Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-09-29
INCREASING LOANS
DEPRESS MARKET
Seasonal Recession in Indus
try Also Cited as Cause
for Break.
BY CHARLES F. SPEARE.
Special Dispatch to The Star.

NEW YORK, September 2S.-It may
turn out after all that the advance in
the rediscount rate Of the Federal Re-
serve Bank Of New York in August
brought the stock market to the part
ing of the ways, just as the formation
of the Blue Ridge Corporation at about
the same time opened the eyes of the
public to the improbable as well as
the profitable feature Of all indiscrimi-
nate subscription to so-called invest
ment trusts.
The higher rediscount rate here has
obviously been an influence in causing
the advance in that Of the Bank of
England to 6E per cent this week,
with the accompaniment of protec-
tive measures in other countries. 1t
has not been effective so far in check
ing the expansion in brokers' loans,
or In other words, stock market ac-
commodations, for these today are $740,-
100000 above the early August figure
and so per cent more than a year ago.
have been influenced by the rate OF
rediscount, with very little money
loaned on call this month under per
cent with time loans quoted at GA
per cent and debit balances in broker
age houses facing carrying charge OF
10 and 1ola per cent for the month of
September.
Investment Trusts Shaken.
Stocks Of new investment trusts and
trading corporations have not been act
that some Of the strongest sponsored
ones so down as well as up. OF course,
they have had to take their share of
the punishment that comes to q market
moving only in one direction for long
time and diScounting the future by
years instead Of by months.
II 1t Is true, and investigation sup
ports the belief, that the investment
trusts were responsible for advancing
the so-called "blue-chip" issues, some
of them must show substantial
shrinkage in parts of their portfolios
from the high level at the opening of
declines in this character Of stocks
of from 80 to 40 points, and even as
much as so points. 1t is also a fact
Of some consequence that the indus
trial average, which includes the public
utilities, was on Friday So points lower
than on September 3. and with the
exception of August 8, the lowest in
three months.
There are two clear explanations of
the sudden and decisive reversal in
stock market movements this month.
The first originated in an unSound
technical situation, represented in ex-
travagant prices for stocks that, while
thoroughly seasoned and of undoubted
value. had been overeXploited and made
to sell at a level discounting several
more years of prosperity at the recent
pace.
Signs Of Trade Decrease.
The second influence is to be found
In distinct indications Of business re-
ceSsion where this has an effect on
the country's largest industrial units.
It was first exposed in the unusual
decline In the untitled tonnage of the
United States Steel Corporation for Au-
gust. This was excused on the ground
have come earlier and had only been
postponed. But this week the Iron
Age stated in its review that "evi-
dences of price weakness have accu-
mulated as steel production has de-
clined," again, it said, Price develop
ments, although not Of sweeping
character. all point to a growing need
for new business"
The September bulletin Of the Federal
Reserve Board noted a decline IN pro-
duction in basic industries in August,
and for the first tive weeks of Septem-
Der, further drop in steel operations.
The industries chiefly responsible for
this slackening are those manufactur-
ing automobiles and Unidentified with
building construction.
The August statistics from the auto
mobile trade clearly revealed over pro-
duction and an unusual number Of UNI
sold cars In the hands Of dealers.
Linked with this was evidence that 40
per cent of the August production was
by the Ford Motor Co., which intensifles
So we have in this combination q suf-
ticient explanation for this weeks de-
cline in the motor shares, and in those
Of motor accessory companies, to the
lowest levels Of the year.
Aviation Shares Drop.
In another direction where there has
been public enthusiasm for securities,
namely aviation, equally clear indica-
with the sequel tremendous shrinking
in the market values of large body of
AVIATION stocks of good, bad and in
different caliber. Linked with this is
the depreciation that has taken place
IN the shares of investment trusts spe-
in aviation. Another disturb.
ing situation is that growing out Of an
in aviation in companies by
not necessarily familiar
with airplane building or with air trans
port, but finding this a profitable outlet
Tor their unemployed capital so long as
the public was aviation-minded.
One of the curious phases of the
year, and one that may later provoke
those who reflect 1t, is the extent to
which corporations engaged in one line
Of business seem to think that they can
be equally successful in others requir-
ing entirely different policies and
methods. While the theory Of DIVERSE
Iication on which the investment trust
Is founded has been lost sight of in the
activities Of the trading corporations,
many industrial companies have gone
far afield in spreading out their capital
sits on the same board Of directors
with the retailer of tobacco.
Rail Earning Ignored.
Proof that the internal condition of
the stock market has more affected its
actions recently than trade conditions
Is given In the way that railroad shares
have slumped in the face of the August
and the exhibit of net results
for the FIRST eight months of the year.
The latter surpass those pr any
rescued from government control in
1921. The average advance of nearly
Is points in railroad stocks, which took
place between August 8 and September
8, when Wall Street favored railroad
securities more than any other group,
has nearly all been lost.
1t is hardly to be supposed that old
and new investment trusts that pur-
chased rails" last month have dumped
hem out so soon, with all the Stats
teal evidence supporting their position
sequently, this group should be in
strong position when the readjustrnent