Evening star., 1928-12-31
MONEY MARKET AT ODDS
WITH SPECULATIVE GROUP
Industrial Consultations Follow i'm Wake
of Keen Competition-Inflation
Process Strongly Opposed.

VI increasing naUlOnal wealth. IN 1Orc-
ing an outlet for part of this wealth
into the market for securities. Neither
had they realized how fully the Ameri-
can public had adopted the European
policy of buying equities" regardless
of their income return, although these
returns were still high, compared with
those on similar shares abroad.
So we have in the first place a
fundamental change in the basis of
reckoning values, and with it the aban-
donment Of the old idea that the worth
of stock should be measured by the
return it yields and that this return
should accord closely with the going
rates for money. The present genera
ton of stock buyers has been con-
cerned primarily with an appreciation
in their capital, rather than with in
come on this capital.
New Yardsticks of Value.
Along with this has come another
theory, which, in effect, is that stock
should sell at certain number of times
earnings per share. The difference in
the viewpoints of the bull or the bear
on securities in 1928 has been expressed
frequently in the conviction of the one
that stock should sell from IS to 25.
and sometimes as much as 10 times
the safe ratio to from to 10 times.
Between these two extremes lie the
fields of speculation and investment.
And between March and December the
investment or semi-speculative era in
stocks passed into an era of stock
gambling.
Another point Of controversy between
the two elements has had to do with
the future of business; whether this was
to continue on the scale of the second
half of 1928 for another two or three
years or whether the country was to
run into an industrial reaction sufficient
to affect business profits and, thereby.
the prices Of all classes of securities.
To a greater extent than ever before,
stocks have been anticipating the far
off future and prices for them have
been freely paid on the expectation Of
a progressive rate of earnings and OF
dividends, although among many of the
popular shares were those that have re-
peatedly passed through the prince
and pauper' stages within an interval
of two or three years.
Montgomery Ward illustrates the new
theories of price-making as we'll as any
stock before the public this year. Some
months ago 1t was selling at about $l15
a share. This was 10 times its earnings
per share. Later the old stock reached
approximately $440, or 25 times earn
ings per share. The management Of
the company, by careful analysis OF the
probable return from the new stores
opened and the regular increase in its
original form of operation, estimated
that by 1881 the stock should be worth
$400 share. 1t has, however, antici-
pated by two years the calculations OF
fboco uhO oro in tho hest nNcitiOn tn
know what is going on.
The same extravagant calculations by
the public have occurred in numerous
other shares. This leaves one with the
feeling that there is not a great deal OF
slack for the market to take up from
now on, for it has anticipated the maxi
mum results as far ahead as it Is rea-
Sonable to judge them.
The issue between those who believed
that the prices of stocks had not dis
counted all of the elements in the buSi-
ness situation and those who were Of a
contrary mind and felt primarily that
speculation was sapping the strength Of
the banks, developed in March. The
leading representative of the latter
group was the Federal Reserve. If there
had been previously any doubt as to the
meaning of the higher discount rates
imposed by the system in that month,
1t was dispelled by Secretary of the
Treasury Mellon in his annual report
to Congress few weeks ago.
On February /, when the first ad-
vance was made In rediScounts by the
Federal Reserve, following the 3l2 per
cent rate established the previous Au-
gust in the interest of credit stabiliza-
ton in Europe, the average price Of a
list of rs railroad. public utility and in
{nl foy tN1o
was "a. On July 10. when the maxi
mum structures of the Federal Reserve
on speculation were reached in per
cent rediscount rate, the average price
of these rs. issues was 105. 1t will be
noticed that during the interval of over
five months, which included the madly
ascending markets of March and May
and the collapse of June, there had been
an increase in the average Of only IL
points.
1t might appear, therefore, that Wall