Evening star., 1927-09-04
STOCKS RECOVERY
FEATURE OF WEEK
Midweek Reaction Short
Lived-RaiIs Still Command
Confident Following.
BY GEORGE HUGHES.


Special Dispatch to The Star.
NEW YORK, September 3.-The
outstanding development of the week
in the financial world has been the i'm.
pressive recovery in the stock market.
The reaction of midweek was short
lived. Instead of bringing out liqul-
dation its only effect was to increase
the short interest, which, when cover
ing operations were attempted, accele-
rated the upward movement. 1t
j raised again the question of what is
behind the astonishing vitality of the
upward swing in stocks.
The first answer, of course. is easy
money and undoubtedly that is the
major influence. The fact that there
was no disturbance of the call money
rate over the month end was con-
vincing proof if any were needed that
we are in a period of surplus credit
unmatched in a generation. 1t is not
simply that money rates a low, but
that they are low at a ,.me when
normally there would be a seasonal
hardening.
Brokers' Loans Gain.
The increase in brokers' loans, con-
sidering the total of this kind of ac-
comodation outstanding, was of no
significance. 1t made no impression
upon the speculative mind. There
was nothing in the Federal Reserve
weekly statement to indicate any
change. The reserve ratio was
slightly lower than it was week ago,
but almost four points higher than it
was at the same time in 1925. There
was a substantial falling off in hold
ings of discounted bills, indicating
either less demand from business or
4 increased ability on the part of men,
. Der banks to meet the requirements
of their customers, most likely the
latter.
All this, however, is condition OF
long standing. Certainly easy money
made the path of the spectators for
4 the rise in stocks smooth, but easy
money alone is hardly a sufficient
explanation. The next question, then,
is what is the relation of the strength
in stocks to the business outlook?
There are many Who freely assert
that the stock market is out of all
touch with trade. That would be put
ting the case too strong. There are
plenty of instances in individual is
sues of weakness that can be at
tributed to unfavorable prospects for
the particular corporations concerned.
Yet il must be admitted that the
uniform favor extended to certain
groups, as. for instance, the railroad
shares, does not jibe with current
operations.
Rail Stocks Illustration.
The railroad stocks are the best
illustrations Of the point. They have
receded slightly from their best prices
Of the year, but they still command
a confident following. The president
of the Atchison was quoted this week
as of the opinion that 1927 results
for his road would not equal those
of 1926. The market, however, was
not discouraged. If one is to judge
from quotations on the tape, railroad
prosperity will be re-established by
early Winter. If stock market fore
casts are of any value at all, they
ought to be reassuring to railroad
stockholders.
Even the unexpectedly prolonged
depression in steel does not seem to
have dampened the ardor for steel
stocks. as might have been antici-
pated. The case is even stronger
with the general run of industrials.
There is no hint of discouragement
as to the automobile business in the
market for motor stocks. 1t may be
that some of these industrial corpora
tions which make public reports only
once a year will have sor1e unpleaS-
ant surprises for their shareholders,
but there is little sign of any such
thing in the market.
One more point deserves considera-
tion and that relates to the technical
position of the market. Old.time
spectators In Wall Street have found
a - a. I@sw H. sn1y vnx.tn
that have followed every reaction.
In the old days a market which had
one up as far and as fast as this
one would have been subject to vio-
lent setbacks and would not have
recovered in a day or two, either.
Oftener it would take weeks and
sometimes months. Why the differ
| ence now? The answer is two-fold.
In the first place there are fewer
thinly margined accounts. 1t takes
more than a few points drop to shake
out holders of long stocks. So far
no reaction has gone far enough
seriously to impair any great number
of accounts.
Increase i'm Short Selling.
The other factor. is that there is a.
great increase in short selling, an op-
GRAFTON that used to be confined to
professionals, but in which nowadays
the public INDUCES. There has been
q lot of selling Of stocks simply be-
cause they were higher than they
used to be, and this illogical specula-
ton has really strengthened the
market.
There has bene no bidding up of
h bond prices this week. On the con.
frary. in domestic issues at least. the
tone has been heavy. Many author.
tiles believe that if there is the pre.
dicted large amount of new financing
next week and the balance of the
month there is some danger of a
repetition of the congestion that ex.
listed In June. Presumably the in.
vestment bankers are fully aware of
this possibility, and will take stems
to avert it.
In the foreign field the chances of a
refunding operation by France have
Deen the principal topic of discussion
IL is agreed that France could now sell
In the market per cent issue at
only a light discount. The conyic-