Evening star., 1933-12-31
Continued From First Page)

recovery 100 Rapid.
The exchange was reopened on We'd
nesday, March Is, with initial quota
tions 3 to 10 points higher. The gains
were increased during the subsequent
trading, although they were not en-
tirely held to the end. Prices rose, with
the usual reactions, for four months
thereafter. The high point was reached
on July l8, but the recovery had been
too rapid. an overbought situation had
been created and there was a sharp
break. The immediate cause was ex-
CesSive speculation for the rise in the
liquor stocks.
AS it became more and more prob
able that the eighteenth amendment
would be repealed, buying Of the alcohol
shares attained large proportions. AS
usual in a speculative market. 1t went
too far. The effect of taxation on the
profits of the alcohol beverage business
and the prospect of intense competition
were disregarded. Prices for the lead
ing stocks in the group were bid up
fantastically. The result was inevitable
The liquor stocks came down with
crash and took the rest of the market
with them.
It also became evident at this stage
that the recovery in business had halted.
In that quarter, too, the pace of recov-
cry had been too fast. Moreover, it was
beginning to dawn on the Wall Street
mind that events in Washington we're
shaping themselves to discourage spec
Clation. Certainly that was true of the
commodity exchange, on which the re-
action was as pronounced as 1t had been
on the Stock Exchange. From that time
~ tIo 1F Tl1n1 oil Ioo -lyofc
had to labor under the burden of the
unSavory revelations made in the course
OF the Senate committees investigation,
not only of stock market procedure, but
OF banking practice.
Up to December the July top re-
manned the high of the year, but there
were recoveries in August, in September
back fairly close to the July high AT
no time did the market indicate it had
reversed the major trend.
Initiation Factor Enters.
In one particular the 1888 market
differed from other poSt-depreSSlon re-
coveries, and that was in its being
forced to appraise the imitation factor.
The gold standard was officially aban-
doned in April. The President was en-
powered by Congress to adopt any one
of three radical lnf1ationary courses, all
of them designed to advance commodity
prices. 1t developed that the only one
used, and that only tentatively, was to
0epreciate the gold value OF the dollar.
It is unnecessary to rehearSe all the ac-
ton taken along this line here, We are
concerned only with the effect on spec
U1at1On in stocks.
The theory was very simple. If the
dollar were deprecated, stocks, the
price of which is measured in dollars,
should appreciate in proportion. That
roughly also is the theory about the
relation between commodity prices and
the gold value of the dollar Stocks
were due to benefit from the price
standpoint also because they repre-
sented ownership Of real property, as
distinguished from bonds. which car
: ried a creditor interest only. In fact,
I the operation, it was generally admit
ted, would be adverse to bonds. There
we're dissenters from this view, but they
were in the minority.
II was supposed that as commodity
prices advanced, business would be
stimulated corporate profits increased
and larger dividends for stockholders
would follow In any case, investment
In common stocks as a group was helo
to be a hedge against whatever injury
imitation might int1ict on other interests
of capital.
Capital Sent Abroad.
Undoubtedly there was buying of
stocks by those who sought 10 protect
themselves from the effect OF depre-
ciated dollar It was small in amount,
however, compared with the buying by
speculators VINO we're anticipating such
action on the part of capital. They
overdid it here. just as they did in the
markets generally.
The flight of capital so-called, took
another form for the most part. EX-
porters of goods from the United States
to foreign countries left the proceeds
abroad in the currencies of the import
ing countries instead of bringing them
home. Stocks with an international
market were bought on this side, the
certificates shipped abroad and sold
there again with the intention of leaV-
ing the money in foreign countries un-
til dollar stabilization was achleVed at
home. Obviously that would be prof.
liable only if and to the extent that
the dollar was stabilized at lower gold
value than obtained at the time tne
operation was initiated.
This is not to say that the trading
element reasoned it all out. They we're
satisfied to act on the proposition that
eyery indication of a trend toward in
fationary action in Washington was a
signal to buy stocks with commodity
interest. These stocks included the
metal shares, the rubbers, the textiles,
the oils. all stocks with s<ge inVen-
tories of staple goods. AfNr the ad-
ministration put into effect the gold
buying plan, every advance in price was
hailed as an excuse for an attempted
demonstration in these stocks
Initiation Appeal Wanes.
At first it worked but as time went
on the imitation argument lost part
of its appeal 1t came to be realized
that as long as the gold buying was
confined to the output of domestic
mines, 1t was little more than gesture
1t did not and could not have any eff
feet on the world price, which was
made In the London open market. In
effect, therefore, there were two prices
for gold, one the figure at which Wash
ington offered 70 take metal from its
own producers and the other that set
by the meeting of buyers and sellers
from all over the world in London. The
only influence the Washington price
could exert on the gold value of the
dollar was a psychological one.
The case was different when gold
was bought for Washington account on
the other side, because then dollars had
to be sold to acquire the sterling or the
francs with which to make the pur-
chase. Up to December, however,
such operations we're understood to be
on q limited scale and had no visible
erect On the stock market
T. (Copyright, 19331