Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-12-28

permanent investment. A frequent
cause of trouble late last year and
early this year was the Shrinkage in the
holdings of those who bought stocks too
soon in October, 1929. Similar difficult
ties have developed out of the same
misiudgment of the market when 1t
broke in June and again last october.
This is especially true of the invest
ment trusts and trading corporations
and accounts for the numerous divi-
dend suspensions in this group OF
companies
It has been impossible to measure
values by old yardsticks. For months
the yield on common stocks has been
at an average that, under the best in
vestment traditions, should have
prompted purchases. The ratio of
price to earnings has dropped from the
peak of last year to one that was
| equally abnormal in the other direction.
Numerous industrial and railroad
shares continued to decline after they
had touched prices the equivalent of
those in years when their dividend and
earnings per share were smaller than
now and when they had more bonded
debt ahead of stock, a smaller prof1t
and loss surplus and larger inventories
of raw materials and manufactured
goods. It has seemed as though q pub
| lie that, in 1928 and 1929, fastened to
risk all of its capital in common
stocks had, in 1880, gone to the other
extreme in demanding that its capital
be exclusively in cash or Government
securities.
Reaction Battles Economists.
Errors Of Judgment in forecaSting the
trend of the stock market have been
duplicated in the field of commodities
and in general industry. Some of them
have arisen from attaching too much
importance to the collapse in stocks
and subsequently ascribing business ills
exclusively to it. Eventually it was dis
covered that there were other and more
deep-seated reasons. AS these have
played their part, they have had a
tendency to advance the period OF
probable recovery in securities and in
commercial activity further into the fu-
ture.
Economists have learned this year
that, while they could with consider
able accuracy forecast a reaction, 1t
was not so easy to gauge the duration
of it. Working on precedent as to the
normal length of depression, many
of them came to the conclusion In
September that it was about time bust
ness improvement appeared. We have
since had a succession of monthly pre-
dictions that the low point IN business
had been attained and that conditions
were on the mend. While such reck-
onings were premature in September,
they appear to have justification as the
year ends, though 1t is still in senti-
ment, rather than in statistics, that the
change Is to be found.
Although the severity Of the depreS-
sion and its collateral features seem to
resemble those of 1893, 1t Is with 1921
that comparison Is most frequently
made. In some phases this years de-
cline has been more acute than that Of
decade ago. For instance, the index
of business activity in November was
several points below that reached in
March, 1921. There Is long list OF
commodities, including copper, silver,
coffee, sugar and wheat, that have
| fallen much further. down the price
scale than they did In the last depres-
sion. The break in commodity aver
ages, however, has not been so abrupt
as previously.
Sources Of Country's Strength.
Poor as the country feels itself to be
because of reduced incomes and the
enormous depreciation in securities, 1t
is much better able to carry on than 1t
has been in other depressions. While
there have been over 1000 corporation
dividends reduced or passed this year,
the dollar aggregate Of dividends and
interest being paid exceeds by many
times that of 10 years ago and Is even
10 per cent In excess of 1929. Savings
bank deposits at $22 ,000, 600 900 are like
wise greater than they have ever been
before and recently have been tncreaS-
ing rather than decreasing
In 1921 the strongest American cor
porations were forced to borrow at rates
between 6l5 and 712 per cent against
current demands from lenders of be-
tween Az and per cent. There are
no swollen inventories of merchandise
There is greater Indignation in the
banking world, as indicated in the abil-
| ity to localize effects of the New York
failure. On the other hand, conditions
| internationally are less satisfactory than
they were o decade ago and constitute
the most serious problem that faces
those who have responsibility for bring
ing the domestic situation back to
| normal.
Within the business life of the pres
ent generation there have been six seri-
GUS reverses in trade and industry,
those Of 1898, 1908, 1907, 1914, 1921 and
| 1880. In other words, in less than 40
| years the man active In trade and the
! investor he had to experience a de-
| gree Of CT lmercial and investment
market dep. sion that threatened him
with insolvency.
| Three Adverse Situations.
There are three situations in which
the outlook Is not so clear as one would
wish, and which together may delay
recovery. One has to do with the rail-
roads, the other two with the bond
market and with foreign political and
economic conditions. The investments
| Of the banks and insurance companies,
as well as those Of individuals, in rail-
road bonds and stocks is greater than
/ in any other group. Not within this
generation has there been a year when
as great q depreciation in railroad Sc
curities has taken place as that which
began in the late Summer Of 1929.
This has resulted in part from the 80
per cent decrease in net operating in
| come, though quite as much from the
sudden realization that the carriers
were faced with competition which lin
its their growth in gross revenues at
the same time that their rates and OPP
Grating expenses steadily handicap them
and limit the percentage Of return on
their property investment.
The outlook for 1881 Is not by any
means hopeless. This country will not
slump back to the conditions Of 1920
or 1915. 1t is now experiencing the
prostration that comes from a long Ill
ness in business and in investment mar
kets. Its people are rapidly coming to
a saner mind, living a healthier life,
freeing themselves from embarrassing
commitments and saving their money.
What they have lacked above all this
hnc 1An 81 =
be assured now one could be quite con-
fident that a substantial degree of re-
covery would set in in the early part
Of 1881.