Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-07-13
Bonds, Preferred Stocks and
Real Estate Mortgages
Draw More Attention.
EASY MONEY SPEEDING
RECOVERY IN BUSINESS
High Average Yield on Stocks Are
Expected to Act as Spur
to Buying.
BY CHARLES F. SPEARE.

special Dispatch to The Star.
NEW YORK, July 12.-With the
business situation still going through
the cure for overproduction and with
speculative securities unable to shake
of the effects of imitation and a year
OF false measurements of values, it is
natural that more consideration should
be given to corporation bonds, prefer
red stocks and real estate mortgages,
in which the quality of price stability
appeals to the investor, harried for
months by the unsatisfactory perform
ance of his equity holdings.
In week, therefore, that has devel-
oped further unsettlement in stocks
with prominent issues dropping to new
lows" and others to the borderline
and that has witnessed depressed mar
kets for commodities. 1t is satisfactory
to note broadening of demand for
fixed interest obligations and an en-
phasis placed in public announcements
on the advantage in accommodating them
at the current price level.
Funds Going Into Bonds.
If easy money is the leaven by which
industry is to be restored to its normal
condition, it must work, in part,
through the market for securities. First
Of all. however, this market has to be
cleared Of its surplus supplies to permit
new financing, out of which industrial
expansion may be presumed to develop.
AS there Is such a spread between call
and time money rates. bankers bills
rates Of deposit in New York banks
and the return on high-grade rail-
road and public utility bonds and on
the best of the foreign dollar issues
to say nothing of the net yield on
tax-exempt securities. this difference in
earning power will sooner or later force
idle funds into the bond market.
AS a matter of fact, the bond mar
kets improvement on Friday to the
best level Of the year to date was evil
dence that this move is actually under
way. The weeks figures of increased
bank. investments was further testi-
mony.
1t is not improbable that during the
anticipated period of extremely low
money rates in the next so days, def
mite signs of business recovery will APP
pear. coincident with closer approach
to satisfactory investment market con-
ditions than has been attained since the
Spring of 1928.
Commodities Affect Stocks.
Commodity prices struck a new low
level this week, wheat broke again in
spite Of unfavorable crop news and cot
ton reflected the July figures of pro-
duction and acreage. Conditions in this
respect are no different than in other
parts of the world, except that there
seems to be more intimate relation
in this country between market fiuctua-
tons in commodities and securities
than elsewhere. The two groups go up
would be helpful to the speculative stock
market situation.
Attention is again called to the high
average yields on stocks compared no.
only with the low rates for money, but
with the average income obtaining in
other periods of depression. This
eventually will lead to the same class
of buying of assured dividend-p paying
shares as is now taking place in bonds
and preferred stocks. 1t is significant
that among the shares that have had
the f1abbiest appearance this week are
those on which the return is small,
notably the public utilities and certain
of the overexploited industrials.
Public Attitude Changes.
The public obviously is getting back
to point of view that it held prior
to 1928, and then abandoned for the
fetish of capital appreciation as against
income return. What this leads to is
illustrated in the case of such a for
merly popular stock as Simmons Co.,
which in 1929 sold about As times
earnings for that year, but has Just
passed its dividend and dropped to a
a point 80 per cent under its high.
Obviously, the tendency to bear values
Is today as strong as it was to boast
them IL months ago. Prices in many
instances have come below the level
of justification. taking into account the
factors OF smaller earnings and reduced
dividends.
There are now quite few situations
where the market price of a corpora
ton stock Is no higher than its paid
In capital. When such conditions de-
velop and values aggregating $8,000,-
DOC, 900 to $4,000, 900, 900 are taken from
the stocks of American industrials,
railroads, public utilities, banks, inSur-
ance companies and investment trusts
in less than two months. one may with
reasonable safety buy good equities
and look back on the Summer of 1880,
as time OF exceptional investment
opportunity.
- Frozen" Investments Vital.
More important Is the frozen" char
acter OF investments in individual COM
panies, where control of management
has been attempted and where the own
ership is represented in blocks of 100,-
600 to 100000 or more shares, on which
only nominal prices may be quoted
Any attempt to liquidate such invest
ments might easily result in depre-
citation of Is to SO per cent from the
last price.
'Liquidating values" as applied to
the stock of an investment trust" is
therefore, not the yardstick to be used
exclusively in measuring the reason
ableness of its current price There
should be some relation to income re-
| turn which, while on the debentures
and preferred shares of the trusts" is
high, on junior issues 1t has been SC
low as to prejudice investors against
| them.
( The practice of paying dividends in
| stock has been overdone. This is to
the advantage of the corporation which
feels the need of steady increase In
capital for purposes of expansion, but
it has little in its favor for the stock
holder, especially in a declining market
(Copyrisht, 1s3o)
BUSINESS NORMAL.
| H,ct