Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-11-17

Week Ends With Rally as
Credit Situation Rapidly
Clears Up.
BY CHARLES F. sPEARE.

Structive policies Of local and national
character got the better of destructive
forces In the middle Of this week and
abruptly checked stock market liaui-
dation Of more alarming character
than any that had preceded 1t since
the downward movement in prices be-
gan early in October.
The week ends with q recovered
poiSe by Wall Street, a substantial rally
in stocks from Wednesdays low levels
and with the ills of the money market
fast disappearing, as quotations for
securities again approximate their
actual worth.
One can not be too confident of the
immediate outlook for stocks in view
OF the enormous amount of wreckage
from the market collapse that is strewn
over the country. There no doubt will
be days OF reaction and discourageme
as stocks taken over" to relieve Arms,
corporations and individuals are slowly
liquidated. There will also have to be
price adjustments to changes in the
fortunes of corporations, as a smaller
volume OF business affects their earn
ingS and their ability to maintain divi-
dends. 1t looks now, however. as
though the acute phase of the stock
decline, which have deeply involved the
markets for commodities and for do
| mestic and foreign bonds, has passed
over and that with the 40 per cent cut
in brokers loans, the reduction in the
Federal Reserve rate of rediscount to
4 u per cent and general slashing of
short and long time interest rates, there
would be a gradual sterilization of
prices of speculative securities and inn
proved demand for investment issues.
Fear Seizes Stock Buyers.
The fright which possessed holders
OF securities early this week. and
brought men with the highest grades
OF stocks and bonds down to Wall Street
with the determination to sell them at
| any price, was due largely to the failure
! OF the market to hold the rallies that
had followed the decline of October "a
and October 30. 1t was intensified by
the knowledge that many individuals
ana corporations had purchased stocks
between the middle and the end of
OCTOBER on the assumption that they
had reached bottom only to find them
selves in much the same serious situa-
ton as others who had carried stocks
down from the high level Of September
to October "a
Thls caused the resale of great
quantities OF stocks only recently bought
and terrific shrinkage in the market
value OF the shares of trading corpora
tons, investment trusts and instit,l-
lions that were known to have prema-
turely entered the market and to have
nearly exhausted their cash resources.
This combined selling by two groups
brought Wall Street closer to disaster
on Wednesday afternoon than it had
been at any time previously this year,
A phase OF the distress which con-
tinued for another 48 hours after the
stock market crisis had passed was the
offering OF the primest municipal and
corporation bonds and Of public utility
preferred stocks for bids, and the
sacrifice of these investment issues
either to protect margin accounts or
to employ their proceeds In the pur-
chase of deprecated equities. Along
with 1t was n virtual collapse in the
market for a considerable body of South
American and Central American bonds
and in German issues which were
f1oated two years ago when salesman
ship was at premium and ignorance
of values of foreign securities aStound-
ing.
Europe has had her great currency
panics since the war in which the Rus
SLAMS, Germans, italians and the French
nadly exchanged their depreciating
money for securities or converted 1t into
commodities or real estate. With
America panic took the reverse form
i ne AnlCILCd1 pubic GtldJ Ildu OCCl III
the stock market attempted TO convert
shrinking securities into cash within a
few weeks Of the time when securities
to 1t appeared more valuable than cash
This stTange flight Of capital is one of
the most extraordinary chapters in post
war financial history.
On . Solid Foundation.
Securities now rest on a more solid
several years. They pay good dividends
at current prices. Even should divi-
dends be reduced somewhat in con-
sequence of smaller operating proflts,
this contingency has been fairly well
discounted In this weeks low quota
lions. Obviously there should be
careful selection of stocks to avoid IN
vestment in industries that must be al
fected by what has happened in wall
Street. There should also be close
analysis of present prices in relation TO
prices of the same stocks on the old
basis of classification. While many look
cheau TODAY 1t will be discovered they
are not bargains when they are traced
back through q series OF spit ups
and various capital diluting processes
AS middle ground between the pur-
chase of equities at their present lev
els and yields and mortgage or deben-
ture bonds, the public utility preferred
stock today carries with 1t most attrac-
tive features. In this weeks massacre
of investors many such stocks were
pressed down until they touched prices
giving the buyer return OF from 10 Z
per cent, and in one notable instance
of nearly 10 per cent. Formerly the OBJ
lection to this class OF shares was that
they carried with them small possibili-
ties of appreciation, as many were close
~ ttair caII t1riceS This no longer OBJ
tains. for they are quoted all the way
from 10 points to 80 points from the
redemption figure. There is probably
less likelihood Of disturbance to public
utility earnings in the near future than
to those of industries or railroads,
which makes this group Of preferred
stocks one of the most satisfactory out
lets for those who now have investment
funds available.
These shares, like bonds, are inf1u-
enced by money rates. AS time money
has declined in the past so. days from
above Q per cent to So per cent and
as a AZ per cent rediscount rate will
compel a steady reduction in the rate on
cali. preferred stocks, along with fiXed
interest obligations, will benefit thereby.
Strength in Business Situation.
The ability of Wall Street TO go
through the greatest and swiftest depre-
citation in securities in its history was
due to the universal demand for ade-
uuate margins on brokerage accounts
and to the manner in which the New
York banks had fortified themselves
against just such an episode as had
occurred. The strength Of the business
situation at the present time rests in
the cautious attitude of merchants and
manufacturers throughout long period