Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-05
IRREGULAR STOCK
MARKET FORECAST
Business Developments in
Next Few Months Expected
to Govern Price Level.
BY CHARLES F. SPEARE.


NEW YORK, January Prom now
on stocks will be governed more by
business developments and tendencies
than by internal market conditions.
With trade in the next few months
of an uncertain character. we are likely
to witness irregular movements in Sc
curities as professional cliques and the
public endeavor to get their bearings
after the recent confusion.
There is q rather unanimous opinion
that business will be slow in the first
three or six months of 1880 and cor
poration earnings less satisfactory dur.
ing that period than since the early
part of 1928. Enough evidence is at
hand to justify this belief. It Is to be
found in those fields of industry i'm
mediately sensitive to a drop in the
purchasing power of the country, such
as the sharpest decline in iron and
steel production last month since the
end OF 1927, following unprecedented
output from January to November; an
abrupt gross decrease in railroad earn
ings In November and December. and
a falling OF in both production and
sales OF automobiles and in articles of
luxury.
Utilities Maintain Earnings.
Some dividends have been passed
since the panic; but more have been
increased. Weak spots are gradually
being uncovered in speculative quarters
that were not allowed to show them
selves in November. Receiverships are
becoming more common. On the other
hand there has not so far been any
sign OF reduced earnings among the
public utilities; the December sales of
the great mail order houses were from
IL to % per cent above the previous
year; retail stores throughout the coun-
try reported some gain in holiday trade
compared with 1929, and, with few ax-
ceptions, the business of the chain
stores has been and continues to be
greatly in excess of the Winter sea-
sons in the past.
The amazing thing is that a depre-
citation in market values equivalent to
the cost of the war to the United States
should have had so little visible effect
when it is remembered that it left its
traces on the material affairs of a large
portion of the moderately well-to-do
and an even deeper one on those of
great wealth.
1t is obviously a time for those with
money to invest to proceed cautiously
Prices are so much below those that
had become familiar during 18 months
OF rising markets that the temptation
Is to buy Unfortunately in anticipa-
ton of another bull movement in stocks
when business has readjusted itself to
tn influences of paper or actual losses
on securities. This urge Is increased by
the fact that there is now liberal COM
penSation on capital invested in stocks
Numerous yields" have been doubled
Instead of being carried at a sacrifice
Of interest equities" today more than
pay their way.
Financing Costs Less.
A year ago it was costing the
Spectator between 10 and IL per cent
to finance his commitments Stocks
were returning on an average less than
8 per cent. At present the carrying
charge is 6 per cent or under and the
income ranges from that figure, or little
below 1t. to 8 and 10 per cent. And
this applies to stocks whose dividends
in the next three to six months are
sure to remain at their present levels.
The unknown quantities in the busi-
ness situation, however, serve to temper
the enthusiasm of the public and en-
courage a rather healthy procrastina-
ton in the matter of speculative en-
gagements. The commonest advice that
brokers are giving today to their GUS
toners is to buy only on weak spots, ="
and to resist tendency to follow up the
bulgeS. In other words, they feel that
there will be plenty of opportunity be-
fore Spring to accumulate good stocks
at what, for permanent investment,
should be attractive prices, and that
It would be wiser policy to pay higher
figures later when the industrial out
look has become clearer than to &C.
quire them when the country is cropping
in the dark as to the immediate business
outlook.
Abundance Of Credit.
We have recently witnessed the
greatest bull market in history and the
highest average prices for industrial
and public untlity shares on record
coincident with the Severest money
strain in 10 years. Now we have what
some people feel is an overdeflated
market facing an era of very COM
Portable money rates. The abundance
of credit Is primarily due to the RELEASE
of funds from speculation. 1t also
represents in no small degrees the lack
of demand from business.
One of the questions to be determined
in the next few months is whether the
influence on good dividend paying COM
mon stocks at comparatively cheap
| money will be greater than that of poor
per share of stock will fall well below
| estimates which were the basis for
! purchases six months ago.
1t Is quite probable that the first Of
these two factors may have the greater
price effect, for the public has not by
any means abandoned junior secur-
tiles. 1t will now, more than ever be-
fore under similar conditions go on
buying stocks in preference to bonds
and take the risk of a temporary loss
in earnings rather than for go what 1t
believes will be an eventual and sub
Stantial recovery
This does not mean that fixed in
terest obligations and preferred stocks
are not to benefit by the change in
money conditions 1t Is difficult to see
how they can avoid appreciation, with
such strong background as Is being
built up for them. For the first time in
nearly two years member banks in the
Federal Reserve system have reduced
their borrowings to a point where they
can feel independent and no longer
subjected to pressure from the board.
1t Is anticipated that this month will
see total rediScountS down to $500, OO0,-
600, representing q IS per cent shrink
age from the high level of the last
three years.
Bank Deposits Expanding.
Bank deposits are increasing In the
metropolitan centers at an astonishing
rate. The gains since November have
oeen the greatest for any equal period
known.
The employment of these funds and
also OF the liquid assets of corporations,
OF investment trusts and individuals, is
problem that will most likely be
worked out in the market for short and
long term securities. Some part Of 1t
Will be absorbed into the new issues
) now being contracted for and becoming
more visible as the month goes on.
Then there is a certain amount OF re-
! Siliency which bonds should show after