Evening star., 1928-12-09
SMALL INVESTORS
ARE HIT BY SLUMP
Those on "Fringe of Market"
Wiped 0ut-Danger in
Situation.
BY CHARLES F. SPEARE.

NEW YORK, December 8.-The cor
roding effect that prolonged big money
rates inevitably has on top-heavy
stock price structure revealed itself this
week in the first decline of any conSe-
uuence since last June. The average
of the market broke II points, which
cleared the air and brought people who
have been operating with borrowed
capital to their senses.
The reaction however was small in
proportion to the advance that has
taken place since the Federal Reserve
discount rate was raised to per cent
in July While the situation has I'M
proved, it still is dangerous.
The slump caught those who mlght
be said to have been on the fringe OF
the market-thoSe who first entered II
after the election and were still buy
ing when the top prices were made on
November 80. They have been playing
chiefly on the day-to-day tips" Tne
worst that has happened to them has
been loss of Is to 20 points, with
still ample protection to their brokers.
The instability of many OF the pools
that have been formed since November
6, having taken the leavingS OF earlier
pools satisfied with their success, is evi-
denced in the lack of protection which
days and Fridays breaks.
Speculative Leaders Analyzed.
Let us analyze a few of these specula-
tive situations. Take, for instance, Amer
ican g. Foreign Power common STOCK,
which sold at 221a earlier in the year
and a short time ago advanced TO 70.
At that price it was selling between 50
and 40 times its earnings per snare
This week it was down to 81. Then
there is Andes Copper, still in swad-
ding clothes. but recently bid up from
36 to Sc by the brute strength OF one
pool after another which succeeded the
original distributors of the stock When
they were pleased to take a lO-polnt
profit. Friday it fell like a plummet
to within 2 points of its initial price.
Erie common was taken up in the
high SOS and forced to about 7212,
against the readily available inforE1a-
ton that dividends on the preferred
shares are not in prospect, to say moth
ing of distribution on the common.
This stock had also a weak UNDER
pinning and dropped a dozen points
before those who had bought on some
one else's say-so could protect them
selves. Between two sessions, Packard,
the latest market pet. already up 100
points without visible reason, dropped 20
points.
These are only few typical situa-
tions in which imagination rather than
good sense has played part in boost
ing prices to levels that could not be
maintained under pressure of high
carrying charges and more critical
Judgment of actual values. It is not
intended to disparage these particular
issues, but through them to indicate
what has happened to some of the late
arrivals on the scene.
Wealthy Holders Undisturbed.
Turning to the stocks that have most
distinguished themselves this year, we
find that in the reaction Montgomery
Ward is off 100 points from its recent
high, Radio Corporation 124 points,
General Motors 33, u. S. Steel 20, New
York Central 16, American Smelling
& Refining 25, and General Electric
IS points. This average loss of so points
would bankrupt the little player on the
speculative stage. It is not sufficient
to disturb the large numbers of wealthy
individuals, to say nothing of the in
stitutions and investment trusts, who
can still reckon their profits in this
high-grade group of securities in terms
of from so to $50 points.
So long as prices of stocks were ris-
ing it did not much matter whether
money rates were per cent or 10 per
cent. The new public was inclined to
give the money market the merry
ha-ha" every time there was a furry
and figuratively to put its fingers to its
nose when bankers advised caution. The
shoe is now on the other foot. Prices
are declining; money is rising. A COM
bination of the two is fatal to those
who borrow In order to play the ma
tional game of stock gambling, unless
they have well filled purse. At such
times the public remembers some of
the advice that had been given to it
and gets more worried than it needs
10 over each unfavorable development
Mellon Statement Effective.
What Secretary Mellon said in his
annual report about speculation and
the Intellectual efforts of the Federal
Reserve to check it in its early stages
for his reference seems to have been
to the period prior to June-was not
nearly SO forcible as the statements of
others who do not profess to be so
sacrosanct. 1t timed, however, with
the discovery of series of leaks in the
dikes that had been thrown up around
the market and, therefore, was disturb
ing. There is always some specific tech
nical situation that discloSeS the weak
ness of speculative market. In this
instance Canadian Marconi did to other
stocks what the Giannini group of bank
shares had done to them in June.
Those who have to meet the present
high rates for money naturally rebel
against it and maintain that there is
no excuse for IL per cent call loans
when commercial paper rates are 512
per cent. They are paying the penalty
of their excesses, which are as danger
Gus in their way as those of a drunken
motorist who crowds other drivers into
the ditch. The signals have been clear
ly enough set against them for long
time and should have been recognized
and obeyed
The ratio of reserves of the member
banks in the Federal Reserve system Is,
at present. the lowest since the Sum-
mer of 1921. The renewal rate for money
at the closing of the week was at the
highest in nearly nine years.
Along with this weeks rise in call
money has been a return in time loans
to approximately the previous high
level established in October These
rates are not artificial. Even if the
Federal Reserve were inclined to aid
spectators, this would not be the
month of the year when it could do so
without the risk of injuring the legiti-
mate claims of merchandising and in
dustrial interests.
Prosperity Evidence Ab0unds.
As the year closes there are increas-
ing evidences of the prosperity which it
has brought to large number of COR
porations. Dividends are being in
creased, not only from the profits of
direct operations, but in many cases
from the return on investments In Sc
curities of other companies, as we'll as
in surplus funds placed to advantage
In either the time money or the call
money markets. The peroration in the
Presidents message to Congress aptly
describes conditions as follows:
THE country is in the midst of an
era of prosperity more extensive and of