Evening star., 1931-12-13
Averages Are Nearly 10
Points Under Bottom Prices
for October 5.
OMISSION OF RAILROAD
DIVIDENDS CONTINUES
Fears Over Foreign Situation Also
Prove Factor in the
Decline.
BY CHARLES F. SPEARE.

NEW YORK, December 12-The de-
morallZatlon in stock and bond prices
this week has been promoted by the
| radical changes in the dividend poll
! cleS of such railroad systems as the
New York Central, New York, New
Haven & Hartford, and Missouri Pa
c1f1c, and, in the absence of any clear
view of the German situation, by a
Willingness to accept as fact the most
extreme views expressed on the for
eign situation.
The public has been selling securi-
ties regardless of values and from
fright induced by the steady decline in
prices, which for stocks are now at
an average nearly 10 points lower than
| IN October, and for bonds at the min
mum Of the postwar period.
! The high visibility" attached to
| the daily quotations of listed securi-
ties undoubtedly reacts in such a time
on the investor, who is given little
encouragement by any sign of bank
ing leadership to believe in the worth
Of his securities. His judgment is in
huenced almost entirely by the action
| of the market His business opera
tions contract as the depreciation in
his stocks or bonds increases. His
guide is the ticker. This has led him
into a wilderness where his former
faith in the fundamental values of
American corporation securities strug-
| gle with fear for the financial in
tegrity of all institutions.
Streets Position Liquidated.
1t is not Wall Street selling that
has undermined values so much re-
| Gently as liquidation by those who
nave Tor years owned and held Sc
curities for their own account or as
guardians for others. The Wall Street
position Is quite thoroughly liouidated
ms Is apparent from the decrease of
80 per cent in brokers' loans since Oc-
toDer, 1929, even though 1t reflects to
considerable extent the 80 per cent
decline in stocks meanwhile. In 1929.
at the peak OF the market, one Stock
Exchange house was borrowing s275.-
100000, a second $250,000,000 and a
| third $200,000,000. This week the bor-
roWlngs of the first had been reduced
to s35, 100000. Those of the other two
were, respectively, $15,0000 and S.
900, 900
Defation in loans in the same rela-
tive degree has taken place where for
merly there were large speculative COM
nitments. There has also been a notable
reduction in the loans against securi-
ties carried by the banks, though this
has probably not yet reached the culmi-
mating point.
& Crisis In Bond Market.
The critical situation Is in the bond
market. This enjoyed little recovery a
month ago, when stocks moved up from
the October prices The same is true of
preferred stocks, especially those of pub
lie utility corporations. The persistent
INIl1H9tinn nf thnCa hiUhar IS
securities, whose margin of safety for
interest or for dividends has undergone
little change in the past three years, is
the most sinister and mystifying aspect
OF the entire market position. 1t has no
relation to the usual factors in a de-
cline, such as high money rates or an
oversupply of new issues.
Corporations that must borrow in the
next year or two apparently are con-
tent to see their securities selling on an
8 to 10 per cent basis and at prices that
represent discounts of 80 to SO per cent
from those at which they have provided
themselves with new capital in the last
II months. 1t is not surprising that the
small investor should be beWildered and
afraid when those who are supposed to
know all there Is to know about individ-
ual securities make no effort to support
SfCLl tIlC fCly VI Lllcli.
Some hope was held out at the end of
the week of favorable conclusion of
the conferences in Chicago of the rail-
road brotherhoods. 1t was believed that
a concession to an emergency condition
would be made in the matter of wages.
The groups specifically involved in this
controversy have had a reduction of 81
per cent in the numbers employed since
1929. At the same time the mainte-
nance-ofWay and equipment forces
have been cut down 80 per cent. The
state Of the second group, therefore,
With less employment an da much small
er average income, is much worse than
that body of men who are resisting an
adjustment in wages and have init
mated that they will oppose a cut so
long as the carriers continue dividends.
There already have been about 35 roads
that have been compelled to reduce or
omit payments on stocks in an amount
involving nearly 5000, 900, 900 of the 1880
disbursements.
Tax Selling Increases.
There has been some increase this
week in the offerings of stocks identified
with corporations whose products are
to be taxed under the proposed schedule
and from which revenues in the first
half of the calendar year are estimated
at S205 COO 900. More serious, however,
has been a repetition of what has been
witnessed in the closing months OF the
last three years; namely, selling OF
securities to establish losses against in
come tax payments. This pernicious
and uneconomic privilege given by law
to those who have depreciation IN real
estate or in stocks and bonds has been
one of the prime factors in creating the
loss in revenue from which the Govern
ment is now suffering, and to offset
which it is compelled to establish new
schedule of tax percentages on personal
and corporation incomes.
The report of Secretary Mellon indi-
Gates that the difference between the
profits reported on net incomes of $1,000
and over in 1928 and the losses in the
same brackets in 1880 was $4,230, ,000,- |
600. The profits last year were offset
by losses permitted to be taken under
the so-calied capital profit" tax. Not
only does this provision IN the tax law
permit wealthy individuals to avoid pay
ing their share Of the Government eX-
pensa, but it repeatedly leads to de-
moralization in the market Tor securities.
In times like the present it adds fuel to
fire from which few molvlduaIS or
corporations are escaping unsinged. If
there is justification for such an element
in the tax laws, it has not been SO
interpreted successfully by Government
representatives.
If anything, the suggestions for in
creased income taxes are TOO moderate.
They do not go deep enough into the
immediate necessities OF the Govern
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