Evening star., 1929-06-30
PUBLIC MORE CAUTIOUS
in STOCK MARKET DEALS
Break of Last Spring Shakes Confidence
of Traders-Attitude of Investors
81 ), Is Now Apprehensive.

! Nevertheless there are some generaliza-
| tions which it seems safe 10 make:
! % Speculation was carried on in
| record breaking volume. 1t absorbed to
itself credit in record-breaking amounts
Fundamentally this was the cause of the
| credit stringency.
| 90 The money Stringency was accen-
| tuated by the deliberate policy of the
| Federal Reserve banks. They withdrew
credit from the market directly by sale
| of Government securities and of bills,
and they did it indirectly by bringing
| pressure to bear on the member banks.
| (3) The extremely high rates for
! money had the effect of bringing In as
| lenders corporations and individuals
never before prominent in that field
| Eventually more than so per cent of
brokers' loans came from this source.
(4) It was always within the power
of the Federal Reserve banks to have
! eaSed the credit strain If they had seen
| fit so to do. Analysis of any weekly
condition statement will demonstrate
this.
(5) The justification for this course
on the part of the Federal reserve was
first that speculation had reached a
dangerous stage and second that the
amount of credit absorbed by the stock
market, with the consequent high rates
for money would, if it had not already
done so, adversely affect trade.
Statistical Data Lacking.
For the most part the foregoing
points need little elucidation. Some
thing may be said. however, about the
argument advanced in the fifth para
graph. Whether or not speculation had
reached the danger stage is a matter of
opinion. From the very nature of the
case, statistical data are lacking 1t
may also be questioned whether specu-
lation per sc Is a proper subject for
consideration by the Federal Reserve
authorities. 1t falls within their prov
ince only when and If its influence ex-
tends to general trade.
Now as to the injury done to business
either by speculation or by the high
money rates that speculation brought
little evidence was advanced. The only
really important unfavorable develop
ment during the six months Just closed
was the collapse of wheat and the break
in farm prices generally. For this
neither speculation in stocks nor higher
charges for money can be blamed. Ger
tainiy there was no indication of injuri-
GUS reaction on business of the steel,
the automobile or the distributive trades
However that may be, the Federal
Reserve policy had the desired effect.
The rise in stocks stopped and the
market repeatedly sustained violent
breaks. The most spectacular one was
on March 26, when call money at one
time was officially quoted at 20 per
cent, while in the outside market loans
were said to have been effective any,
where from % to 25 per cent. On this
day alone SIT stocks made new low
prices for the year up to that time.
A Historical Event.
. Collapse was averted and the mar
ket was turned about an hour before
the close when the National City Bank
came into the money market and offer
ed funds in quantity sufficient to meet
the need. Perhaps never before in the
history of the Stock Exchange has
there been such sudden rally as took
place between 2 and 3 pm. on this
March day. Observe that it was not
so much the high rate for money that
broke the market as it was the fear
that money would not be obtainable
at any price. For his course in this
crisis the head of the National City
Bank was severely criticized in some
quarters, but that he did public serv-
Second only to the March break
was that Of May %, the day after the
statement of the Federal Reserve Ad-
visory Council in favor of higher dis
count rates was made public. On this
occasion more than 200 stocks went to
new 1929 lows. There was another
bad break a week later in sympathy
with the drop in wheat under one dol
lar bushel for the first time since
the World War.
After the deflation in May. the mar
ket encountered period of dullness
with activity falling to the lowest levels
OF the year. The only feature was the
renewed upbidding of the utility stocks,
where imagination was stirred by the
formation of investment companies de-
signed either to acquire control or to
buy substantial minority interest in the
principal holding and operating corpor-
ations. Speculation in this part of the
list was an unrestrained and extrava-
CANT as it had been elsewhere earlier
IN the year. Earnings per share were
capitalized on an unprecedented scale.
The leading stocks in this group sold
at times for 20 and 80 times earnings
per share and sometimes even more.
Conservative Element Wary.
Theoretically, this speculation was
based on the steady increases in earn
ings the electric light and power COM
panies report the apparently limitless
demand for their services and the ex-
perienced and intelligent management
in control And yet the rapid rise in
prices for these stocks did not COM
mend itself to the conservative ele-
ment in the Street, nor, for that mat
ter, to the executives of the corpora
tions themselves. If the market esti-
mate of the value of these shares is
correct reduction in rates charged to
customers is surely indicated and pub
| lie service commissions are not likely tc
overlook the point. Then, as President
| Mathew Sloan of the New York Edison
J Co. pointed out at the convention ot
| the National Electric Light Association
| the electric light and power industry
is facing the dual problem of declining
sales per dollar of investment and ris-
ing investment per kilowatt hour.
| Space does not permit detailed re.
view of the status of other groups ot
| stocks. In general. it may be said thai
I the market was not indiscriminate ir
/ selecting its speculative media The
| indictment is not that the shares which
! led the advance represented trades il
an unfavorable position, but that the
| rise was carried further than anything
! in the present situation justified Of
! anything likely to develop in the future
warranted. Whether or not this is
| true bill is again matter of opinion
The claim has been repeatedly made
that common stocks should, and will
! hereafter sell on a lower yield basi:
! than on higher price earnings ratio
! than they did before the war, when tht
| United States was a debtor Nation in
stead Of a creditor, as it is today. AL
| lowance must also be made for the mod
ern popularity of the equity investmen
over the fixed charge security.
! AGREEMENT ON NITRATES