Evening star., 1934-05-20
TRADE LULL FAILS
TO DISTURB BASIC
RECOVERY RESULTS
All Evidence Shows Better
Business Health in U. S.
and Abroad.
LIQUIDATION OF STOCKS
CAUSES LITTLE ALARM
Equities Declared in Need of
Adjustment-Drop of Junior
Bonds More Important.
BY CHARLES F. SPEARE.


Special Dispatch to The Star.
NEW YORK, May l9.-The first
and the last sentences in President
Roosevelt's message to Congress this
week, asking for funds to carry out
the recovery program, have decidedly
different Implications
Powerful forces for recovery ex-
ist,' he says, and by developing conf
dence and faith in the future the
upturn which We have so far seen
will become cumulative" Then, in
requesting 1892 900, 900 to cover re-
quirements of relief and re-employ-
ment until the early part of 1885, he
shows a trace of doubt in the eff
cacy of the recovery program, for he
states that IF at that time condi-
tions have not improved as much as
we today hope, the Congress will be
in session and will have full oppor-
tunity to act"-in other words it can
revise the present budget and expand
its allowances.
Few business men today will deny
that recovery in the industrial world
has developed in a striking way since
last November. They are not strong,
however, in confidence and in faith
that 1t will continue. The seasonal
decline in activity in a number Of
prominent lines looks more threaten
ing than it would under normal cir
cumstanceS.
There is a slight lull in the iron
and steel trade after its long ad-
vance. The price of scrap iron is
ago and $3.50 from the peak of the
year. Automobile production is SLOW
ing up The loss faced by Western
farmers from the drought is seriously
curtailing the movement Of merchan-
disc and so affecting car loadings on
good paving freight in spite OF the
fact that grain prices are from to
10 cents a bushel higher than a
month ago.
Signs of Better Health.
These signs Of reaction are not
! alarming except to those who have
never regained their poise since 1929
| and to the men who find satisfaction
| in each small incident that suggests
| a defeat of the Roosevelt program.
All of the evidence points to increas-
| ing health in business here and
| abroad and a better balance between
production and consumption OF goods
than the world has witnessed In the
last decade.
The inference is that the recent
decline in securities represented the
liquidation of holders worried over
the prospects for trade in the re-
naming months of the year. There
is little to support this theory.
Stocks were high in proportion to
what was being earned on them and
| on the income produced from them.
They had a 20-point average decline
| to a level equaling that Of last De-
cember. Scores of the active trading
shares dropped from one-third to
one-half in market price from the
best figures of February. This was
sufficient to readjust their market
| position in their real worth, so they
| have had a recovery. The invest
ment trusts will not. however. show
so high a book value for their shares
| at the end of the quarter as on
March 81.
As there had been little stock spec
ulation, the latest major decline has
had no i'll consequences for the pub
lie as did that of last July.
| The more important fact has been
the drop in second-grade bonds and
| the reduction thereby in bank asset
values. from popular mortgages and
debentures sold to II points below
prices of April In this group also
| there has been a fair rally.
Both departments of the market
| are now on a reasonable price basis.
| giving assurance to those who are
seeking an acceptable equity" posi-
i ton, or to per cent yield from
bond comfortably margined as to
interest charges.
Drop in Utility Stocks.
Among the stocks that have had
| the highest percentage of decline are
those of the public utility holding
| companies In the last few months
there have been many evidences that
the profits of these corporations were
to be curtailed by rulings from State
commissions, as well as by the de-
crees of the higher courts.
The decisions of the United States
Supreme Court recently in the Illinois
Bell Telephone and Dayton Power e.
Light Co. cases are Illuminating.
They go deeper than the mere ques-
| tions of local rates. such as those de-
| termined last month by the MaSsa-
chusetts Commission in the Lynn pro-
ceedings. In the Dayton opinion,
the court laid down the rule that 6ls
f1fnr IrV1's no
value of a utility company. Thus 1t
moves in harmony with the times and
measures the rightful increment on
capital by the yard stick of average
current returns on capital varlously
invested.
In the Northern Illinois rate case,
the Illinois State Commission set the
rate of compensation at 6.3 per cent,
as against the claim by the utility OF
from z to rs per cent. The Tennessee
State Commission recently has re-
cuced the rates of one utility under
its Jurisdiction by 16 per cent.
These are all highly significant
events in the affairs of the power and
light industry whose former scale of
earnings on property investment was
sustained by the courts at from to
per cent and whose ability, there
fore, to charge high rates to consumers
permitted them to build pyramid Of
capital in common and preferred
stocks and debenture bonds of purely
management subsidiaries. The un-
scrambling of these companies and the
squeezing out of their watered capital
will proceed a considerable distance
further.
The pre-depression investor or spec
ulator in real estate, whether in farm
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