Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-09-08
MARKET SITUATION
DECLARED BETTER
Sudden Decline This Week Is
Followed by Rapid and
Strong Recovery.
BY CHARLES F. sPEARE.
Special Dispatch to The Star.

rampant bull market may become
monotonous in the daily piling up o.
new high price records. Under these
conditions Its supporters grow over.
confident. There develops o stale con.
dition within 1t and a degree of tech.
nical weakness. Then a sudden blow
strikes 1t; 1t staggers, RECEIVERS and goes
one its upward way. The air is cleared
weak accounts are eliminated and from
trading. standpoint the situation Il
materially improved.
This is what happened this week
after a steady advance since August 8
during which the averages for indus
trials and public utilities had risen AZ
points and the rails had reached the
highest level in their history,
There was no real change outwardly
to bring about the collapse occurrinf
late Thursday. The Babson statement
certainly did not cause it, for it con-
tanned no facts to alarm the public
simply the prediction that some time OF
other stocks would decline, Just as they
have been advancing. This Is o safe
prophecy. Any one could make it. Soon
not, however, seem to apply to the pres.
ent situation. Already there Is q bat
tie on between the statisticians, with
those marshaling the constructive facts
in the outlook having the better of the
contest.
Many Undigested Securities.
In only one respect is there proper
analogy between the condition In stocks
Florida real estate In 1925. There Is q
great body Of undigested and frozen
local securities with which interior mar
kets will have to deal for long time to
come. These have been created out OF
the enthusiasm of local bankers for
their home industries, which have
copied the policies of the larger cor
orations both in merging and in issuing
new stock instead Of bonds for capital
purposes. These securities interior
banks are carrying in loans. Such loans
WI be liquidated slowly. An even more
serious situation is that Of loans by
banks to real estate operators and to
building and loan associations based on
inflated valuations. Out of this there
must eventually come in sections Of the
East distress not unlike that which has
prevailed in portions of the South.
= The unknown quantity In the market
situation is the capacity Of the invest
ment trusts to 60 on absorbing stocks
and their disposition toward their
holdings as profits accruing become SO
large as to tempt their resale. So
long as new trusts, with capital ex-
ceeding that Of many of our largest
banking institutions, continue to be
formed for the purpose of buying Sc
curities, and at the same time the sup
ply of the character Of stocks which
they purchase remains unchanged it
will be difficult to produce any very
great or prolonged market reaction. We
are firmly convinced, however, that the
day will come when the investment
trust will require as careful study for
what 1t may be doing on the selling
side Of the market as for the influence
it now plays In producing market ad-
vances.
New Trust Capital Created.
The largest amount of new invest
ment trust capital created since the
movement IN this direction started on
a broad scale in 1927 Is that Of the last
six or eight months. This comedies
ages for industrials, public utilities and
rails, not only in the Coolidge Hoover
bull markets, but in any other.
Opportunities have been afforded m
vestment trusts and trading corpora
lions, whose charters were taken out
as late as May /, to realize profits on
their capital stocks running at an an
nual rate of between so and $50 per
cent. Probably no type OF American
has ever before gained sue
cess on such a scale in so short time
Naturally this has deeply impressed
the investing public, which recognizes
its own limitations in measuring tne &C
tual values Of securities and also It's
lack Of courage in staying with q stock
when it declines.
Consequently, the American investor
has to q considerable degree abdicated as
a direct purchaser Of individual stocks.
Instead he has placed his market at
fairs with groups Of men who ne De
lieyes have the facilities for nvestigat-
ing securities and are looking more lot
long profits than for quick market
turns. The commonest grievance that
the American investor has with MIN
self is that in the last two years ne mas
sold his stocks too soon. There Is
much figuring going on today through
out the country on the profit A or B
might have made If they had held
Steel. or taken their rights" in Amer
lean Telephone or International Tele-
phone, had not been argued out OF their
Atchison with so points prof1t at 2OU.
but nearly 100 more points more To-Day,
ct cetera, ct cetera.
Investor Feels Secure.
AS q holder of the stock OF an IN
vestment trust, whose portfono contains
blocks of practically all of the impor-
tant corporation securities and whose
management is supposed to buy more
stocks when the market breaks rather
than sell them, as the public has been
in the habit of doing, the modern m
weston has q sense of security ana SAT-
isfaction never before realized.
It Is true that If he were to Sit down
and work out the prices Of the stocks
held by his trust" on the basis OF the
cost to him of his investment TusC
shares, he would find that In some
cases he had been paying quite nign
premium for the privilege OF peng
ever. the investment trusts are well
sponsored. They operate more from
the standpoint Of careful investigation
than from that of "tips" and "inside
and the fact should be
that they are making
their investments primarily In securl-
ties that may be high In price, but
whose quality is undoubted.
'.Mob Movement in Finance.
The channel through which invest
ment trust capital Is flowing into the
market Is steadily contracting. At the
same time the volume Of this capital
is increasing because more and more
money that was In bonds Is being
turned into stocks, in some cases to
overcome by expected profits in the
latter the losses that have occurred In
the former. In the same way capital
that has been in several hundred mis-
cellaneous stocks In the last few years
is being taken out of these stocks,
greatly to their market disadvantage,
and is joining that moving In the di-
rection of the high-priced, gilt-edged