Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-08-07
INTERESTING WEEK
IN STOCK MARKET.
Presidents Stand and Cut in
Rediscount Rate Biggest
Factors in Trading.
BY GEORGE r. HUGHES.


Special Dispatch 80 The star
NEW YORK, August seldom
has the financial community expert
enced a week feplete With more ~
teresting developments than the OF
just closed II included declaration
by President Coolidge that he did not
choose to run for the Presidency
in 1923. 1t included n statement o!
brokers' loands, both by the stock En-
change for the month of July and by
the Federal Reserve Board for the
week at the highest of record. It
included a reduction ~ the rcdiscount
rate of the New York Federal Reserve
Bank from to Sig per cent. changing
most year.
Finally il included an exceptionally
strong bond market, even in the times
of high prices for investment securi.
ties, and q stock market that went
through a series of wild fluctuations.
covering perhaps a greater range than
in any one week in the entire year.
and ending with a violent outbreak of
llquidation.
All Factors InterreIated.
All these items were interrelated.
The announcement by the President
injected into the financial situation
q political note that had been lacking
since the last election. 1t created Il
feeling of uncertainty not only as 10
the speculative outlook but as to
certain branches Of trade. notably the
transportation industry. The rail
roads are Well satisfied with the pres.
ent legal status. Consolidation have
not made the progress that was ex-
pected, but they would rather leave
well enough alone than have this
subject brought up in the political
campaign with results that might not
be to their liking. Moreover, it is a
tradition of American business that
the presidential campaigns slow lin
operations.
The market took cognizance OF all
this on the morning after the Prpsi-
dent s. statement WAS made public.
stocks sustained q drastic break To
De sure. the recovery was very prompt
and pronounced. But later on in the
week there was another and more i'm
presslve decline. The liquidation that
set in on Friday carried prices down
IN some instances almost to the lows
or the Coolidge break. Perhaps a re-.
action would have come in anv event
been rising with little or no interrlp-
ton for months, and an unstable po-
sltion had been created, Nevertheless.
1t is reasonable to suppose that these
political doubts had something TO do
with the turnabout.
Rediscount Cut Important.
From strictly financial point Of
view the cutting OF the rediscount rate
week. It had been foreshadowed in
the weaking of rates for bankers &C
ceptances. in the lower charge for
time money and in other evidences of
a surplus Of Ioanabe funds. It had
been made almost certain when the
Kansas City Federal Reserve Bank
cut its rate Back of the whole situa.
ton is still our huge gold surplus.
Conservative bankers would like TO
sea some redistribution of this gold.
which is so much needed in countries
other than the United States. The
gold does not come in in quite such
large amounts as ii did, but it still
comes in. The weekly statement of
the Federal Reserve Bank did show
loss in gold reserves of some S13,500.-
600. but on the year the item was up
Sl73,10 900.
One result of the lower discount
rate here is likely to be a flow Of
funds toward London and so help
sterling exchange. Just as with any
other commodity, the cure for low
prices for money is still lower prices
Meanwhile investment securities are
forced upward by the insistent de-
rnand of capital for employment. An
advance in the bond market is entire
~ logical. Should there be an unex-
pectedly large revival in business,
that might make some difference, but
not much. The fact is that our
banks now are able to finance not
only all reasonable demands of com
merce, but record breaking specula-
ton in stocks. and that without max
ing much difference in rates.
Paradoxical Stock Drop.
II only remains to discuss the APP
parently paradoxical decline In stocks
at the precise time the ease in money
was officially recognized. The COM
mon explanation is, as Wall Street
phrases it, selling on good news" 1t
was much more than that, however.
It had been plain a long time with
brokers' loans at the peak, that the
markets structure was becoming top
heavy. Sooner or later it must have
toppled over Of its own weight. Incl
dentally with regard 10 the brokers'
loans the theory so popular Of late
that borrowings on account Of unsold
bonds We're largely responsible for the
rising total does not hold. Analysis
shows that the increase was in call
loans in greater degree than in time
loans. Now 1t is quite evident that
investment bankers do not borrow
money on call for the purpose Of car
rying new bonds
AS to the future, easy money must
Ike itself felt. Certain it will in
bonds which are primarily investment
securities and only in Il very secondary
way speculative. Almost as surely
the same result will follow in the stock
market. This is not 10 say that there
may not be q temporary reaction but
il is not likely 10 he prolonged. There
is little use in making a distinction
between Investment and speculative
stocks. Both are responsive to money
conditions Then, too, there has been
a good deal Of nonsense about invest
ment buying in the stock market. 1t
has been n factor but to a limited eX-
tent. Otherwise the investment stocks
would not have gone down with their
less artist ocratic cofnpa MONS.
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