Evening star., 1935-12-31
STOCKS CONTINUE
STEADY UPSW|NG.
Trade Progress, Excessive
Money Supply and Influx
of Gold Big Factors.
Continued From Page B-lD

was declining. an unprecedented
phenomenon in bull market.
So much for the technique of spec
ulation. What were the forces behind
the advance?
First, we shall have to place the
undeniable improvement in business.
That, too, is easier to see in retro
Spect than as it developed from day
to day. 1t was highly irregular re-
covery. one in which the heavy in
dustrieS Jagged behind and one in
which the railroads did not share until
almost the end of the year.
1t was an improvement which many
observers regarded and still regard as
unsound. 1t had for its background
increasing national deficit and a ma
tional debt of a size never before
equaled. 1t was accomplished under
a new regime of restrictive leglSla-
ton and a widening break between
the business world and the adminis-
tration in control at Washington.
And yet there was no denying the
fact. The improvement was there. It
was testified to in nearly all the ac-
cepted indices. the most impressive of
which was the increase in electric
power output to the highest in his
tory. 1t was emphasized by the amaZ-
ing success of the motor car indus
try, and, finally, by the increase of
rate of operations of the steel trade,
notwithstanding the failure of demand
from the railroads or from conStruc-
ton except on Government projects.
The rise in the stock market can be
justified, in part at least. by business
recovery. If there is anything in the
theory that the market discounts the
future long in advance. business re-
covery of striking proportions is in
prospect for 1886.
The second inf1uence-many observ-
ers would put it first-waS the exces-
sive money supply. So much has been
said about this situation that it hardly
needs detailed discussion here.
The main fact is that investors. in
dividual and corporate, we're con-
fronted with a serious problem in the
finding of employ ment for their funds
Interest rates fell to the lowest in a
generation. Government bonds ad-
Vanced in market price to the point
where the long-term descriptions gave
only from $50 to 2.75 per cent, while
short dated obligations yielded next to
nothing at all
Demand deposits in the banks paid
no interest, and time deposits a NOM
inal rate. The savings banks reduced
their dividend progressively. There
was a great deal of refunding of out
standing obligations by corporations
with unquestioned credit, and this re-
funding was invariably accomplished
at a saving in fixed charges to the
corporation, but with a reduction of
income to the investor.
Recovery from a depression always
produces a period of low interest rates.
and this time the normal sequence of
events was magnified by the abnormal
Government financial operations
There is no need to press the argu-
ment. 1t was everywhere admitted
that investment surpluses overflowed
from the bond market into stocks and
accelerated the advance in the latter
These investment funds came not
only from America but from abroad
and competed with the home demand.
There is no way of estimating the ex-
tent of the interest taken in our
market by European capital, but it was
very large. Foreign buying was based
not only on the opportunity for capital
appreciation plus income here, but on
the conviction that there was no safer
refuge for money anywhere in the
world than in the United States. That
idea needs no diagram either.
1t must be remembered that these
foreign funds are subject to with
drawal if and when the owners deem
it to be to their advantage. The same
observation applies to the influx of
gold, which has carried the total to
the highest on record exceeding any
thing any nation ever held at any
one time in the history of the world.
(Copyrieht 1895. by the North American
Newspaper Alliance Inc.)