Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-10-24
DECLARES STOCKS
WILL RESIST DROP
Prof. Fisher Does Not Believe
Prices Will Hit Pre-War
Level.

trict Bankers Association at the Will
lard last night, Prof. Irving Fisher,
noted Yale economist, predicted that
the New York stock market will be
ragged" during the remainder OF the
year and that in 1880 the bull move
ment will be resumed. After yesterdays
terrific break, he said, many people see
a long bear market ahead. while
do not pretend to be a prophet, yet I do
not believe stocks will settle back to
anything like pre-War levels"
Dr. Fisher stated that what he terms
the 'lunatic fringe" which is made up
of those who speculate in stocks with
out knowing anything about their earn
ings, prospects, etc, is just now receiv-
ing rough treatment. He has believed
that speculation has been one Of the
less important elements in the mar
ketS advance. But in view of today's
happenings, that fringe may be much
larger than / had supposed" he COM
mented. Speaking on rs the Stock
Market Too High" Prof. Fisher said:
Question of Initiation.
The stock market has advanced to a
past three years of this long bull move
ment every reaction Of the stock price
level downward has been hailed as the
beginning of q major bear movement.
Thus far this major downward move
ment has not materialized; instead,
there has been a series OF fluctuations
up and down on the new plateau, until
its highest point was reached In August
of this year. The sharp decline Of
September and twice in early October,
like all the other declines, again en-
genders the fear that the price level
Of stocks might go down to where 1t
was in 1923 or earlier.
This fear arises from q belief that
the stock market is inflated. Is 1t Ill
lated?
Utilities, for example. are selling at
251a times their earnings, and 1t Is
asked why the prices of their stocks
are so inflated" as compared with the
larger yields Of bonds in the same
companies.
But it should not be forgotten that
bonds will not share in future great
savings and economies, such as are
reasonably expected from the recent
mergers in the utilities field. Stocks
will get all of these greater earnings,
for the bond return is fixed. Moreover,
should the purchasing power OF the
dollar diminish, the real return OF
bonds, both principal and interest
that is, its power to purchase goods
would shrink, while the margin OF its
shrinkage would be transferred to the
increased dividends on stocks.
Increase in Profits.
So if the stock market is now inflated
it would be only because the earnings
apportioned to the account of stocks,
both distributed and undistributed,
have not increased or shown any like
lihood of increasing in the ratio OF the
increase of the price level OF stocks.
But the contrary is the case.
In a study of Alb companies record
ing the increase in profits reported dur
ing 1927 and 1928, Ernst & Ernst, &C
countantS of New York, md an IN
crease by more than 2012 per cent in
profits remaining for common stocks,
after payment of preferred dividends;
an increase of cash dividends by 12.48
per cent, and an increase OF reserved
earnings by 1851 per cent.
1t is true that this group Is classed as
prosperous concerns" which paid COM
mon dividends III cash both years and
which had earnings in excess OF al
dividends paid; and that companies
showing deficits either before or after
payment of dividends, or which did not
paw common dividends out OF earnings
in both years, were excluded. The COM
mon stock of these companies would
represent the more important blue
chip" issues in the market. So TAR as
they are concerned, it would seem that
the stock market is not much, if any, too
high. This prosperous group increased
its cash distribution during 1927 ana
1928, besides retaining in 1927 earnings
of 80 per cent of the total and OF AZ per
cent in 1928.
Profits Retained in Industry.
This increase in the rate of blowing
back earnings warrants the higher level
of stock prices during 1929. The figures
Indicate approximately the general pro-
portion of profits retained in industry
for the various purposes of business ex-
pansion, sterilization of DIVIDENDS
through lean years, recouping Of prior
losses, strengthening of capital struc-
lures, and so on.
1t is very probable, as Mr.. Babson in
dicates by his analysis, that there mas
been a very shrewd selection of stocks
going on within the several groups; in
fact, that there has been a careful
selves. Some groups have been prosper
Gus. Other groups have been not so
prosperous. Investors have not been
buying leaders Unfortunately in any
one of the groups; they have taken care
that they should pick leaders in the
more prosperous groups, in preference to
leaders in the less prosperous groups, or,
perhaps, often to the exclusion OF such
leaders in unproSpcrous groups. For
example, there has been bull market
in utility shares and bear market In
motor shares. Directors of investment
trusts and investment counsel might be
expected to ignore the leaders in the
relatively less fortunate motor group,
and to concentrate for their portfolios
on the leaders in the utility group, and
so on. diferentiating FIRST as between