Evening star., 1933-06-06
IMITATION IGNORED
BY BOND BUYERS
Interest-Bearing Obligations
Appear Unaffected by
Dollars Drop.
Special Dispatch to The Star.

NEW YORK, June ct Is now q
year since bond prices made their bear
market low. The Dow-Jones averages
for 40 bonds touched 65.78 on June /,
1882, and they never fell that far again.
This was something over month be-
fore stocks made their lows, the exact
date for the equities being July 8, 1882.
There was thus lag of only about
80 days between the times when the two
markets reached their minimum points.
In 1920 bonds made the low of that de-
preston, but stocks kept going down
until August of 1921. so that the lag
in that case was much greater. All
through the bear market Of the last
three years and all through the recov-
cry of the last year there has been
close correspondence In price movement
between bonds and stocks. :.
The current strength in the bond
market. then, is to be taken into ac-
count in any analysis Of the position OF
stocks. and what is true of bonds ap-
piles more or less to preferred issues
which have an investment or semi-in-
vestment status.
The stock market had its sharpest
break since March on Saturday last,
but the losses were practically all In
common stocks Preferred stocks were
undisturbed. Neither was there any
weakness in bonds, although Few Is
sues which had been specufatively active
reacted slightly.
Monday both bonds and stocks were
strong. If further reaction is impend-
ing in the stock market it has not been
foreshadowed in the market Tor inter-
est-bearing obligations.
Nav Re Confusinx.
This steadiness in the bond market
Is hard to explain II the prospect on
imitation is held responsible for the
recovery = in security prices, for 1t Is
not only the speculative, but the high
grade. bonds which have maintained
their positions all through the events
leading up to the abandonment OF gold
payments and eliminating in legisla-
ton rullifying the gold clause IN all
bonds, Government and corporate.
II is true that the highest grade OF
corporate bonds are not selling at quite
the best of the year, but they are
not far away and they have been ad-
yancing for a month or So, during
which imitation talk and imitation senti-
ment were rampant. Specifically, the
Dow-Jones averages for 10 hlgh-grade
rails advanced from 88.o7 to 1892 on
June S, compared with high Tor the
year of 9139 and a low OF 8o.35:
If we take 10 high-grade puollc util-
tiles. the gain similarly has been from
90.36 to 81 AZ, from May 13 to June 5.
The high for this group was 93.0s.
showing that they have been Influenced
by the threat Of higher taxes as the
stocks have been, but not to the same
degree However, even here the pres
ent price compares with q low OF 1915
for the year.
Buyers Not Deferred.
If we take the Moody computations,
the averages for 80 domestic bonds
rated "AAA" rose from 98.88 on May
/ to 1882 on June 2, against nlgA
for the year of 106.07. During this IN
terval the yield on these selected IS
sues at the market fell from 482 per
cent to 452 per cent, both returns Pc
ing ample proof Of investment quality
It was to be expected that United
States Government bonds would hold
when the buying program Of the Fed
eral Reserve banks was back OF them,
but there is no such support Tor cor
porate obligations. In other words, the
bond buyer of today Is not deferred
from commitments by the prospect OF
a deprecated dollar
1t has been repeatedly said that one
of the most serious aspects of the de-
cision to repudiate the promise to pay
In gold the interest on United States
securities is the undermining Of faith
in all contracts. A priori that would
seem indisputable. and yet the fact is
that investment in bonds goes on just
the same.
Depreciation Ignored.
On the other hand, the dollar is de-
preciated. It will not bring hundred
cents in gold in the world market.
There is no blinking that fact either.
Perhaps the anomaly can be. ex-
planned by the fact that the bond in
vestors of today are few in number and
almost exclusively buyers whose own
obligations are payable In dollars and
who are not effected by any fluctuations
in the fold value Of the currency unit.
That is the position OF an insurance
company, for instance.
1t Is not the position Of foreign in
vestors. individual or institutional.
To the degree that the recovery In
securities and in commodities has been
due to the inf1ationary effect Of the en-
barge on gold, 1t Is going to be hard for
the administration to maintain the old
gold parity Of the dollar.
For If dollar depreciation made stocks
and commodities go up, there will al
ways be the fear that dollar apprecia-
ton will cancel all the gain.
The hope Is that business will have
made such progress before that step has