The Washington herald., 1929-11-02
Corporations Buying
Stock Out of Surplus
Bargain Market Lures Firms to Become
Bootleg Investment Trusts; Banks
Approve Idea
BY MERRYLE STANLEY RUKEYsER

ment trusts is not entirely new.
Even in normal times, some COM
panies, such as Allied Chemical
and Dye, invested their surplus
largely in high-grade common
stocks. The Sun Life Assurance
Company of Canada. has in re.
cent years built up an enormous
portfolio of common stocks.
On account Of the great defla.
ton of prices. less funds are now
currently needed to finance the
carrying of securities, accord
ingly. the outlook is for lower
interest rates. and there Is ac-
cordingly less incentive for cor.
porations to continue to COM
pete with banks as lenders In
the role of bootleg lenders. The
time has come for the shift
ing of corporate funds from loans
to investments.
Conservatively managed compa-
MES in normal times supplement
cash reserves with portfolios Of
high-grade bonds and commercial
paperS The switching of corporate
funds into commercial paper and
securities will help to create more
normal conditions.
OF course well-managed compa
MES will not overlook the advisa
bility of keeping large proportion
of their funds in cash and it's
equivalent to be ready for contin.
gencies. Investment trusts have
been withdrawing cash to acquire
stocks this week.
John J. Raskob. former chair.
man Of the finance committee of
the General Motors Corporation,
who warned the public that he
thought stock prices were too high
before the last presidential elec-
ton, now reports that he and his
friends are reacquiring standard
stocks at prevailing prices.
In referring to the imminent
conversion of bootleg lenders to the
role of investors, Raskob, who is
chairUan of the Democratic ma
tional committee, pointed out:
Huge amounts of money have
been loaned i'm the call money mar.
ket at most attractive rates during
this period by people who ordinar.
lily would have this money invested
in securities. The present decline
in the stOClt markets OF this cOun-
try has carried prices, i'm many in
STANCES. to levels ridicuIOusly low.
with the result that nearly all the
standard railroad stocks are cheap
and the industrial list is filled ith
stocks selling at real bargain
prices. "..-...
The terrific deflation in the
good stocks recalls the aphorism
ascribed to George Blumenthal.
retired partner of Lazard Freres.
who said:
''There are no good stocks and
no bad stocks. There are only
dear stocks and cheap stocks"
The governors of the New York
Stock Exchange showed superb
showmanship in waiting for a
sharp rally before closing the
doors. To have shut down the
market place while the liquidat-
ing movement was on in full
force would have been misinter-
preted.
The truth is that the public
has overtaxed the facilities of the
machinery for speculation, and
the shutdown yesterday morning,
today and tomorrow will enable
the clerical forces to catch up on
the records-and will give pros
trate and overworked brokers a
chance to get some sleep and
rest.
1t will, incidentally, give out.
siders an opportunity to decide
whether to follow the Rockefel-
lers, the Raskobs and the Nor
gans, or to continue behind the
banner of highly emotional eco-
nomic illiterates.