Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-04-07
VOLUME OF STOCK
TRADING DECLINES
Effect Of High Money Rates
on Business Causing
Concern.
BY CHARLES r. sPEARE.

EpeClal OlSptLCn TO Inc 6tNF.
NEW YORK, April 6.--What matters
most now in the financial situation !:
the future effect of prolonged high
money rates on business. It is the feal
of trade recession, involving not only
domestic but foreign demand for manu-.
featured goods, that irtent ifies the
struggle between the Federal Reserve
and Wall Street and casts over the
whole controversy the shadow of politi-
cal interference.
A banker returning this week from a
months absence in Europe confessed
finding distinct change in our in
dustrial outlook during his stay abroad
Concretely. he found new building con-
struction slowing down, due to the diff
ficulty in floating real estate bonds and
to the exorbitant rates at which mort
gage money is loaning. From the auto
mobile trade he heard reports of an ex-
cessive production, particularly in low
priced cars. which has overbalanced
current demand, with the added feature
Of cancellations due to the recent un-
settlement in stocks and the losses sus-
tanned by a part of the public This
suggests more than seasonal dullness In
the industry later in the year.
The effect of a recession in these two
major lines of business is likely to mean
less demand for iron and steel. The
rapid rise in copper metal has had q
tendency to restrict developments In
some lines depending primarily on this
basic commodity. There is more hesita-
ton in buying for future delivery.
Foreign Trade Affected.
The fact that so much foreign capt.
tai is being loaned here in the call
money market restricts business abroad
and reduces the purchasing power of
some Of our best foreign customers. In
addition to these specific signs of trade
reaction, there is the fear of further
disturbance in the stock market, to
which business always responds In
greater or less degree, and the unknown
factor of Federal Reserve policy in
bringing about the desired reduction in
speculative commitments.
II we take, however, the actual re-
suits of business during the first quarter
of 1929, We find in them abundant
cause for the optimism that has pre-
vailed and on which so large a part of
the rise In securities is based. This
week there have been additional divi-
dend increases among the copper COM
panies. Ten. or a dozen of the largest
manufacturers Of automobiles have re-
PoAeC0 1OE Tie I1TSJ
three months of the year and some
have exhibited their preliminary earn
ings statement for this period. All in
dictate growth and large profits for
shareholders.
Pig iron production last month aver
aged well up to previous high records
for the period, with iron and steel mills
running close to capacity. Numerous
manufacturing and distributing cor
porations have raised their dividends.
The chain stores and national distribu-
tors show a high percentage of in
creased sales over a year ago, when
they were contrasting with the slack
ness that characterized many lines of
trade, the actual gain IN the March
quarter being nearly is per cent Car
loadings have been satisfactory, with an
estimated movement for the second
quarter Of the year probably III per
cent over the corresponding period In
1928 f~
Commodity List Lower.
There is an absence of imitation in
the general run of commodities. The
wholesale commodity price list today is
lower than at any time in over a year
IN spite OF the fact that metals have
had such sensational advance. This
Is due very largely to the decline in
numerous farm products and to con-
spicuous weakness in a few other COM
modftieS, sugar being outstanding. The
decline this week has carried raw sugar
to the lowest price since 1902 and is
giving serious concern to the bond
holders of large group of Cuba sugar
producing companies.
The average rate for call money this
week has ben above 91k per cent, which
follows a cost to the borrowers on mar
gined stocks during March of from
10 to ii per cent. Time money is 8
per cent, or higher for some MATURE
ties than it was even In the critical
period of 1920 when the Federal Re-
serve rediscount rate was advanced to
per cent. Commercial paper is firm
at s per cent. While legitimate bust
ness can obtain all of the credit 1t
needs, the rub is not in the amount
available, but in the rate demanded by
the lender. When this carries through
to the borrower It obviously restricts q
great deal of development that may be
postponed six months or year, or
until the cost of capital is low enough
to justify the corporation or the mu-
nicipality in entering upon an expan-
sion or improvement program.
There are increasing signs that high
rates for money are checking progress
in parts of the South and in the grain
growing sections of the West. This
will show up later in the year, in crop
statistics and merchandise sales in
farming communities.
Trading Volume Shrinks.
This mixed set of conditions in BUSH
ness and in creadit has caused sharp
decline in the volume of trading in
securities, as portion OF the public
has retired from the market and the
professional operators have found IL
wiser to reduce their commitments
while a cure for the money situation
is being sought by the Federal Reserve.
The average of stock prices at the end
of the week is not much different from
that when the market closed for the
Easter holiday. A limited number OF
industrial shares have been advanced;
others have declined. There nave been
market opportunities for those who
trade in and out, but not much advan-
taqe in taking position on either the
long or the short side. 1t Will be q
healthier situation II the market quietS
down for a few weeks instead OF de-
yeIoping another vigorous speculation
such as followed the December and Feb
The two weak featurs In the Federal
Reserve situation are the lack OF har--
nony between members of the Federal
Reserve Board and directors Of the.
district banks, and the rigidity OF the
rediscounting policy of the system
There is q high discount faction in
the board and one that wishes to pre-
serve the status quo. The former be-
lieyes that the quicker the cure Is Ell
fected the better Il win be for business
in general and that the only remedy
IA q high discount rate. Opposed to
this is the semi-political attitude that
there should be mo chance taken Of
disturbing business -or unsettling 1or-
eign markets by raising rates.
a around $1,000 900 900. Bankers and
business men believe that opportunity
should be given for much longer de-