Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-10-20
|EASY MONEY FAILS
AS AID TO MARKET
Stock Prices Break General
Iy, With Utilities Leading
Downward Plunge.
by GEORGE T. HUGHES.


Special Dispatch to The Star.
NEW YORK. october 1.-the sig
nificance of this weeks break in the
stock market lies not so much in its
severity as in the impression 1t has
made on the collective speculative
mind.
There have been other breaks COM
parable in the extent of the decline
| and, as q matter Of fact. the averages
have not been down to the lows Of the
collapse in the first week in the month
but the leadership on the down side
this time has rested with the public
utilities and 1t is this fact that has
created widespread concern, not simply
in trading circles In Wall Street, but
everywhere that interest in the market
exists.
The public utilities have been in the
van of the rise ever since the bull
market started. They have been the
stocks which resisted other reactions
the most sturdily and they have been
the ones that came back the quickest.
The utilities have accumulated larger
public following than any other one
group and they have kept following
better through all the viccissitudes OF
the most active speculative market In
history.
Bay State Ruling Chills Traders.
Now all that is changed. This Is
not to say that liquidation has gone
very far. The bulk of the selling this
week has been by professional operators
for the decline and by those closest
to the market. It is doubtful whether
outside holdings Of utility stocks are
much lower than they were a week
ago, but there are unmistakable signs
Of loss of confidence.
It was o comparatively untmpor-
tant incident-that is, unimportant
from the standpoint of the country
as q whole-that broke the markets
morale. This was the ruling Of the
Massachusetts, Department Of Public
Utilities disappearing the application
of the Edison Electric Illuminating Co.
of Boston for permission to change
the par value of the shares from 500
to $25. OF course the decision applied
to the Boston Edison Co. and to no
sets and on its face had only local
bearing.
But when that department, giving
| its reasons for its attitude, CURLY COM
mented on what It called the extrava-
CANT market appraisal Of Boston Edison
stock and said that to split the shares
at this time would be to deceive the In
weston into thinking that higher divi-
dend could and would be paid on the
new stock, adding that no increase In
dividends ought to be sanctioned until
there was q reduction in rates charged
for service to customers Of the company,
| It sent q chill down the backs OF all
traders In utility common stocks In and
out of Massachusetts,.
Earnings Highly Capitalized.
-
about the current selling price Of utility
stocks has been said over and over
again by others. No one who took the
| trouble to make even q cursory examt-
nation of the statistical facts has been
| in any doubt at any time about the ex-
traordinarily high rate at which the
market has capitalized utility earnings.
Stocks have been selling at 20, 30, 80
and even more times annual earnings
per share. It has been even intimated
that movement for reduction OF rates
might be started, but this was the first
time that these statements had been
made ofilcially.
incidentally, the investment bankers
at Quebec did not help matters when
they added their opinion that utility
stocks we're selling out of all proportion
/ to their value, particularly In compare
son with utility senior securities.
From a technical market standpoint,
the position of the utility stocks was
weak AS already indicated, they had
been overbought and were ripe for re-
| action. That the bull market in this
part Of the list, at least, has been
broken is q fair inference from the fact
| that with these stocks, II not with the
| averages as a whole, the resistance
points established In the clump of the
week ending october have been
broken through. AS the market letter
writers say, this Is bear point"
Trade Status Favorable.
| Once the market had been definitely
| turned downward other stocks fell into
! line, including. notably. the steel shares
and the higher priced industrials. Even
the rails were not exempt. although
they have not been SO much over
exploited. Almost the only group that
was able to stand up against the storm
| was the oils.
Now right here it is in order to differ
entiate between the trade status Of the
utilities and that Of other industrialS
Admitting that utility stocks have been
| carried to unwarranted heights, 1t II
| still true that the electric light and
power companies continue to report
| increasing earnings. Month by month
and quarter by quarter. net and gross
! of the operating companies and OF the
| older holding companies make favor
able comparisons with the correspond
ing periods Of a year ago. There is nc
sign of any change in this trend. In
other words. the valve of public utility
| stocks as distinct from their market
price is steadily growing. On this basis
there must eventually be recovery, but
from what point 1t will start is any
| ones guess.
It cannot be said with the Same
assurance that the outlook is bright
| with the steel and motor trades. fol
| instance. We shall know more about
that when the quarterly statements OF
the United States Steel Corporation and
of General Motors are at hand later in
| the month In sense the fortunes OF
the two industries are bound up. It Il
| the falling of in demand from the
| automctive trade that has brought
about the recession in steel activity. Of
which the market has made so much
this week No one disputes either thai