Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-09-06
STOCKS DEPRESSED
by CONTINUED DROP
In CARRIER SHARES
Dividend Omissions, Railroad
Receivership and Poor Earn
ings Affect Market.
THREAT OF TAX RAISE
| ALSO INFLUENCES. LIST
Industry, With Costs Low, Is
Ready to Respond to Buying
Revival.
BY CHARLES F. SPEARE.


Special Dispatch to The Star.
NEW YORK. September 5.-Having
met with surprising calmneSs the series
of disturbing political and financial
events abroad during August. Wall
Street was upset this week by develop
ments in the domestic situation that
were OF small Importance compared
with those 1t had ignored. This illus
tratss the degree to which 1t watches
for a lead in American conditions and
is sensitive to changes at home.
The omission of dividends on Lehigh
Valley and J. / Case stocks. receiver
ships for railroad and public utility
holding company the failure OF trade
to expand or to give evidence that II
would turn upward this month. and
the threat of higher income taxes to
cover the growing Government deficit
have again unsettled investors snd led
TO a new low average price for railroad
shares and a shrinking of the margin
remaining over the June minimum for
tndustrials and public utilities.
The action on the two dividends that
were passed was somewhat abrupt.
shareholders in both properties had
reason to expect that they might be
let down more gradually. The DISPOSE
ton today is to go the limit in con-
tracing contingent liabilities. So We
find so per cent of the dividends on
which favorable action has been taken
in the past eight months to have been
entirely omitted. The market position
of many bonds being what 1t is. corp
grafton managers are disposed to sur
round their direct obligations with as
much protection as possible and to
make sure that they have ample funds
to meet all interest and sinking fund
payments. Consequently. the stock
holder frequently suffers more than the
current position of the balance sheet
and the income statement seem to
warrant.
Dividend Decisions Ahead.
Directly ahead are half a dozen i'm
portant railroad and industrial divi-
dend decisions which will play an I'M
portant part in directing the move
ment of stocks. Railroad shares are
dlscounting further reductions in the
declines that have brought many
the end of Government control and
one average price list to a level not
equaled since 1898. In other words,
the estimate of the market place today
is that American railroad stocks as a
class are worth no more than they
were few years after the greatest
period of railroad bankruptcies that
this country has ever witnessed. With
all of the loss in traffic in the past
two years there have been only two
and these for properties
the storm If their managemensS had
not lost their heads and exploited
southern territory already abundantly
supplied with transportation facilities
With equally poor Judgment, other
railroad arrangements subsequently
sought to extend their jurisdictions
through the purchase, at absurd prices,
OF stocks Of other lines which have since
passed their dividends and have suf-
fered a tremendous depreciation. 1t
might almost be said that there has
not been a successful promotion of new
railroad building on large scale since
before the adventures of the Goulds
with the Western Pacific and the
in the st. Paul And when
1t comes to the advantages arising from
the so-called strategic purchases"
which were originated by z. H Harri-
man Is years ago, and more recently
copied by the Pennsylvania and Van
Swertngen interests, the records fail to
disclose results over which a share
holder In any property might find
qualification.
Rate Ruling Awaited.
Some sort OF decision will probably
be given in the freight rate case by the
Interstate Commerce Commission next
month. II the railroads receive half of
what they ask for it will help their
position sentimentally and give them a
better credit standing. The rate in
crease will be slow to translate itself
into larger net earnings. Therefore, we
must expect to see succession of de-
creased and probably omitted railroad
dividends in the next six months.
There Is a great difference. however,
between railroad that has been COM
PEELED to discontinue dividends and one
with a margin of earnings sufficient to
pay the interest on its bonds. Although
there are limited number of those
that will qualify this year as to legal
Ity for their bonds, there are a COM
small number unable to cover
their full fixed charges for 1881, One
may see the reaSonableness of selling
BY trustees who have a liability for a
depreciation in bonds stricken from the
legal list. 1t is somewhat stupid and
mjsinformed private investor who will
sell at current prices railroad bonds out
In an amount per mile about
% per cent the present cost of re-
placement and in the extremist condi-
lions imaginable to maintain interest.
Business Cuts Costs.
The contagion of economy which
makes popular and even fashionable
the wearing of old or moderate-priced
clothes, the driving of cheap cars and
the foregoing of expensive vacations,
obviously delays the improvement in
business so that in the industrial world
September is as discouraging as August
and the trade index is near the low of
the year. There is another side to
this situation, however, which has
more favorable aspect. Economy has
also become the controlling passion
Of every operating executive in the
until costs in practically all
lines Of business are SO low that any
Increase in orders would quickly change
the figures on earning sheets from
red to black. During part of 1928 and
during most of 1929 costs were so high
that increases in gross earnings fire.
quently produced only a slight accre-
ton in net. Whenever the situation
changes for the better the ratio of net
gain to gross increase will be the
highest in years.
Some of the unfavorable industrial
of the week were the
decline In the steel industry, where it
Is suggested by trade reviews that
wage reduction may be necessary;
smaller output Of automobiles in July