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


worse by anything that decreased an
unwieldy over-supply of bread and feed
grains.
Developments abroad both in Europe
and in South America delayed the re-
turn of confidence. The German elec-
lions had their effect not alone on
German dollar bonds fioated in this
market, but on stocks. In the same
way the revolutions in South America,
which as a matter of fact were part
and parcel of the commodity decline,
also unsettled stock market sentiment
Explanations of stock market weakness
also were sought In Russia. The Soviet
dumping program was taken as a threat
not simply to American producers of
grain, but to all American industry.
Bonds Trend Discouraging.
One phenomenon that attracted much
attention and that greatly worried the
stock market was the failure of bonds
to respond to the normally stimulating
influences of easy money and of falling
commodity prices. 1t has been an axiom
Of the Street that when recovery began
from trade depression it was first re-
hected in bonds, but this year bonds
were weak with stocks.
A little closer analysis would have
demonstrated that it was only the sec
ond grade and speculative bonds that
were under pressure and that in nearly
every case there was an unsatisfactory
earnings situation for an explanation,
but operators for the decline in stocks
repeatedly pointed to the bond market
as justification for their position.
An actual and not imaginary reason
for the downward trend in stocks was
the forced liquidation that the market
was compelled to absorb. This liquida-
ton did not come in any large measure,
at least from individuals, but was the
direct result of a number Of difficult
business situations, the clearing up of
which involved heavy selling of stocks.
In so far as the facts with regard to
these situations did not become a mat
ter of public record, the rumor mongers
filled the gap. Most Of these rumors
were unfounded and those that had
foundation were garbled but the result
was the Same-to depreSS the market
AT this point something may be said
about short selling. There is a sound
defense for the practice under normal
conditions. 1t cannot be prohibited in
free market and it does provide buy
ing power in times of panic. Every ex-
pertinent in the way of eliminating
short selling has failed of its plIrpose
and made matters worse than they were
before.
All this admitted, however, when 9,
corterie of bear plungers attempts to
capitalize distress selling in times of
market unSettlement and Of pronounced
BUSINESS depression, no good end is
served and much harm Is done. How
much OF this sort of short selling was
cone TINS year 1t Is impossible to say.
dence is difficult to obtain, but that II
was carried on on large scale no In
telI1gent observer doubts.
In comparison with the number Of
SPECTATORS in the market, the short
interest this year reached record nro-
portions.
Investment Buyer Disappointment
So much for the sellers and for the
motives that actuated them. what
ABOUT the buyers? Who were the plIr-
cnaSers OF the stocks liquidated In 193O2
In the first place they were. as usual.
she active in-and-out traders playing
Tor snort turns. Their part does not
heeo 10 De discussed. Next there was q
certain amount of support from spon-
SorS Tor various iSSueS-a support tx.
tended irregularly and not ALWAYS ef-
11ectlVely. In the third place, there was
investment buying for cash, usually in
ood lots, but amounting in the arpre-
gate to q substantial total.
This latter class Of buyers had a
d1scourag1ng year. Time after time
stocks would look cheap, measured BY
any recent standards. and yet after their
purchase they would show the buyer q,
paper loss. Take United States Steel
for instance, admittedly the premier In
veStment industrial. The low in the
panic of 1929 was $3.50 a share. Up to
the Autumn of 1880 the buyer at that
price considered himself not only q for
tunate but an aStute investor. But In
october he saw his stock below S144.
IN November below $137 and in Decem-
Der still lower. In other words, after a
year OF waiting, assuming that he had
entered the market at the absolute low
Of the panic, he was faced with q capt.
tai loss.
The same comparison holds true for
American Telephone & Telegraph, the
stock of which is the most widely dis
tributed of any utility. The 1929 low
was under 1874, but here, too, in October
it broke through that point and in
November and December went lower.
Or take General Motors.
Rails Lowest In Years.
If the buyer had taken railway shares.
his position was that much worse. The
railway stocks sold not simply under
their 1929 panic lows, but many Of
them for the lowest in years. Chicago
& Northwestern, for instance, sold at
the lowest in 40 years. That was not
a typical case, but New York Central at
its low this year was below anything on
record since 1925, Baltimore g. Ohio at
the lowest since 1924, Atchison at the
lowest since 1927, and so on.
This was distressing condition Of
affairs to the old-timers in the Street.
They had been brought up to believe
that whatever might be said of indus
trials, railroad stocks as q class were
the most conservative of investments.
The trouble was, Of course, that the
status Of the railroad industry had al
tered, and not for the better. This
was strikingly brought out in ohacjal
statements made on behalf Of the rail-
road executives themselves, streSsing
motor competition, the threatened diver
sion of oil traffic to pipe lines and the
falling OF in coal shipments.
It was after these adversities had
been publicly acknowledged that the
railroad stocks made their low prices
in the closing months of the year. The
decline was accelerated by the nquida-
ton in railroad bonds. That both
were carried to unwarrart-
ed extremes admits of no argument.
Little was heard of these troubles dur
ing the prosperous periods Of 1928 and
early 1929, when earnings were mount.
ing. Whatever may be the long-term
outlook, 1t Is as certain as anything
well can be that the railroads VIII re-
cover business and earning power, In
part at least. once industry has re-
turned to normal.
Liquidation Carried Far. s
Revival in trade is the one condition
q permanent recovery In the stock
market. Meanwhile the market has
go1n anlong way toward complete lqui.
4CcutluweA on Second RageA