Evening star., 1928-12-31
TWO MARKET REACTIONS
BREAK SOARING PRICES
Increased Public Interest i'm Securities
Trading Is Chief Cause of Wall
Street Activity

made astonishing progress. At one time
the question was seriously raised wheth-
er financing by bonds would ever be-
come popular again. 1t was claimed
that except for financial institutions
and trusts which are restricted by law
there would be no purchasers for fixed
interest rate bearing securities. There
is no space here to go into the merits
| of the argument. 1t was, however, one
of the underlying factors in the up
ward movement in the stock market.
The investment trust was also a COM
paratively new influence in the bull
market of 1923. These organizations,
miscalled trusts, we're formed to sup
ply the demand created by the vogue
of the common stock investment the
ory. Whatever the outcome of the pres
ent speculation, the investment trust
and the adherents of the new idea will
continue to be with us and to that
extent we have something in the mar
ket which We have never had before;
something that makes this market diff
fer not simply in degree but in kind
from its predecessors.
What of the Future?
Now we come to the other question
and perhaps the more interesting of
the two, what of the future? Did the
reaction in December foreShadoW a
prolonged decline or was it, like its
predecessor in June, simply an interrupt
ton in the upward movement? Before
attempting an answer, let us compare
the two breaks and see wherein they
were similar and wherein they differ
Both breaks came after the collapse of
a speculation in stocks. In June it was
the decline in Bank Of Italy and Ban
citaly stocks which gave the signal for
liquidation In the general list. and in
December it was Canadian Marconi
which performed the same service or
dlS-SerVlce, as you choose. Neither Of
these cases was important In itself, but
proved to be warnings of what was to
come.
In both June and in December the
breaks were preceded by greatly in
creased volume. 1t was in May and in
November that the Stock Exchange
was compelled to declare holidays to
catch up with business. incidentally, in
this respect the market followed prec-
edent. 1t is an axiom of speculation
that the turn comes at the peak of
the turnover. 1t used to be said that
when the stock market occupied the
frst page of the newspapers, either
when prices were declining or when
they were advancing, the end of the
decline or the advance, as the case
might be, was at hand. This did not
hold in 1928 simply because the mar
ket was of such magnitude that it
demanded and received first page treat
ment long before it reached the crisis.
Also, incidentally, the market deceiv-
ed old-tInle spectators without num-
Der. One such seasoned trader with
eyes intent on the tape, cynically re-
marked one day while prices were soar
ing, mo one over 40 years of age has
made any money in this market" What
he meant was that the old rules did
not seem to apply and particularly
the one that said the time to sell was
when speculative excitement on the up
side reached the fever stage. He was
wrong. The rule does hold The trouble
was that the fever stage is reached
noWadays at much higher temperature
than it used to be.
Money Conditions Different.
Neither the June nor the December
break came because of. any unfavorable
trade news. In both cases the specu-
lation collapsed Of its own weight from
reasons inside the market and not
from any outside developments. The
olueTence was In money conditions. On
June call money went to z per cent,
which was the highest of the year up
to that time. In each case the increas-
ed stringency preceded the market
break, but there is a vast difference
between per cent and IL per cent,
No such rate as IL per cent has been
quoted since the middle of 1920, a year
OF lll-omen when one speaks or rising
prices for stocks.
In appraising the future it is all i'm
portant that this money situation be
Kept IN mind. Making due allowance
Tor seasonal variations, there is no
propect of easier money until and if
there Is a downward readjustment in
stocks and cut in the amount of
money tied up in brokers loans. Then
there must be some reasonable cor
reSpondence between the cost of bor-
rowing and the dividend return on
stocks the borrowed money Is used to
buy. Any one can figure this out for
himself.
Dividends Out Of Line.
There was no such correspondence
during the greater part Of 1928. Look
at this table, for instance, Of the Yields
on typical industrial stocks at the high
points Of the year: