The Washington times., 1931-01-05
SEE. RECOVERY.
Of MART STILL
FAR OFF
Economist Believes Ultimate
Recovery Of Stocks Will
Occur About Middle of Year
By LEWIS HANEY


Director NetD York University
Bureau OF Business Research
and Former Economist of
Federal Trade Commission.
What is the broad outlook for
security markets in 1881?
No one can answer that ques-
ton with any certainty. But we
may try to point some Of the
chief factors bearing on it. And
to make some tentative guesseS
as to what are reasonable posi-
bilities.
1t seems to me that there are
two main factors affecting the
stock market. These are Cd the
trend of general business, and (2)
the condition of bank credit. The
former will determine the earn
ings on stocks. The latter will
govern the amount Of liquidation
that must still be effected.
AS we have seen, if business is
not artifically stimulated by
credit initiation, it is not likely to
begin recovery before midyear.
Therefore, even if stocks discount
business recovery in advance,
there is no normal probability Of
a sustained rise in the market
before spring.
Each investor should make up
his mind when he thinks business
will pick up, and govern his in
vestments accordingly.
No Time for "DiScOunting"
But it does not seem probable
to me that the stock market will
rise much ahead of business.
Often in major depressions it
merely picks up with business,
as in 1921. We have had so
many false starts, and there are
so many uncertainties Gin do
mestic politics, international re-
lationS, and the farm SituationI
that investors are not likely to
do much "discounting."
Since even the most optimistic
do not expect business recovery
before spring, why should we
look for a rising stock market
before then at the earliest?
Banks Carrying Load
AS to the condition of bank
credit, that will be a very i'm
portant factor in the first half
of 1881. You see, speculative
loans through brokers have been
pretty thoroughly liquidated, but
the banks are still carrying a
heavy load of security loans.
With the aid of collateral loans,
some investment trusts and thou
sands of investors, big and little,
are holding on to stocks.
OF late there has been increas-
ing pressure to liquidate these
loans, and many have had to sell
securities for what they would
bring. How long will such pres
sure last? I can only say that
the collateral loans of the banks
still seem too large. It seems that
further liquidation of bank loans
during the next two or three
months may be expected.
All this suggests lower stock
market averages some time be-
tween. now and April. Averages
like that of Dow, Jones & Co. are
apt to react about Is per cent.
The over valued blue chip stuff
should come down at least that
much. Thereafter we may rea-
sonably expect increased stability.
There is a good chance Of suS-
tanned advance, beginning in the
last quarter.
Bond Market to RiZe
AS to bonds, there is only the
need of a little further liquida-
ton by banks and a little more
certainty as to the financial out
look before a rise sets in. Low
money rates are steadily tending
to drive banks and large invest
orS into bonds. The increasing
purchasing power of tine dollar
Gas commodity prices decline) is
making fixed incomes more at
tractive for small investors.
I am inclined to think that
good ordinary medium yield bonds
have seen bottom and that, after
a period of irregularity, they will
start a sustained rise-by June at
latest