Evening star. [volume] (Washington, D.C.) 1854-1972, 1934-12-09
Heavy 0versubscription Is
Hailed as Initiation Move
ment Recedes Sharply.
GAINS BRING QUESTION
OF INVESTMENTS SHIFT
Expectation of Larger Profits
Turns Attention to Common
Stocks-Commodities Jump.
BY CHARLES F. SPEARE.

Special Dispatch to The Star.
NEW YORK, December 8-The
support which the banking community
gave this week to the unexpected issue
of long-term 31s per cent Treasury
bonds reflected the same sort of con-
hdence in the administration and in
its fiscal policies that revealed itself in
the election figures last month.
1t is true that the new issue was
properly primed to excite the sup
porters of this form of investment,
for it was offered better than l per
cent under the 31s per cents out
standing. The Treasury officials used
the method previously so popular, and
frequently so successful with corpora
ton managers. of asking bids under
the market. However had there not
been a feeling that the administra-
direction as to expenditures and in
its monetary plans, this bait would
not have been taken.
Another fact on which the heavy
oversubscription of the issue was
based was that the infiationist ele-
ment in Congress and among certain
industrial and agricultural interests
has ceased to be active and, tempo
rarily at least, has given the field
over to those who are endeavoring to
promote recovery. There appears to
be less occasion for alarm over pos
sible further devaluation or issues Of
"non-intereSt- bearing bonds" than for
months.
The rise in commodities this week
has had its legitimate cause in scarcity
resulting from the drought and the
excessive zeal in destroying what today
we need for food. A similar move
ment in common stocks finds its ex-
PLANTATION in the growing expectation
of larger business profits, not in in
f1ation.
Investment Problem Seen.
If this premise Of Wall Street is
correct, it creates a number of in
teresting problems for those who
would speculate or invest. These in
clude the proper course to be pursued
by those holding the highest-grade
corporation bonds, quoted at premiums
Of from to Is points over par; by
owners Of industrial preferred stocks
selling on a yield basis equal to that
Of normal average for first mortgage
bonds, and by those who have held
their funds liquid awaiting the day
when the outlook appeared clear
enough to warrant their venturing
again into the market for equities"
For if the industrial momentum is
to gain Roadway, there cannot be
oy1f - ~
usual movement to discount its bene.
fits.
During 1929 the public-and the
term is here used in an inclusive
sense, as the institution as we'll as
the individual was involved-was 95
per cent stock-minded. For the last
year and half, with slight inter-
Jude in the Spring and Summer Of
1888, it has been bond-minded.
1t is not conceivable that the in
dividual who has been hugging safety
of capital. through investment in I'M
DERIVING issues of the strong corpo-
rations, will suddenly reverse his pol
icy and jump into the middle Of a
stock speculation. But he might re-
wise his ideas of security under in
creasing recovery and go from bonds
of an "AAA" rating to those of IA"
or even "a" For the average person
this seems wise policy.
There are plenty of railroad and
public utility operating company
mortgages, whose margins Of safety
are sufficient to guarantee the con-
tinuous payment of interest and prin-
cipal, to satisfy the demand. It is not
so easy for the preferred stakeholder
to escape into a lower level of quality.
for the supply Of those secondary
issues worth examining is small. Be-
low this level is strata that is crum-
bling. Under such circumstances, a
radical shift from what seems an over
valued senior issue into a common
stock, with reasonable expectation of
advance under recovery, would appear
advisable.
All Groups Affected.
It has been repeatedly stated that
certain groups of common stocks
would not benefit from an inflation-
airy movement in equities" Among
them were rails. public utilities and
bank shares We are dealing here.
however, with the expectation Of i'm
provement In the prices OF common
stocks from business recovering by
normal methods and not the kind Of
unhealthy uplift that would accom-
pany currency imitation. Conse-
quently, while these three groups OF
stocks would lag behind industrial
issues, they would not fail to make
reasonable response to a bullish tenn
per and might even on occasions lead
the other group.
Along with this movement would
be one in distinctly junior bonds Of
railroads that might be showing a
deficit for this year, but were in no
danger of default. There is some
parallel to this in the public utility
secondary mortgage list, though in
general the opportunities for safe in
vestment In Junior liens Of holding
companies are limited.
Real estate is supposed to be one Of
the best investments with which to
Offset the capital ruin Of imitation.
Apparently few have followed this doc
trine. On its intrinsic value and its
future prospects, good improved prop
erty, on the present Debated price
scale, represents one Of the most prom
Using outlets for idle capital available.
No one has ever developed better
system for creating individual wealth
than that of buying things when no
one else wants them and of selling
them when there is mad scramble to
buy them. The weak element in this
recipe is that the mass of investors
act alike; few break out of the ranks
and operate independent of the crowd.
1t Is not improbable that many good
speculative and investment opportuni-
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