Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-04-09

purposes, but the banking authorities
have seen fit to halt the flow of credit
into the security markets notwithstand-
ing Thus with credit conditions per-
haps more artificial than ever before,
we have no choice but to guess at the
possible outcome.
1t seems that the stock market is
to be held in check until business ex-
pansion comes to a halt. A temporary
business slump will undoubtedly come
sooner or later as 1t invariably has in
the past. With slackening OF busi-
ness, even II it proves to be no more
with continued high money rates. it may
not be so difticult to produce Liquidation
Of brokers loans.
Business and Stocks.
The chart shows the weekly trend Of
the stock market, together with the
business trend as indicated by pig iron
production during the first half of those
years in which the stock market and
business reached peaks. Below each
years chart is given the average cost
Of business credit, as shown by COM
mercial paper rates, during those
months.
Several things stand out. In the
first place, there is no definite inter-
| val between a stock decline and the
| business decline which followed. In
fact, In 1925 the downturn In stocks
and business were almost concurrent.
Another point is that stocks some
times began to rise again very shortly
after business had turned downward,
while at other times the recovery was
slower. While there are obviously many
factors affecting the speed of the mar
ket's recovery. 1t is especially interesting
to note that when the interest rate
on business loans is high, the reaction
is somewhat more severe and the re-
covery slower than when rates are low.
| In fact in 1925 and 1927, when interest
business had almost no effect upon
stock prices.
Preparedness.
This years outcome is of especial
interest to all. Many conservative OBJ
servers expect slower business after the
Spring seasonal peak Is reached. The
Harvard Economic Society, for instance,
said in q recent ullebtin: at appears
likely that a period of contraction
(business) probably more than sea-
sonal in amount-will not be long post
poned." But, although the cost Of
credit is somewhat higher than in re-
cent years, it Is not excessive, as II
was in 1907 and 1920. Furthermore,
taken together with other business fac
| tors, the business situation Is unques-
tionably sound and any decline should
| be temporary.
According to the experience Of recent
years, q decline in business, with the
cost Of money at present levels, would
mean q temporary decline In stock
| prices. The peak In stock prices has
| usually come q few weeks before busi-
ness activity reached peak, so that
| the investor watching for stock de-
| cline mush first guess when business
is likely to slump, and then place the
| date of the probable market decline
some weeks earlier.
The conservative investor, although
he should have unbounded faith in the
! future Of leading securities, is getting
himself In position which cannot be
| affected by any decline, and is probably
in a LIQUID enough position to profit
by bargain prices when and II they
come. ; He is also well aware OF the
fact that as q rule high-grade bonds
suffer least in any temporary unsettle-
ment In the security markets and are
the first to recover.
Copyright, 1922