Evening star., 1931-12-27
Factors in Markets Decline.

Many causes operated 10 accelerate
the decline in the second year of the
bear market. but underlying them all
was the worldwide depression. 1t is
subject for debate as to how much
the depression was intensified by the
collapse in securities, instead of the
break in securities being solely meas
ure of the slump in trade. Probably
one reacted on the other but from the
standpoint of the stock market the i'm
pOrtant factors were:
% Dividend reductions and dividend
omissions, actual and prospective.
,2D Unprecedented instability of the
bond market.
(3) Continuous declines in COM
modify prices.
4D Financial chaos abroad
UnfayOra DIE dividend action was. of
course, simply a reflection of unfavor-
able business but although the market
had ample warning. StatiSticany and
otherwise there We're numerous Occa-
SlOnS when it was caught unprepared.
Two striking instances ere those CT
United States Steel and of New York
Central. 1t was fairly obvious from
the steady falling off in rate of pro-
duction in the steel trade and from the
course of earnings statements that
cut in the Steel dividend was prob
able. but when the news came it proved
a shock, and the market broke. United
States Steel had been locked up to SO
long as, a tower Of strength that when
the rate was reduced from a 81 to
S4 annual basis it undermined conf
dence.
Many Dividend Casualties.
1t finally came to the point where no
stocks on which the disbursement was
entirely safe sold at prices that not
only discounted a complete omission
but mace no allowance for asset value
or for the certainty that there must
eventually be a recovery of earning
power.
The decentralization in the bond mar
ket affected stocks. 1t is an old tradi-
ton that in times of depression the
trend is reversed in fixed interest
bearing securities before the turn comes
in equities, but up to this last month
of the year there was no recovery in
the market for senior obligations. On
the contrary, declines in bonds were
more abrupt and more severe than in
stocks.
There is this much to be said for the
share list. 1t was always possible to
sell stocks at price. At the worst the
market was always orderly, but time
after time there was no bid for bonds,
good bonds. The lack of confidence dis
played by investors weakened the morale
of spectators.
Commodity Prices Slump.
Another disastrous influence was the
fall in commodity prices. The reason
ing was logical enough. If producers
of actual goods were unable to sell them
except at ruinous losses, it started a
chain of deficits extending to corpora
tions operating in allied lines. Com
moditieS sold in some instances at the
lowest prices in hiStory-as, for exam
Pile, rubber and copper-and almost
Invariably at the lowest in from Is to
30 years.
At the same time this factor worked
both ways. When there was rally in
wheat stocks responded; not in
Variably, because of other otfSetting
disturbances, but recovery in grain
was always helpful more or less. That
was true also of silver and, to a much
less degree, Of cotton. At intervals
spectators in stocks abandoned that
market and turned their attention to
commodities, which they reasoned
must continue to have value whether
tIlC VI Illc CUIilkJdlllSS uedllllB
in them did or did not.
Then there was always the fear OF
untoward events outside the borders
of the United States. Unfortunately
the fear was often justified, but the
rumors went far beyond the facts, bad
as they were. and again strained The
nerves of the stock traders to the
breaking point. 1t was useless to argue
that this country was more nearly
self-contained than any, other and
that in all human probability the re-
covery from the worldwide depression
would originate at home.
Abandonment of the gold standard
by Great Britain and then by other
smaller nations, default on the dollar
obligations of South American coun-
tries and the collapse in the external
bonds of Germany, together with the
Continued on Sixth Page.)