Evening star., 1933-09-03
BOND PRICES SAG
IN ANNUAL LU[L
Pre.L labor Day Markets
Run True to Form Despite
Easy Money.
BY BYRON SELLER.

Special Dispatch to The Star
NEW YORK, September 2.-The in
vestment markets, easy money rates
Notwithstanding. lived up to their ira
ditionS this week-the period just be-
fore Labor day always being dull. The
lack of interest, along with the presi-
dental gold rulings accounted for the
lethargy and the downward price ten
dencieS
The average price of corporate bonds
was down about a half-point on the
week In the case Of high-grade rails
the decline amounted to nearly point
and half Second-grade rails, on the
other hand, were up more than quar-
ter point, while public utilities were
down more than a half point and In
dustrialS off somewhat less than an
eighth of point.
Four rail groupS-equipment short
terms high grade and second grade
furnished interesting bond moves this
week. In sense their swings hinged ON
money rates. but the introduction Of
other factors prevented these groups
from moving in unison.
Equipment trusts, especially shorter
maturitieS, more than fortnight ago
forecasting eaSilg short-term money
prices. 1t was the low price of loans
1DI d lllOIllIl VI leSS IlldI DlOuSllI VI ION
bidding into a varigated group of rail
issues maturing within three years. Ex-
cellent earnings of the roads in July
influenced this trend. Money quotations,
rather than transportation factors,
usually shape tf1e path of high-grade
rails. Junior carriers react more readily
TO traffic. and consequently net income,
than to money rates.
New Financing Likely.
When the roads take Joseph B.
EaStman'S suggestion and scrap inefh-
cient equipment, some new financing
may result. Meanwhile this group con-
tinues to enjoy a scarcity value as well
as the normal factors governing it.
Whether this financing takes the form
security offerings depends on the trend
of the industry and interpretations of
the new securities act.
Railroad securities offered to the pub
lie thus far this year total $13,080,000,
consisting of two issues, $1080,000 of
equipment trust certificates for the
Reading Co. and $12,000,000 of Cincin-
natl Union Terminal Co. first mort
gage per cent bonds due in 1857.
Both of these offerings were high-grade
securities. Only exchange offers, such
DIS pdl CdolI dIlu Rdlt 0OA10 PoJAASACo
for maturing obligations. provided new
issues of medium or low grade and
naturally such securities were not pub
Gcly offered.
Carrier financing last year, in a
period when traffic tumbled and earn
1ngs melted, totaled S24 4,952,0 900 which
is small compared with the 1922 aggre-
gate of S615 5,O3O,400 or the postwar
record year, 1880, of s1,oo6, 667 500. In
1880 the roads undertook large ex-
pansion and improvement program at
the suggestion of President Hoover.
Financing in 1882 totaled 1853, ,033 900.
The lack of new rail financing, which
partially offset disgorging of important
bond blocks by troubled institutions,
helped short-term issues as well as
equipments 1t is true that as late as
the end of June a variegated group
of one-to- o-three-year rail maturitles
was selling to yield as high as SO
per cent. These issues then recorded
the markets doubt of payment-or at
least its belief that some sort OF bar
gain, such as a SO per cent cash, SO per
cent bond payment, would have to be
struck near the due date.
Gains Maintained.
Only one of Is such issues-Burllng-
ton, Cedar Rapids & Northern Con-
solidated first IS OF April, 1934-sold
below it's June-end quotation. Gains
in this group, thanks to improved earn
ings as we'll as brisk short-term demand,
ranged from 2 points, in the case OF
Rock Island Refunding 4s of April.
1884. to 182l points in New YORK, Chl-
cago g. st. Louis IS, October, 1888.
Most of this group, like New York Cen
tral & Harlem Debenture IS Of May,
1884. New York Central Debenture IS
of May. 1885, and Illinois Central 3l2-
wear, Az per cent notes Of June. 1884,
are only slightly below their July peaks.
Traffic statistics, and consequent earn
ings, explain the changed attitude
toward the group.
Five of the ten most active high
grade rails finished the week with net
declines, while three were small frac-
ton higher and two unchanged. Usually
high-grade rails are sold about at the
bottom of an industrial cycle and the
proceeds invested in speculative Sc
curities, which should then enjoy an
upswing on industrial recovery.
Recent gilt-edge rail offerings, how
ever. have emanated from banks which.
desiring to be more liquid, bought short
term United States Governments, or
from individual investors who. fearing
imitation. are switching from bonds to
shares. A reduction of the gold content
of the dollar may follow the recent
export rulings on gold and thus hurry
imitation. 1t is such considerations,
rather than normal motives, that are in
creasing high-grade rail supplies which
in view of money rates should be
diminishing.
Gains predominated in the active
second-grade rails. Many of these
Junior issues have discounted higher
traffic and earnings to date. Net operat-
ing income advances, however, shoulo
not prove too great a market stimulus,
even though Spectators can finance
carrying at the lowest call money rates
In 25 years.
A study Of July rail statements will
reveal a much greater gain in gross
than in net operating income. The
apparent discrepancy results from
higher maintenance charges.