Evening star. [volume] (Washington, D.C.) 1854-1972, 1927-02-20
By GEORGE T. HUGHES.

Special Dispatch to The Star.
NEW YORK, February 19.-The
week has been a notable one in the
stock market. Speculation in railroad
shares, was, of course. the outstanding
feature. In some respects the demon
stration was more significant than
anything that has occurred so far
this year.
Compared with the Wheeling &
Lake Erie incident, resulting in the
so called corner, this weeks proceed
ings. have been. if not so spectacular,
much more important. For one thing
the market has been much broader.
1t was not alone the low and medium
priced. but the high grade. seasoned
dividend payers which were the OBJ
jects of buying that at times became
actually excited and resulted in numer-
Gus record prices throughout the Ist.
Such widely extended activity de
serves careful examination as to the
fundamental causes of the movement.
Strong Investment Background.
At the beginning it is in order to
point out that the present Market
has a strong investment background
This weeks prices for some. at least
of the better railway shares may ne
defended on the basis of investment
merit. It is not so much the return
at present dividend rates that counts
as it is the relation of quotations 10
earnings per share and the margin OF
safety, which is certainly greater with
the bulk of railroad stocks than II is
with the utilities of equal rank.
Comparison with industr1als cannon
be made on the same basis. Tor the
reason that there is no such similarity
as there Is between rails and utilities.
In order words, it does not need spe-
cial developments In the way of mer-
gers or consultations to justify pre-
Vailing prices for such railway stocks
as Pennsylvania, Union Pacific, Atchi-
| son, Chesapeake & Ohio and others
| In the same general class.
This much admitted. 1t is still true
| that most Of the buying Of railroad
| shares this week has been founded on
an entirely different set Of considera'
| tions. Investment values offer no
stimulus to speculative imagination
On the other hand the belief that one
| or more great railway systems were
preparing to acquire either by private
| negotiations or in the open market
the shares of certain smaller lines is
enough to encourage a bidding up of
quotations which might easily be car
ried to dangerous lengths.
Risk in Merger Speculation.
| Undoubtedly there are important
new alignments in process of forma
| ton in the railway world and some
of them will result in enhancing the
value of the shares concerned, but the
investor or the Spectator who simply
rides along with the tide Is taking
more than the usual risk. The only
prudent course is to base commitments
on values regardless of combinations
| actual or potential.
While all this buying has been go
| ing on in the railway list the indus
trials have presented a ragged appear
ance. Motor shares, in particular
| from time to time have been under
| pressure, and little Roadway has been
! made elsewhere, except in certain spe
| cial issues. In reality the market has
been more of a two-sided affair than
| a casual survey would indicate. OF
| course, all that this signifies Is that
!! there is doubt about the trade outlook
| in certain industries, a doubt that Will
| not be cleared up for month or more
| at least. Meanwhile the abundant
money supply acts as bar to any
major decline in the industrials. just
as it has served to accelerate the rise
| in the rails.
| A secondary reaction would not be
surprising whenever technical condi
lions invite it. but without some sig1