Evening star. [volume] (Washington, D.C.) 1854-1972, 1931-05-10
Absence of Professional Sell
ing Encouraged Bu|IiSh
Trend of Trading.
NEW DISCOUNT RATE CUT
GIVEN TWOF0LD PURPOSE
Declines in Earnings and Dividend
Reductions Offset Good of
Cheaper Money.
BY CHARLES F. SPEARE.
Special Dispatch to The Star.


NEW YORK, May 9.-The least i'm
portant of this weeks developments
were those occurring in stocks. While
the market for shares was Steadier in
the first half of the week and fairly
buoyant at the end, it again witnessed
declines in important shares to prices
unfamiliar since the years 1924 and
1926. There has been an absence OF
professional selling, which has given
encouragement for trading operations
on the bull side of the account.
All this is normal following two
months of severe reaction, during which
a new low average for the depression
was reached before the market stihened
up under support, and following the
clearing away of unhealthy conditions
which had been menaclng wan SLreeI
for some time.
Outside of the market many notable
events have occurred since last Satur-
dav. some directly influencing indi-
vidual stocks and others creating sem
timent for or against speculative and
investment issues which may be among
the controlling factors governing prices
later in the year The unfavorable in
cidents had more positive effect in
stocks than did those of constructive
nature. suggesting that the most power
full speculative forces are still COM
mitted to a campaign for lower market
values.
Ninth Discount Rate Cut.
The spectacular episode of the week
was the reduction for the ninth time
since August, 1929, in the Federal Re-
serve rediscount rate in New York. the
cut to IL per cent here was preceded
by a lowering of the rates in the re-
serve districts of Boston, Philadelphia
and Dallas. This action had been fore
cast in the successive downward move
ments in bill rates, thereby increasing
the spread between the bank rate and
the open money market quotation.
Two purposes underlie the poilcy OF
the Federal Reserve authorities CT agl-
tatinR a rate lower than that ever be-
fore quoted in the banking experience
of this or any other country. The
urinary one was to assist foreign
M ney markets to recover their equllib-
rum by preventing flow OF gold to
the United States, where it is an en-
barrassment rather than an asset. The
immediate effect of the l II per cent
rate has been to advance sterling and
to bring down discount rates in Lon
don and, fer the time being stop
further exports of gold from France
to this country.
The secondary object Of the IL per
cent rediscount rate was the stimula-
ticn of the bond market and espe-
cially the promotion of long-term is
sues in the place of short-term securi-
ties. It is doubtful whether this Will
meet with much permanent success.
Those who have any inclination to
purchase investment issues have shown
the same eagerness for Government
end municipal obligations maturing
within a comparatively brief period as
they did prior to the PRONUNCIATION OF
the new rediscount rate.
Influences on Investors.
It is the effect of statements OF
earnings that question the ability OF
corporations TO earn their bond inter-
est, the succession OF dividend reduc-
lions and the defaults and threatened
failures. to meet the debt service OF
foreign obligations that scare away the
public from formerly good securities
and many times counterfeit Dement'S
from declining interest rates. A later
development will be a reduction in the
rates paid by commercial banks on
their checking accounts and possibly
on thrift or saving deposits. This may
incline some depositors to purchase
bonds in order to maintain the preVl-
Gus rate of income on their capital.
We still hold to the opinion that a
business situation that would permit
of a per cent rediscount rate would
promote bond market activity far more
than one which compels the admission
in a rate Of l1z per cent that the in
dustrial status is not yet satisfactory.
This latter fact Is emphasized in the
declines this week in commodity prices
in addition to those which took place
in April, when the Bradstreet index
broke to the lowest figure since Novem-
Der 1914. Copper has been at cents
a pound, or below any price since the
end of the last century. The same
is true OF other metals. Scrap steel
is quoted at the equivalent of 1915 and
finished steel at figure similar to
that when industry was beginning TO
show its first revival after 1921 and
the United States Steel Corporation and
some Of the independent manufacturers
were not covering the dividends on
their stock.
Instead of fiattening out as has been
indicated In March. commodity prices
have taken another sharp dip down.
ward which, with the unsettlement in
the stock market, has unquestionably
AAANACopSA Vic III
circles.
Lack of Leadership.
The meeting this week of the Inter-
n9tioral Chamber of Commerce in
Washington has given occasion for re-
marks on what to DO and what not to
do in order to get the world out Of its
present mess. Naturally the foreign
view, as reflected in the speeches of
European delegates, is contrary to that
Of most of the American representa-
tives. who seem to be influenced more
by political expediency than by a de-
sire to deal with economic questions
frankly. In all probability the direct
effects OF the convention on stabiliza-
ton Of world trade will be as negative
as those issuing from the convention
the week previous OF the United States
Chamber Of Commerce One of the
manifest signs of the lack of leadership
from which the country is suffering is
the inability to focus a group of men
on one or two constructive policies, deal
with them dispassionately and with
out political bias and start something
moving.