Evening star., 1931-12-27

ton OF close TO ~
per cent.
The oyerturning p;o,s
of exchange rradi-
llonS was accounted for by a number of
factors. First of all. the decline in COM
modify and security prices has cverv-
where in the world been of similar pro-
portions to that in the bond market.
commodities are selling at from 20 to so
Per cent of their 1929 values. World
trade has been curbed accordingly.
Trade Decline Cited.
The decline of the total volume of
American trade with such important
countries as Canada Great Britain.
France, Germany, Austria, Italy, Soviet
Russia, Australia. the Argentine, Brazil
and Japan ranges from 80 to 40 per
cent. The net operating income of the
railroads in the United States has drop
ped fully 40 per cent in the year. In
dustrlal concerns have had to write off
enormous inventory losses as well as
actual drops in the volume of sales
Ihen there was the convulsion of in
ternatlonal credit incidental to aban-
oonment of the gold standard bv 10
countries, with IA defaulting on their
bonds. sequel to all this was a pro-
cession of American banks into bank
ruptcy, with attendant liquidation at
SaCrlnce prices, of many of their bond
holdings
AS the year ends it is generally agreed
that the world situation is poised pre-
cariously on the question of foreign debts
problem virtually at the stalemate
stage because of Frances insistence on
the priority of reparations over Ger
manys private debts.
Rail Situation Critical.
At home the most critical situation
concerns the railroads.
Whatever may be the outcome of
such measures as Congress may initiate,
and however much the railroads and
other corporations may be able to pare
down expenditures, it is obvious that
without a substantial recovery in come
r1odlty prices and in general trade, do
mestlce and foreign, corporations and
even governments will not be able long
to carry their present load of capital
debt. An indication of this is apparent
in the values placed on few of the
great railroad mortgages by the bond
market.
First let us study four railroads. whose
securities for many years have been
considered of high-grade type. The
New York Central, whose funded debt
near the end of 1880 was appraised
marketwise at s1,007, ,04O, 900, had a
shrinkage in its securities of more than
26 per cent in 1881, until its funded
debt was valued at only S744,790 600
In 1880 the funded debt of the Penn
sylTania Railroad was held to be worth
s629, 265 400, while at the end of 1881
it was worth only S517,504,8oo, a de-
cline Of 19 Fer cent.
The Southern Pacifics funded debt in
l@,,+1
100000. while this year it had shrunk
to S617678,000, drop of 26 per cent.
The Great Northern, whose mortgage
bonds had an aggregate market value
of 1919, 7808 800 in 1880, was assessed by
the market in 1881 as worth S233, ,144,-
600, a depreciation of 80 per cent.
In these four railroads alone there
was a scaling down of over 1000, 900
in the market value OF their fixed in
come securities. And to a greater or
lesser extent the same factor has oper-
ated to cut down the market valuation
of the funded debts of the Union Pa
cific. Norfolk g. Western, Northern Pa
cif1c, Chicago, Burlington g. Quincy,
Baltimore & Ohio and even the con-
servative Atchison, Topeka g. Santa Fe.
Losses Are Striking.
The losses were even more striking
among the roads whose securities are
ordinarily classed as Junior or specula-
tive The bonds standing against the
credit of the Erie dropped off Sl07,328,-
$50. or 40 per cent; those of the Nickel
Plate SlO5, ,022, 200, or SO per cent; those
of the Missouri Pacific S242, OBS, 300, or
So per cent, and those of the ST. Louis
San Francisco S224137 $50, or 76 per
cent This does not take into account
the huge depreciation in the market
value of the bonds issued by the Wa
bash-noW in receivershlp-by the Chi
cago & Northwestern, the Chicago,
Milwaukee. st. Paul & Pacific and other
roads whose bonds are selling at prices
usually claSsed as receivership levels.
To sum up, the years depreciation in
the market value of railroad bonds
listed on the Stock Exchange amounted
to more than s2,500,0 100000, and from
the high of 1880 to more than $3,000,-
100000.
Naturally, industrial bonds and the
utilities were swept down with the rest.
Industrials, which had an average
market value of 948 in September. 1880.
we're selling under SO at the end of 1881.
Utility bonds, which had an average
market value of 1913 in 1880, we're
selling at less than 86 before 1881 was
out. The bonds of the high-grade utll-
companies. which showed good earnings
during the greater part of 1881, did not
decline sharply until September, but in
a single month they lost over IL points
and at the close of the year slumped
heavily.
u. S. Bonds at Low Levels.
United States Government bonds
sold at their lowest level in many years
In December Their course during the
year was more or less independent OF
the rest of the market. Early IN 1880
they advanced strongly to their best
point in five years. AT this time the
Federal Reserve Bank OF New York
had lowered it's rediscounu rate to l12
per cent and time and call money rates
were at commensurate levels. There
was a tremendous demand for readily
cashable paper and banks of all kinds
were buying Government bonds, es-
pecially the short-dated ones, IN order
to acquire high degree of hquidity.
At this period Liberty Fourth 414s,
which, it was presumed, the Treasury
would soon call, were quoted on .90
per cent yield basis. The collapse OF the
rest of the market also brought about
switching by individuals from long
term, high-yield corporation bonds to
near-term municipals and Govern
ments
Then the market for Governments
was upset abruptly by the soldier bonus
agitation. The anticipation however,
did not measure up with the fact, and
Treasures and Liberties both recovered
sharply. Meanwhile the Governments s
growing deficit began to cause concern
and fears of higher taxes. Hence, when
the Treasury finally forced the mar
ket to the extent that an oversubscrip-
tion Of only IS per cent was achieved
In September, after the brilliant sue
cess and $50 per cent oversubscription
Of the June loan, the Government list
began to give way Treasury IS sold
down to more than an 11-point discount