Evening star., 1930-06-28

effort of the railroads to avoid cutting
down maintenance in conformity with
President Hoever's plan to avert un-
This policy was partially
reversed in the late Spring and early
Summer, as car loadingS continued to
fall off
Railroad stocks broke badly in April
and declined to the lowest r>$els of the
year in June. They had at no time
been objects of such confident specu-
lation for the rise as had the utilities
and the industrials, but that did not
help them much. So far as the stocks
themselves go, they had other handi-
caps marketwise than the immediate
earnings outlook. The threat of COM
petition from the automotive vehicle,
passenger and truck alike; the strict
regulation by the Federal Government
in the matter of rates and a political
attitude that was none too friendly
diminished the investment demand
that ought to have supported the shares
when they were selling so much below
their highs of last year and at so at
tractive a price-earnings ratio. This
situation is we'll illustrated by a study
of the portfolios of investment trusts,
in which railroad stocks we're shown to
be only a small fraction of the total,
which was largely made UP of indus
trials, utilities and bank shares.
Growth of Freight Slows.
Just to make the point a little
stronger, a recent statement in the
Railway Age, the recognized organ Of
the industry, may be quoted. After
pointing out that the railroads have
lost one-third Of their passenger busi-
ness since 1920, the journal adds:
Az, aOYYa NJ Ns,Ii0I {c
not well known Is that in this same Pc
riod there has been an unprecedented
decline in the growth of railway freight
business. From 1900 to 1910 the num-
ber of tons of freight loaded, on the
steam lines increased 73 per cent. From
1910 to 1920 the corresponding increase
was % per cent, while from 1920 to
1929 the increase was but 6l2 per cent.
On an actual rather than a relative
basis, the increase in tonnage loaded
averaged 43,000,000 tons a year in the
first period shown above, $4,000, 900 tons
year in the second period and only
100000 tons annually in the last nine
years"
Speculation for the rise does not con-
Germ itself ordinarily with securities
representative of a trade or industry
which is not in a position to expand.
Such securities may make good invest
ment material, but they give no specu-
lative thrill It was the Subconscious
realization of this condition which cut
down volume of trading in railroad
stocks, not only in the first six months
of this year, but all through last year.
In 1929 there we're merger propositions
to stimulate interest, but even these
were lacking in 1880. Although price
movements of the rails are not so rep
Af he fhnCn
the industrials nowadays, nevertheless
the drop in car loading had a depress-
ing effect on all kinds of stocks.
Market Shivers Over Commodities.
Periodically throughout the six
months under review the market shiv-
cred in apprehension over the COM
modify situation. The case Of copper
has already been mentioned, but sugar,
rubber, silk. tin and the grains were In
the same boat. Wall Street never liked
the Farm Board program, but 1t was
content to look for results and not to
argue about theories. The results agri-
culturally, as every one knows, were dis
appointing in the extreme. In June both
whec. and cotton were selling at the
lows of the year.
The situation marketwise then, as 1t
existed in mid-June, was that the in
dustrial averages were back about where
they had been on the first of January.
The bear party, emboldened by It's sue
cesses of the two preceding months was
boasting it would put the market back
to the lows of the preceding November.
Some stocks did sell under the lows OF
the 1929 panic, as for instance, Mont
gomery Ward, Auburn Auto, Anaconda
and various other coppers but nearly
ALWAYS there was a special reason for
the weakness.
The market, however. was never in
any such position in 1880 as it had been
in the Fall of 1929 Public participa-
ton was fairly heavy in March and
early April. but 1t was reduced to a
minimum in the second quarter. On
May 5, the day Of the first big break,
shares to the number of S,279, 200
changed hands, but when the list turned
downward a second time in June and
made an even lower average. it was on
a much smaller volume. Between these
two breaks there were sessions of ex-
treme dullness, when brokers were hard
put to make expenses.
Market Better Fortified.
On June the ratio Of security loans
to market value of all listed stocks on
the New York Exchange was 6.33 per
CSIlG. 1IllS SdIll6 IdIlO III 1898 Wdo
around per cent. On June IL of this
year brokers loans were under the
$4,000, 100000 mark, whereas on June
IL, 1929, they were 1924 ,o00, 900. There
Is no such weak long account to shake
out now as there was then, nor anything
approaching it. This does not mean
that stocks will not go down. but it
does mean that there will not be such
widespread suffering as there was last
year and that each successive wave OF
selling will meet greater resistance.
1t remains to consider the effect upon
the investment mind of the weakness
in the stock market. If there was any
thing new about last years bull market,
anything that differentiated it from
SpeculationS for the rise in other years,
it was the wide acceptance gained by
the theory that investment in common
stocks was not only more profitable as
compared with bonds, but was more
desirable, in that it compensated for
depreciating dollar and, given sufficient
diversification. it was just as safe. Has
that viewpoint changed? Does the with
drawal of the public from the stock
market mean that hereafter fixed in
terest bearing securities are TO regain
their former popularity?
Everything Waits on Business.
The answer must be in the negative
and the proof lies in the bond market.
Every fundamental factor favored rising
prices for bonds during the first six
months of 1890. Interest rates were very
low and commodity prices were back
where they were, approximately, in 1921.
The stage was all set for major ad-
vance in high-grade bonds and yet in
dividual investor interest in that market
was non-existent. 1t received its only
support from dealers and from financial
institutions. Testimony of all in a po-
sition to know was that the savings of
the people were not going into bonds,
but were being held back for a favorable
opportunity to buy stocks. This back