Evening star., 1933-12-05
BONDS
Of MEDIUM PRICE
Many Investors Prefer This
Class as Insurance Against
Imitation.
BY CHARLES F. SPEARE.
pecial Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, December 5.-The ar
gument that medium priced corporation
bonds are a better insurance against
imitation than any other class OF securl-
ties is entitled to considerable weight.
Many shrewd investors are backing their
Judgment In this direction and buying
the middle class railroad and indus
trial bonds, whose markets, according
to bond specialists, have less artin-
cial character today than those In
higher rated issues.
The basis on which the argument
rests is that bonds CT medium market
value already have discounted the ef-
fects of dollar depreciation. This may
bs proved by taking list OF. say. 15
active railroad mortgages and deben-
lures and obtaining the average cur
rent quotation.
sion consists of Baltimore & Ohio re-
funding 6S, Canadian Pacific deDentuTe
As s.. Paul general As, c., c., G. & st.
L. refunding 41As, Erie refunding IS.
Great Northern general 7, Illinois Cen
tral debentures ANS, Kansas City South.
prior lien As. New York Central refund
lng 4HS, New Haven convertible 6S,
Northern Pacific refunding IS. Penn
svIvania debenture AIS, Southern Pa
cific gold 41zs and Southern Railway
general 6s-
Credt Status Higher.
The average price Of these IS issues
is slightly over SO, against par OF 100.
In other words, 1t happens to about
coincide with the recent value OF the
dollar In terms of, foreign currencies.
To this extent 1t has discounted at
least a portion of the effects Of infla-
ton, as allowance must be made Tor
the pressure on the quotations OF all
of these bonds as a result OF seVefa!
years of poor earnings and the fears OF
default for some of the debtor COM
panies. On the other hand the credit
status of practically every carrier rep
resented in this list is measurably
higher than 1t was a year ago. though
perhaps not so good as during the
Summer months.
Those who buy common stocks 70
ward of the effects of imitation are
primarily concerned with the element OF
capital. They give only slight con-
sideration TO income from their invest.
investors who do not feel warranted
in sacrificing income completely, so they
take the middle ground represented by
a security that should appreciate under
imitation and which provides them with
return on their capital. This group
of Is railroad bonds yields an average
of about 815 per cent, irrespective OF
the yield to maturity. Consequently,
if the purchasing price Of the dollar Is
reduced by half, as many anticipate.
the holder of these bonds would still
have the equivalent Of better than
per cent return on his money, based on
,, normal dollar values.
May Strengthen Banks.
1t is important to remember that the
greatest proportion of bonds in the
portfolios of the country banks Is In is
sues of the medium priced type and
that this was the cause of their weak
ness a year ago. It may prove to be
their greatest source of strength II In
flation reaches the degree predicted.
Actually, in the last month. the best
bonds in bank portfolios. namely. Gov
ernments, municipals and the top-rated
rails and public utilities have shown the
greatest ratio Of depreciation and the
humber issues the least decline.
There are number of industrial
company bonds that have the same at
tractive qualities in the present situa-
tion as the rails, especially those Of
companies dealing in commodities that
are expected to rise with imitation. The
experience so far has been. however,
that investors and spectators seem to
prefer to make their commitments d.
rectly in the common stocks of COM
modify companies rather than in their
mortgages or debentures. 1t is under
stood that a number Of the large in
vestment counsel groups have invested
as much as 80 per cent of the funds di-
rected by them in the so-called COM
modify stocks
Copyright, 1933)