Evening star., 1928-12-31

H*Ss*xf& 3$# S4<1{47|" GNSIy Qudt GSI. 4AlIo
sSM was first between
# 81 issuing houses
q &s1 themselves who
ch,-,.. sr.,r. went out after new
bond offerings and
paid prices for them so high that the
public would not buy them. This led to
the congestion from which the market
suffered from May until october. Next
came the competition with money rates,
which entered the situation last Spring
on the advance in the Federal Reserve
discount to AZ per cent-the popular
bond coupon rate of that period-and
was intensified later by the rate of
per cent and six-month era of from
51s to 71a per cent time money. Finally
bonds came into serious competition
with stocks. The public that flooded
Wall Street with its buying orders for
weeks before and after the election
scorned securities that move only by
eighths and quarters If they move at
all, Even many of the old-fashioned
investor type abandoned the bond mar
ket for the thrills that come from hold
ing equities" that gained more in one
week than would bond in genera
ton.
Convertible Issues Favored.
The rivalry between bonds and stocks,
however, did not stop at this point. So
intense was the passion for speculation
and so insistent the demand for share
in profits that many borrowers were
compelled to give a concession in the
form of stock warrants with each bond
issued Obviously, this made it more
difficult for those with straight mort
cages to sell to interest the average in
vestor. Along with this was the spec
tacular advance in quite a large group
of convertible bonds, which for two
months completely overshadowed all
other members of the bond list.
This, however, is not a new develop
ment. It has occurred in all other eraS
of speculation when the public Is OBJ
SesSed with the idea Of making quick
and substantial profits from stocks and
will not buy bonds unless they have
convertible or some other optional fea-
ture promising share in anticipated
corporation profits. 1t may now be
more lasting than in other years, for
there is unquestionably trend away
from bonds and toward stocks, due to
the success that the public at large has
enjoyed in the latter since the war and
cultivated by the policies Of the invest
ment trusts and the advice offered by
the growing body of investment coun-
sellorS.
Going back into the early part of the
year we find bonds then still influenced
by the abundance of capital and the
low rates of interest which had carried
over from 1927 and were promoted by
the Federal Reserve policy in its 3la
per cent discount rate of the previous
August. Most of the high prices for
Government securities and for many
first mortgage railroad and public utility
issues were established in January. The
return on them at. that time approx
mated those of Is years before. In the
general belief that interest rates would
be low for long period of time, pre-
dictionS were made that even the pre-
n1iun1s OH 3ia and per cent bonds in
the early part of this century would be
duplicated. In December the Treasury
had offered $3.50, 1000, 900 of 3H per cent
one-year obligations and had received
subscriptions covering the issue four
times. It was these notes that were
refunded this month at 4A per cent.
Speculative Fever Rises.
At the end Of January it began to
be apparent that the country was In
rapidly getting out of control. To check
this the Federal Reserve raised its dis
count rate Of per cent. This failed
to have the desired effect. It apparently
did not disturb holders of bonds or
issuing houses. Prices for corporation
mortgages continued to advance. New
bond and stock offerings flooded the
markets from January until May. It
was a period when corporation that
could not sell per cent bond was
looked upon as in poor credit. The ma
jority offered and sold AZ per cent
issues. Some were bold enough to
attempt their refunding with per cent
bonds at a substantial discount,
however.
In the first half of 1928 the total
emission of all corporation, foreign gov
ernment and municipal financing, either
with bonds, notes or stocks, was $780,
100000. This wiaS $3.50, 900, 900 greater
than in the same six months of 1927
and over 40 per cent larger than in the
first half of 1926. OF the total about
80 per cent was for refunding purposes.
Nearly $1,000,00 900 of AZ per cent
bonds alone were issued, mainly by the
public utilities and the railroads. These
low coupon issues retired old mortgages
or preferred stocks with rates subStan-
TALLY higher than the refunding bonds,
and therefore, greatly to the advantage
of the borrower. For instance, the re-
funding operations of the public utilities
alone in the form of bonds were over so
per cent of their new capital issues,
while two-thirds of the new railroad
bonds placed were for a similar purpose
There was at this time nearly as great
craze for these low coupon bonds on
the part of the institutions as developed
later with the public for stocks. Most
of them went Immediately well above
their subscription prices. The expecta-
ton was that very soon all of the
per cent public utilities would sell at a
premium even though they were not
legal" under their new status in New
York State. Those that were legal"
sold in some instances as high as 414
per cent basis.
Sense Of Values Lost.
Looking back on this period one has
the feeling that the underwriters and |
the investors in April and May had lost |
their sense of values almost as COM |
pletely as the public that later lost its
balance in stock speculation, for there |
was every warning that money rates |
were to be higher in view Of the export |
of $500, 100000 gold and the Federal |
Reserve policy, whether effective or not,
of keeping interest rates high in order |
to maintain the equilibrium Of the stock
market.
It was only when several Az per cent
foreign government bonds were offered
and refused by the public and then
quickly dropped we'll below their sub
woke to the situation and found them
SnlypS with a StaO0nrinp amount 0f nm |