higher and
higher levels. BY the end of Novem.
Der the total as compiled by the Stock
Exchange had crossed the 81 900 900.
ooo mark. At first when these in.
creaSes, announced weekly hy the
Federal Reserve and monthly by the
Stock Exchange. came out, the
market had shock. Toward the end
OF the year an increase in each sue.
cessive statement was taken as
matter of course and was devoid of all
effect.
The one item that was watched was
, the fnr rnnnar Inn~
this was not lifted. spectators looked
with Indifference upon the showing
made by the lean figures. That this
Is a dangerous state OF mind need not
be emphasized. Somewhere there
must he limit to the amount which
speculation can absorb with safety.
That. however. is not the point For
nine-tenths OF the time the stock
market of 1927 acted as IL there were
no limit 10 the supply of available
credit.
Gold Movement Tide Turns.
Moreover. toward the end OF the
year the situation developed a new
feature. That was the revelation that
the gold tide had turned. Up to the
end of October there was a gold i'm.
port balance on the year of $39l42..
! 600. But when the accounts for the
IL months ending November 80 were
made up IL was found that imports to-
tailed $9S.30l 900. compared with ex.
ports of &fl2.ss5 900. making an ex-
cess of exports for the year of STA
5S4. 600
IL was in November also that the
Federal Reserve agents at New York
gave to Wall Street the first informa.
ton that $40. 900 900 had been added
TO the gold held here in ''earmarked"
accounts for foreign Interests. When
gold il "earma rked" in the United
States 1t Is equivalent to an export az
far az making the gold available for
credit expansion is concerned. Sec.
rotary Mellon in his annual report
pointed out that foreign countries now
have balances here amounting to up
ward OF 81 coo. 900 900. which con.
stitute claim upon our gold reserves
which may he exercised al any time"
In December came the first gold eX
port 10 London In several years and
this was followed by shipments Ia
Holla nd.
Lower Money Rates Unlikely.
This outflow of gold, i'm itself unim.
portaDt because OF it's relatively small
amount. nevertheless started dis
cussion az To the ultimate result II the
movement should continue. President
Mitchell of the National city Bank In
an address AT Chicago deprecated the
emphasis pat upon gold exports on the
ground that exports were Deutraiized
49, an influence on money rates by the
open market operations by the Fed
ersl Reserve banks. sun note Of
caution ran through the address and
IL Was suggested that the welfare Of
al f.a Nt1fk cd
slightly higher interest charges even
though il did check speculative opera
lions In the stock market. The "A hole
sub lect H. much complicated but one
point - very clear.
Money may remain available on easy
terms despite gold exports. but there
~ MOI going 10 be any lower level of
iater than now prevail.
Looking 10 the future. this money
question IN Of prime importance.
should there he any hardening IL
could aot bat show itself In security
price, Every speculation entered
into bong iifne basis must take
this factor into acrount. The other
e.efnenf in the problem j. the bust'
ness outlook The second half of
1879 waS period of mild reaction in
trade A. the year closes predictions
- 10 i33S are universally opiimirtlc.
n would lie hnrtY, however. 10 draw
the conciusion that business recovery
uiil be foiiomed by stilI higher level
81 rtook prices
The r"ason ~ that stocks have been
advancing regardless Of the reaction
8treadY referred 10, Many ~ them
tsluss ALREADY have discounted the i'm,
ptogrtnent that al hope for. Con
slider the fsct that the declining prof
~ both II tndustriais and railroads
during 1877 enincided with rising
ttfiaes for the stocks concerned In
Dtbet words Abe market paid no htien'
ijDn 10 thr falling on ~ earnings, That
~ tn The average. There were, al
ryulas indi gidiiai siocts ~hi"h re
f'ected disappointing operating results,
itIt ih@ tnstket as IL whole "as un-
ane"tfd
fauii,n Signals srt for 1928.
Win pJhhc utilities selling ~ -
times earnings per share, industriais
"a - times and railroads not much
L~ipH ~ times II is obvious thht the
market price Of The stocks has run
ahead ~ iH"pfur statements hnd that
~ upturn IN profits, possibly quite
.Ibstantjal wDulJ MOI necessarily
mean ans further rise IN quotations
iDt tIIe shsfes involved Certainty
. ihiS - true III The innnsiTihis
The THiIoaos ana the utilities
~Vabt be affected adversely by nnY
large sdyan's in commodity prices
snd - the yFaf draws 10 a ri,,se cam
. nodii# Prices sr.tn Ia Dc tfendiBg np.
, ~aTd Then too. there IL the poiiiifai
. situation 10 bee .uusIdaTed Whatever
I hsDDens ~ Warrington. ~ the best
= il NOS likely to enhance the market
value Oi STOCKS
Summing IL all np "aUtion fran
both the speculation ana Investment
4ieN points H. strongly indicated.
. -He~e-+-aa