The Washington times., 1934-09-13

CTCQlI, dL1Q NOl 49,
the growing dis %
appointment in ~ ~:
the minds of Lewis Haney
many Specula-
tors over the sloWneSS of infla-
ton to take effect.
Furthermore, the approach Of
the date when the Stock Ex-
change comes completely under
the regulation of the Government,
is to be kept in mind. This not
only acts as a demper on specu-
lative activity, but has probably
been causing liquidation in spe-
cial stocks. 1 think that there
must have been some pools" and
individual operations going; on,
and as these must soon wind up,
the operators who were long of
stock have doubtless been selling.
But these things do not make
. bear market. AS l have long
pointed out, this is essentially
an initiation market. The Maine
election, if it means anything
means that the New Deal has
q further lease on life, and the
New Deal means wasteful spend
ing and soft money. The crack
in Government bonds may
make Government borrowing
more difficult, but a spendthrift
government will borrow just the
same. So see no change in the
reasons for expecting further
initiation.
At the same time, there has
been too much of a tendency to
buy stocks without due regard for
earnings prospects. You can't
initiate zero. The only sound in
flation effects on stock prices will
be those that increase the earn
tngS of the issuing corporations.
At present there are good
many industries which do not
show a favorable earnings outlook,
or about which there is sufficient
doubt to warrant caution in hold"
ing their stocks-inflation or no
initiation.
For example, the outlook for
copper is at present beclouded.
The price of copper has been arti-
ficially maintained by the code
pool at a level far above the
world market, and the foreign
price has been falling. The domes-
tic demand depends upon the
building and automobile industries,
and the former is flat and the
latter declining. A cut in copper
prices is easily possible. In any
case, the high price Will keep
sales down.
The outlook for lead and zinc is
little, if any, better.
In all these non-ferrous metals,
stocks are too large, and the artl-
ficially, high price fixed on silver
(Which is a by-product) has
tended to keep production up.
The August production and
sales of automobiles fell off ana
were below year ago. Yet costs
of producing automobiles are
higher. The automobile code will
be up again before long, which
threatens fresh labor difficulties.
Or take the oil industry. Artltl-
cially fixed prices have led to
overproduction. California pro,
duction of crude has jumped
again. Now the New Dealers are
sponsoring a big pool to buy up
gasoline and hold it off the mar
ket, in an effort to hold prices up:
This sort of stuff may staVe OIL
the necessary readjustment 1or a
time, but how long?
The railways are seeking
rate advance. But that is not
what they need. They need
lower costs and a larger ana
steadier volume Of traffic.
Their operating ratios have in
creased sharply, and while July
gross was 6 per cent under year
ago, the net was down As per
cent. A little squirt in carload
ingS based on Government re-
AlGI OpCE6tAUuS AA OAOUSAV ~ANS
does not mean sustained pros
perity.
The liquor business has been
0verdone, and stocks are large.
The Government has nearly
taxed it to death.
The steal industry is much de.
pressed, and less than seasonal
gains are in prospect.
My point is that one must be
'sselective" in hedging against in
flation. There must be some
basis in earnings prospects if a
stock is really to benefit by infla-
ton. This, 1 think, is what the
market is coming to realize. But
I can see no reason for dumping
stocks which have something to
initiate, except possibly in cases
like U. S. Smelling, where the
market has been obviously over
bulled.
"1 OGA