Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-01-13
WATERING STOCKS
CONFUSE TRADERS
Buying Lacks Aggressive
ness Recently Shown; Move
ment Is Uncertain.
BY CHARLES # SPEARE.
'ispatch 70 The Star.

rule the stock market, Is perpleXed and
bearish on prices, while the younger ele-
ment in the street continues bullish
though not with the degree of conf
dence expressed throughout 1928.
Summing up the conditions that
trends In the next few months, We have
the following that are bullish:
Cd A good volume of business and a
satisfactory outlook for earnings In
most of the leading industries, except
perhaps automobiles. as we'll as with
the public utilities and the railroads.
CD Consultations bringing together
larger corporation units and involving
the accumulation of stocks and new
financing. These will affect some OF
the leading industrials as we'll as pub
lie utilities. They may later develop
In the railroad world.
Broader Stock Ownership.
(S) Associated with consultations
will be various "split-ups" promoting
wider public speculation and q
broader stock ownership. In this con-
nection 1t was pointed out this week
that the 43,500,000 shares of General
Motors Corporation stock now listed
are equal to more than half the total
shares of $50 different companies dealt
in on the New York Stock Exchange
Is years ago.
a. Along with good business and
the effects Of consolidation and more
efficient methods of manufacture and
distribution should be higher average
of dividends. This seems necessary
in order to correct one of the most
striking anomalies of the present situa-
ton, in which the average return on
industrial common stocks Is about a
yield on bonds.
(5) Unprecedented large cash reserves
available from both private investors
and institutions to act as cushion In
New York stock market decline, plus
margins that now range between IS and
so per cent and which were very little
affected by the abrupt slump in prices
in December.
go Possible settlement Of the repara-
tons question which would re-establish
economical and political conditions in
Europe and lead to an increase In her
purchasing power, from which the
United States would be the chief gamer.
CD Finally, on the constructive side
Of the market, is the strong speculative
instinct that has been developed in this
country in the last few years. turning
the reserve funds of corporations into
stocks and the capital of individuals
from bonds to stocks. and which it will
take time to extinguish.
Bearish Factors Listed.
On the other side Of the picture, as
bearish influences, are:
(A) High money rates and the proba-
bility that rates will be high, so long as
stock market requirements lap up all of
the surplus funds Of the banks. 1t
cost the average trader In December 10
per cent to carry stocks with his broker.
9 per cent. There Is no sign yet that
this Is wearing out the public.
tB) Connected with this, and reSpon-
sible for 1t is the enormous total Of
brokers' loans, debts among brokers Of
such size that many of them are refus-
ing to take new business and increase
these debts, and the persistent manner
in which time money holds up in the
face Of drop In the past week in call
loans from IL per cent to per cent.
One of the old school brokers remarked
the other day, 81 cannot get very bull
ish when I have to pay 7is per cent
for 90-day money"
(C) Finally, as bearish is the fact
that bonds are much cheaper today
than stocks from an income return
standpoint. A compilation recently pre-
pared shows that two years ago this
month the investor who bought bonds
would have received an average of 470
per cent on group of As selected
issues. Subsequently, this yield went
down to AZ per cent. Today it is about
where it was in January, 1927. Con-
trariwiSe, industrial stocks two years
ago returned an average of 565 per
cent. This yield has moved downward
ND iSa4n
ruptions. At present it is well under
per cent
In general, the cost of carrying the
popular industrial stocks is from two to
four times the rate earned on them
This difference has, of course been
compensated many times over in the
appreciation in market values of such
stocks,
II the bullish factors today seem to
outweigh those that are bearish, they
do not have the pronounced effect Of
similar market status a few months
ago. This may be because of the sea-
son. which is one of hesitation in bust
ness and traditional uncertainty In
stocks. There is not the aggressive
ness to the buying that has previously
been shown. Strong features develop
IN one part OF the market each day
Elsewhere there are evidences of liqui-
dalton.
II it Is q bull market 1t is one OF
conspicuous discords Wall Street seems
to be more fearful of what may hap
pen than encouraged by what is OBJ
viousiy favorable in the news Of the
day.
The president Of the largest nationa,
bank in the country said this week
Experience teaches that the danger
In every period Of prosperity lies ir
the development of overconfidence and
q consequent tendency to unwise use
OF credit. If this present period O.
prosperity is halted, 1t will be by the
same old cause, and we are bound Il
guard against it."
Consumer Demand Increased.
The head Of the second largest bank
IN the United States made this com.
cent years, the American people
have been selling capital assets a
prof1t and necessarily treating tn.
proflt as income. Fortunately. the,
have recapitalized by investment par
OF the profit, but not all ha
been recapitalized. A substantial par
has been spent in current con
sc0ption, partly luxury consump
ton, and the volume of consumer &c
mand RS undoubtedly been increase,
thereby"
This brings the stock market into ar
intimate relationship with business fol
II, prosperity is halted" it will be be.
cause speculation has absorbed so much
of credit that too little remains fo
commercial development. Secondly, i
the profits of speculation have pro
NOTED the prosperity Of many in
dustries. these industries must flatter
out when speculation becomes unprofit
able. So there is a close connection be
tween what the stock maliket may d.
this year and what hanJicaps stool
speculation may impose IN the bust
ness world
Change in Investment Holdings.