Evening star., 1927-09-18
STOCKS reflect
GOLD INITIATION
Big Business Slump and Ex-
cessive New Security FIota-
tionS Likely to Halt Rise.
BY GEORGE T.. HUGHES.

Special Dispatch TO The Star
NEW YORK. September 17.-For
the weeks advances in the stock
market. some of them wild and some
of them apparently reckless, there Is
still only one explanation, and that
is the surplus of money. In other
words, stock prices are rejecting gold
imitation
This theory seems to 1T admirably
except in one particular. II imitation
is at work in stocks. why does it not
appear in commodities? Upon the an
swer to this question depends the ac-
curacy Of the analysis.
Taking the list of quotations COM
piled by Dun's Review. we find out
OF IS changes, 43 advances and 81 de-
ClineS \ week ago there were 3S
increa Ses and % reductions. On this
showing the present trend is slightly
upward. At any rate, there is no con-
tinuation of the decline which had
been in progress almost without in
terruption for a year or more.
Basis Too Slender.
The basis is too slender to justify
any confident conclusion. There is
certainly no imitation in commodities,
no rising price level in any way COM
parable to that in stocks. Whether
it will come or not remains to be
seen, but if it does not appear it will
look as il the imitation were one
sided affair
There is no change in the money
situation itself. Brokers' loans this
week, as reported by the Federal Re-
serve, set a new high record. The
total was S3,249, Psi 900. which was
and compared with a total of 81 $780,
of compared with a total of S2,S20,-
1900 in the corresponding week of
1926. Nevertheless the supply is fully
equal to the demand, and this week
call money dropped back to 3la per
cent. the low of the year, after hav-
ing been a full point higher just be-
fore the midmonth turnover. 1t is
hard to impress spectators with the
total of brokers' loans when constant
increases in that total have no effect
on charges for day-to-day money.
The Federal Reserve Bank state
ment tells the same story. The re-
serve ratio is higher than it was a
week ago, and much higher than it
was year ago. Total gold reserves
of S2,9S3,762, 900 compare with the
record 1927 high or SS,O70,1 900 on
May II. and with $3.167.52 900, the
July %, 1924. Moreover the Depart
nIent of Commerce reports gold i'm.
ports for the eight months ending
August 81, 1927, of $179,9S7, 900
against exports of only S3319S, 900.
Nowhere in these figures can there be
found any reason to believe that eX-
cess. gold will not prove the control.
ing factor in the monetary situation
for long time to come.
Rail Earnings Lower.
If that be true, what is there to
stop the rise in stocks? The only
reasonable suggestion is pronounced
recession in business, and it will have
to be pronounced if it is to be effec-
tive. Take the railroad stocks, near
~ all of which have been firm. and
some of which--for instance, New
York Central-have sold this week at
the highest in 20 years. The Inter-
state Commerce Commission reports
for lS3 class ! railroads gross earn
ings in July of $509, ,379, $50 contrasted
with $557,S95.1T9 in July, 1926, and
net operating income of $S4,3S3,392
against $116,974, SOS. This is a very
sharp falling off and supports the
statement OF railroad authorities that
the peak of railroad earnings was
reached in 1926. And yet luis has
had no effect on railroad stocks.
Similar comparisons could be drawn
IN the case OF many large industrial
companies. 1t suffices to instance
United States Steel, which is operat.
ing far below the rate of a year ago
at this time, and still it's stock makes
a new high" almost every day. The
only exception is with. the public
utilities, which do report increases in
earnings both gross and net. Here,
too, however, the rate of increase
is much below what it was a year
ago. So it does not seem as if the
market were paying much attention
to current developments in the bust
ness world.
Bond Offerings Heavy.
One other interruption is possible
and that is some excessive fiotations
of new securities. The bond market
ran into condition of this kind in
June, but it affected the bond mar.
ket and nothing else. Something Of
the sort may be pending now. New
bond offerings this week totaled $197.-
$4,000, compared with S47,1I9.O0O
last week and S115, ,317 900 in the same
week of 1926.
Bond prices have been steady. that
is about all. They are a trifie higher
on the month to date but below the
peak reached in May. II the prece.
dent of June is to be observed there
may be period of slow distribution
and still no important response in
stocks. 1t is interesting to note that
speculation in bonds has reached the
vanishing point. All the resources of