Evening star., 1927-05-01
SECURITY OUTLOOK
CONTINUES GOOD
Money Released by Falling
Prices Must Go Back Where
1t Came From.
BY GEORGE T. HUGHES.
spatch 70 The star

Special Dispatch to The Star.
NEW YORK, April 30.--The weeks
eharp declines in stocks and more
moderate reCessions in speculative
bonds make timely some reapprafsal
of the security outlook. The ques-
ton that all interested are asking
is whether the markets have entered
upon major downward movement
or whether this is merely an inter-
ruption to the advance. Let us look
first at the unfavorable items.
IN the first place there is the
Mississippi Valley food. Wall Street
was very slow to realize the extent
Of the damage done by overlooking
waters, 1t was a long time before
the serious character of the injury
done and likely TO be done was re-
fected in the market. Even then it
was only the securities of a few of
the railroads serving the afflicted
regions that were affected. Attention
was centered not on the loss OF
traffic or the destruction of railroad
property or even q probable decrease
in purchasing power of the pOpula
tion concerned. but upon the bene-
fits of the various consolidation
schemes which have buIked so large
in the speculative Imagination dur
ing all the bul market in the rail-
road shares.
Distressing Oil Situation
Second, is the distressing situation
I'm oil stocks nor any limit to the extent
reflected and that very fully in secu-
lity prices AT times it seems as if
there were no end to the liquidation
oil stocks nor any limit TO the extent
OF the decline in quotations. Opin-
ions by trade authorities that ought
30 be the best infOTced in the coun-
try, as published this week, have
been discouraging in the extreme. 1t
may be argued that the oil depres-
sion. that is, the orgy of overpro-
duction and price cutting. is not a
factor in the general market out
look, bur no, analysis of the situation
could well leave IL out of account
Then there is the competition in
various lines of trade, notably in the
automobile business. One or two
unfayoTable earnings statements have
depressed sentiment this week. In
steel it is the let-down from the high
rate of operation of last month and
the unsatisfactory price level that
have been emphasized by those dis
posed 20 take the gloomy view The
fact that the leaders in both the
motor car and the steel industries
have been able to surmount the diff.
culties which have been SO trouble
some to their smaller competitors is
not sufficient Offset to the situation as
a whole.
japanese Financial Crisis.
Looking abroad. the japanese finan-
cal crisis is q minor influence in our
markets. but one not entirely 10 be
ignored It is not forgotten that the
great defation Of 1927 was heralded by
commercial troubles in Japan. Condi-
tions a. present bear no resemblance
70 those Of six years ago but with the
whole world so closely bound up com
mercially and financially as it is today,
depression in any quarter is a matter
of interest 10 all
Coming down 10 the markets them
selves. the feature that has impressed
many observers is the action Of the
strictly investment stocks. n the
I5quidat ton Of uidweek il was not
simply speculative securities that went
down, but the higheat grade shares
The claim has been SO often made
that this is an investment market
that seusitiveness in this quarter
seemed particularly significant. q
Now for the other side OF the pic
ture. The weekly statement OF the
Federal Reserve Banks shows total
gold holdings arc at the highest fig.
TIRE Of the year and the highest at any
time since 1924 The reserve ratio is
JUST where It was a week ago, but it
is nearly 4 points above where it was
the same period IN 1926. Time money
and commercial paper are unchanged.
That is to say, rates are easy and
credit abundant. Cali money went to
) per cent at the week end. bat that
was in anticipation Of May dividend
and interest requirements and has no
bearing on the long range outlook.
Car Loadings Drag.
Gar loadings have fallen off some.
what. but that is because less coal
has been moved on account Of the
strike. The items covering general
merchandise show that distribution is
proceeding at high rate. Bank
clearugs Of leading cities have in
creased 1.9 per cent over the same
week year ago. Reports to Dun &
Co show that failures are up from
last week, but down from the CORE
spending week in 1929. The increase
this week seems to be mostly on the
Pacific Coast
Finally, and most important Of all
n the security markets are headed for
= long decline, what will become of
the money released? IT viii not be
needed in trade, for the assumption
le that business is going to fall off.
otherwise security prices would not
go down. There is no imitation in
commodities. no forward buying and
no transportation delays to absorb
capital. The conclusion inevitably is
that money freed by the sale of Sc
ctrities must 20 back into securities
again just where it came from. If
this reasoning is correct the current
decline can go no further than is
necessary TO correct the technical