Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-08-04
new YARDST|cK ! :
.s.,.,-y.. ---s44
ON ISSUES NEEDED
Question of Stocks or Bonds
for investor Now Under !.
J. Different Light.

Special Dispatch to The Star. -. =,
NEW YORK, August 3.-The two in
determinate questions that arise from
the discussion Of securities today take
/. Do the prices Of common stock at
their present high record average rep
resent their full value. when considered
in the light of probable developments in
| the next few years2
2. Are prices Of mortgage bonds at
| the existing low average higher than is
warranted by demand and by a COM
parison Of their yield with that OF
money?
AT the opposite ends Of the measur-
| ing rod OF values are common stocks,
until recently considered as speculative
but now admitted into the family Of
| investment issues, and bonds that by
past generations were alone entitled to
be received into the portfolio of the
conservative buyer of securities. but to-
day are discarded and In contempt.
Predictions Are Awry.
Those who predicted all Of last year
that common stocks were too high,
who again claimed in May that they
were Unfortunately high and who be-
lieved that the new average Of early
June must be followed by a reaction
we're wrong. Others who stated In the
Spring of 1928 that bonds had entered
period that would not end until
yields of 3lz and 3 per cent had been
fixed on highest grade corporation and
tax-free obligations were wrong. So
were the bankers who predicted easy
credit conditions and another long term
of low interest rates on the eve OF the
stiffest money markets that have been
kaA
It is as difflcult at present to come
to a conclusion regarding fair prices Tor
common stocks, reasonable prices Tor
bonds and the probable course OF money
rates as 1t has been at any time during
the confused era of market imitation.
That a readjustment will come In time
and bring with 1t serious financial con-
sequences Is generally admitted. When
and for what causes or to what extent
the existing stock averages Will be
pared down no one really knows. Those
who now claim to know what stocks are
going up or are going down later. and
sell their advice, are simply d1shonest,
mentally or commercially.
New Measuring Rods.
The main reason why so many stu-
dents of securities have erred in their
Judgment Of common stocks Is that
they have applied to them old tests and
rejected new ones. It had long been
accepted that q. stock was too high
when 1t failed to return to the owner
a rate of income somewhat above that
of bond, a fair margin being y to
per cent. Long ago the yield OF
equities" fell below that Of the prtmest
investment securities, with scores OF
those that gave the least yield showing
the greatest percentage OF appreciation:
People who were wisest have been buy
ing stocks the past two years for appre-
citation and not for income.
Another error, which dovetailS the
first one, was that stocks could not go
on rising while money rates were high.
There have been contradictions to this
argument in the markets of the past,
but never for so long period and sell
dom where the buyer of stocks had so
little in the way of dividends from them.
He may have been carrying his stocks
with 10 or Is per cent money, but he
was getting between 5 and 2 per cent
on the cost price. Frequently this year
he has been holding 5000 and $500
speciaities on which the returf was
nominal. but he has not been at all
worried by a 10 per cent or IL per cent
monthly brokers charge, as this was
covered times over in the rise in his
stocks.
There is, Of course. a situation affect
ing the high average price range which
had never until this bull market been
operative-namely, that OF the income
tax-which In its practical effect pro-
hibits the sale Of securities on which
substantial profits have accrued. Finally
there is the increasing factor OF the
investment trust and trading corpora
ton, whose combined purchases have
taken millions of shares Of common
stocks from the market and reduced
the supply to such low figure In some
cases that efforts to obtain additional
shares have resulted in astonishing
overnight price advances.
Higher Levels Visioned.
When the ill-informed In Wall street,
as well as the better informed, say that
American Telephone q Telegraph WIN
sell for $500 a, share. that General Elec-
trio will reach the same level and that
United States Steel common will go"
to 300 ION this movement" they nave
no facts on which to base such conciu.
sions. Probably the men who are most
intimately identified with the three cor
porations would say today. as they have
for a year or. more, that the stocks were
already too high. The historical record,
however, Is that they have all gone
through several sets of prices that
seemed fantastic when they were first
mentioned. This makes the possibility
of higher and higher levels seem logi-
cal and explains why holders Of such
stocks and scores of others will not sell
them so long as there is the present
volume Of high revenue business in the
country.
Neither will they sell when they look
back at the prices that have been set as
the probable high on each occasion when
the speculation seemed to have .culni-
mated, but which have been exceeded by
dozens of points in the succeeding mar
ket REVEALS. Some illustrations. OF how
stocks have gone from one high peak to
another within the present year Will
suggest the difficulty of persuading
shareholders to take their profits and,
with cash In hand, be able to buy them
back at lower levels.
Record Of Advances.
Allied Chemical last year touched 252.
BY May it was so points higher. Sub
sequently it sold nearly 100 points above
1928. Between 1926 and 1928 Allis
Chalmers rose. from 70 to 200. In May
it reached 212, but 1t has since sold
within. q fraction of 285. American
Power g. Light went from 60 to 95 last
year. In May it was lit. This week 1t
was 40 points above the level at which
1t was regarded as a logical sale two
months ago. American & Foreign
Power started at 10 in 1927, touched Is
in 1928, was lit in May and on Friday
above lao.
When American Telephone sold at
21l last year there were many who said
1t was too high for its per cent divi-
dend. It went to 233 in May. Those
who then realized as much as 100 and
1875 points profit on original purchases
mr. siihscrintions would have had nearly