Evening star., 1927-11-20
FLOOD Of MONEY
BOOSTING PRICES
Bond Income Rate LoW-P0.
liticaI Outlook Playing
Larger Part.
BY CHARLES r. SPEARE.
,ecial Dispatch to The Star.

NEW YORK, November 19.-The
income returns on all high grade in
terest and dividend paying American
securities have been connieqg down
this week as funds have Towed in
volume into the security markets.
The controlling factors in this situa-
ton have been a scarcity of supply of
both bonds and stocks and the ease
in money rates. These are likely to
exert their influence for some time
to come.
Bonds have already entered the
zone Of values that distinguished the
years of cheap money in the early
part of this century. United States
Treasury issues this week have sold
below $40 per cent basis. Liberty
312s have risen until they provide
the purchaser with only tritie over
3 per cent First mortgage rails are,
all close to 4 per cent yield: good
Az per cent public utility bonds are
up to about par. and the best or the
) per cent industrial mortgages are
between 104 and 106. 1t is apparent
that the day has gone by when the
incomes from select list or secufl-
ties would materially assist in cover
ing the cost of living.
Security Prices High.
Stocks have travelled along the
same road as bonds and many of them
at a swifter pace. There is no record
Of an averag for industrial shares as
high as that now obtaining. Neither
is there a parallel for the prices be-
ing quoted for a large group OF rali-
road securities. many of which dlo
not exist 10 years ago. The COM
posite figure of all of the income
bonds, preferred and common stocks
of the railroads that went into re-
ceivership between 1914 and 1920 and
subsequently issued new securities to
replace those on which there had been
default would compare very favor
ably with that Of any other period.
Public utility stocks are not so high
on the whole as they were two years
ago when the craze for combinations
and the attendant holding company
was at it's height. though the prices
on the best of these stocks are in
relatively the same position as those
Of an equivalent type of railroad and
industrial issues.
There remains, therefore, com.
paratively small group of what may
be called investment railroad stocks
that are still we'll under the quota.
tions prevailing in the last great era
of low interest rates and broad public
speculation in securities. From this
standpoint the opportunity for fur
ther expansion in market values
would seem to be rather limited.
Four Swings i'm Prices.
In the past four months there have
been four pronounced swings in prices.
A slump in August was followed by
1I,. l1t4 hot
September. Liquidation in October
produced the largest decline of the
year. but by mid November two-thirds
of the average of this decline had
been regained. Meanwhile. what has
happened in the realm of business, OF
banking and of politics to correspond
with these violent fluctuations?
Stock values are based on several
elements First of all is the element
of earnings on capital. Next, the
proportion of these earnings paid to
the stockholders and the proportion
that goes into reserve or may be
applied to additions or betterments
from which great earning power is
created. This will establish d book
value and indicate equities on which
a. third form of appraisal of value
may be based. There are also to be
taken into account in estimating the
fair price of a stock the general condi-
ton of business, the state of national
politics, worldwide affairs and pos
sibilities of consultations or other
means to effect greater economies and
promote efficiency.
Industrial Profits Decline.
Since the first definite turn in the
market this year developed in August,
thnpn hos hnnyf CT fraC inn in,
industrial activity and in Industrial
profits, but latterly an expansion in
the purchasing power of the agricul-
tural States which should very soon
be translated into more orders for
manufacturing concerns. If one were
to take six representative stocks from
the industrial and railroad groups and
measure their present worth on the
basis above outlined, nearly all would
compare unfavorably with their worth
last August There was less available
net profit in the September quarter
from which stockholders might expect
to share than in the June quarter. and
there will be an even smaller balance
i'm a large number of corporation state
mentS in the December quarter than
in that of September. In spite of these
facts, stocks have been advertised
more in the past three months by
their advances than by their declines.
There are only two ways to explain
this contradictory condition. One is
the universal employment today of
money in the markets for investment
and speculative securities inasmuch
as the accumulation of funds outruns
the normal commercial requirements,
with banking institutions steadily eX-
panding their holdings of securities
until these aggregate $6, 100, 100000.
The other leavening process is politi-
cal in it's character. 1t expresses the
policy and program of the leaders
of the Republican party who are con-
cerned primarily with national pros
perity in the next II months and
propose to nurse along this prosperity
and emphasize ID constantly. First
and foremost the Coolidge admins
tration has been identified with the
material well being of the country
and as the chief apostle of prosperity.
Mr.. Coolidge may find it difficult to
resist the approaches of a party that
must expect to receive its strongest
support from those who have not
benefited from its program since
1924. Wall Street has never been
willing to admit that Mr.. Coolidge
would not run. No small part of the
recent recovery in stocks. when trade
~ nave beCI Is
due to it's conviction that he would
be a drafted candidate next June.
Politics Putting on Brakes.
Were the political outlook to clear
up there would he decided impetus
in business and especially in quarters
that have felt the restraint of both
producers and customers since the
August statement from the Summer
White House. The effort on every
hand now Is to stabilize industries
that have been demoralized. for in.
stance, sugar. oil. iron and steel and
textiles. Encouragement to go further
along these lines would be given were
the political policies of the country
for the next four or five years more
clearly defined. as the relations with