Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-10-01
BY r. H. RICHARDSON.


NEW YORK, October Sep
TENDER will go down in financial his
tory as month when holders Of bonds
lost all sense of values and sacrificed
domestic and foreign securities to such
an extent that depreciation running
into billions of dollars had taken place
before the upturn came in the final
week. It 1t not too much to say that
this months bond market experienced
the greatest decentralization of any in
American history.
1t was the persistent and perpendicu-
lar decline in bond prices that caused
the most uneaSineSS, for this hit d.
rectly at the situation among the banks
OF the country, whose greatest assets
are in securities and in real estate.
Probably half of the bank failures that
have taken place are due to the shrink
age in these assets. and when difficult
ties occur It has been the practice in
many instances for those placed in
charge to Immediately dump the af-
fected securities into the market re-
CARELESS of price. This explains the ex-
traordinary declines in individual issues
from day to day in markets for these
issues frequently of nominal size.
Tracing the movements in bonds in
| the last few months to the present
time, we find a number of distinct
| into one great flood of offerings as
panic seized bond owners and their
whole idea was to turn holdings into
cash. One Of the early stages was that
relating to defaults OF interest and
sinking funds among South American
securities, which eventually, after the
| Argentine issues had Joined in the col
! lapse, brought the entire body of South
and Central American bonds to basis
] Df oh fIn dnll hnH
| the German crisis centered attention
on German government. municipal and
corporation issues, and the remarkable
/ spectacle was seen of German rs, which
! are primarily a first lien on Germany,
! selling at SIS and the much exploited
/ 5i2 per cent Young loan at a discount
Of over so per cent from the issue price
/ in June, 1890 Before they rallied the
aggregate Of 1900, 900 900 German dol
! lar issues had sold at an average Of
| about 40 to As cents on the dollar. At
! the same time, the issues of the Central
European governments were only lit
! tie more valuable to their holders than
| those of the defaulted South American
| countries. approximately so per cent
| depreciation had, in the latter part OF
| September taken place in the aggre
| gate holdings OF foreign investments
| placed in the United States on dollar
| basis.
Serious as this was in its effect on
portfolios that still included a generous
supply of foreign issues. the crumbling
| away of prices Of domestic bonds was
even more paralyzing. Here. too, in
stance after instance occurred. where in
a single session bonds broke 10, 20 and
even 80 points, a condition that paral-
/ leled the market for the most specula-
| tive common stocks on other occasions.
! There was a certain element Of tnsan-
/ ity at this time among creditors, with
! an almost hopeless attitude regarding
! the solvency of debtors. Eventually this
| communicated from the second and
! third grade railroad and industrial
! bonds to those of the highest rank, and
municipals, Governments and Federal
Ian Bank bonds were not exempt from
! depreciation on q large scale.
It is at present, however. quite difncult
to determine just what effect this ire
mendous shrinkage in bonds and the
! prolonged period of withdrawn support
in them will have on the ultimate con-
sumner of this type Of securities, who
has to be the medium through whom
the greater part Of new capital Is raised
Will he adopt the view that bonds
have treated him as badly as stocks IN
the matter Of depreciation, though bet
ter in that of sustained return, and
that, therefore, he might as we'll have
the fun and the possibilities Of specula-
ton In stocks in the future? 1t has
been a wonderful period in which to
build up respect for bonds when the en-
tire stock market was being she tered
and dividends were being Cancelled on
a wholesale scale. Unfortunately, this
opportunity has been allowed to slip by,
leaving the normal buyer Of bonds in a
daze and with feeling OF considerable
bitterness at the way he had been treated
by those who in the first instance sold
bonds to him.
Obviously it has been no time for
! the bringing out Of new securities.
| Consequently, the September issues Of
new bonds and notes have been small.
Except for two or three large offerings.
| there would have been the least total
for the month Of September, as well as
for any month, in some years. The
| Canadian National issue of $50,000,000
| of AZ per cents, the SAC, 900 900 of State
of New York 3 and per cents and the
100000 issue of Louisville & Nash
vile l0-year S per cent bonds were the
outstanding features of the month,
which in all produced an aggregate Of
approximately $50, 100000, compared
with $4,000, 900 in August and $432.-
100000 in September. 1880. This brings
the total for the nine months to Sep
TENDER 80 to about $3,276,000 900, or
more than IS per cent less than in the
same period of last year.
There Is still a preference for short
term Government and municipal paper,
and high prices are being paid for it..
Institutions insist on being as liquid as
possible and on maintaining a high
ratio of cash and having the best avail
able short-term securities. The Incl
dent surrounding this months offering
of $500, 100000 of long-term 8 per cent
Government bonds, which have since
sold at discount, emphasizes the diff
cultieS Of the Treasury in the midst of
perplexing domestic and foreign situa-
tions in which governmental deficits are
deeply involved.