Evening star. [volume] (Washington, D.C.) 1854-1972, 1934-05-13
STOCKS STILL HIGH
.ONEARN|NGSBAS|S
DESPITE DECLINES
PriCe.to.Profits Ratio Now
at rs to |, or Same as
for 1929 Boom.
BONDS HOLD GROUND
NEAR PEAKS OF YEAR
Second and Third Grade Invest.
ments More Attractive Than
Equities for Many Buyers.
BY CHARLES F. SPEARE.

BY CHARLES F. SPEARE.
Special Dispatch to The Star
NEW YORK, May l2.-The mystery
OF the recent decline in stocks is not
SO great if one will study the present
price level in its relation to actual
earnings and to the return received
by the shareholder.
Moody points out that the price-to-
earnings ratio is 25 to l. or the same
as at the peak of the 1929 bull mar
ket. At that time. of course. there
were numerous issues whose values
were much more inflated than this.
specifically the public utility holding
company junior shares. In 1926 the
ratio was 10 to /.
Taking Is listed common stocks we
find that their average yield this week
was slightly over 4.5O per cent. This
includes a group of seven stocks
whose average return was better than
$50 per cent, but l8 stocks on which
the best average the purchaser could
receive would be 355 per cent. In
IAAC "GIC AlOuSlIIdIS
and public utilities whose present div
idends are uncertain, this being re-
f1ected in current quotations.
The largest income from any stock
in this list is from American Tele-
phone g. Telegraph, about 825 per
cent, which suggests the constant de-
bate within and without the manage
ment concerning the wisdom of pay
ing a boom-time dividend through
out four and half years of unprece-
denied depression. Since 1929 to the
end of the second quarter Of 1894. it
will have distributed approximately
100000 to its $1,000 sharehold-
ers. Although the surplus of the en-
tire Bell Telephone system declined
STOP 100000 from 1881 to 1888, there
are ample funds to meet the implied
assurances of regular dividends. How
ever, the recent decision of the United
States Supreme Court in the Illinois
Bell case suggests that most of the
operating units in the main organiza-
ton could live for some years on the
reserves they stored away in their
cupboards in the era of plenty.
Industrials Stand Out.
Compared with the high prices of
three months ago. with gold in the
meantime unchanged in value. the
average Of 10 common stocks is down
II per cent. The industrial group
was the only one in February that
exceeded the average of the previous
July. II We disregard the effect of
gold appreciation, the present aver
age is found to be more than 20 per
cent below that of last Summer.
Those who are still bullish maintain
that. on the basis of the old gold
content of the dollar, equities are
unreasonably low.
The only important industry expert
encing distinct revival last July was
textiles. The iron and steel trade
was then operating at a lower per-
centage to capacity than the 60 FER
cent ratio now reported. Automobile
output had not begun to gain the
momentum which has so quickly re-
covered for the business much of it's
lost ground. Most of the railroads were
operating at deficit.
From the standpoint of actual turn
over and net profits, the leading corpo-
rations of the country are better off
than they were 10 months ago. The
explanation of lower market figures
for their securities, therefore. is that
there is today little demand for stocks
by those who previously bought them
on imitation prospects; that the public
which has funds to buy. if it feels
like it, believes stocks are too high
in proportion to present and prospec-
tive earnings. while the rest of the
people who formerly were market fol-
lowers have not yet been able to re-
build the savings with which to buy.
Wall Street will say that the great
est Of al factors is the absence of the
wealthy capital class, who still hesitate
to make commitments while the Gov
eminent is experimenting with bust
ness and while there is an unknown
value of the dollar to take into ac-
count. It's own withdrawal profess
sionally from the market is linked
with the proposed exchange regula-
lions. making improbable transactions
which, in past years. have contributed
high percentage of volume to daily
trading.
Bonds Keep Ground.
In contrast with the situation in
stocks is the only occasionally inter
rupted advance in bonds. While
stocks are much below the average
prices of last July and those of Feb
ruary, the bond index remains close
to the highest Of the year, which
means the best figures for select is
sues during this generation. Apparent
ly that portion of the public which
is not ready or able to purchase
equities" finds in second and third
grade bonds the income return which
it demands: also a safety status that
becomes more satisfactory as cor
porations earnings improve.
1t is not unreasonable for the In
weston to buy junior railroad mort
cages yielding from 6l2 to over z per
cent. such as those Of the Great
Northern. Northern Pacific, Baltimore
g. Ohio, Southern Pacific and New
York Central, rather than popular in
dustrials and the few dividend-paying
rails, on which the returns range from
2Ia to Az per cent. The same point
of view has been assumed in relation
to lower grade municipal issues, about
which there was also the question OF
safety year or so ago.
1t is a strange sequel to the briet
1888 era of stock and commodity spec
ulation based on supposed imitation
that the great speculative profits sub
sequent to it should have accrued to
those who bought securities presumed
to depreciate under the blight Of in
hation, actual or anticipated.
What, then, is to be said Of the
most unorthodox movement of all
the rise in United States Treasury
issues? They were last Summer held
to be an investment that no wise man