The Washington times., 1935-07-08


Lewis Haney costing that
the major uptrend has been
terminated.
2. Although there is nothing
to make it inevitable, I am
inclined to look for a cOnSid-
cradle intermediate reaction
in the not distant future-re-
CARELESS of the long-pull trend.
My feeling is not based upon
anything very tangible. But the
market has had long rise, and
has for a few weeks shown less
momentum. Furthermore, bust
ness activity has shown a con-
siderable recession, the end of
which is not yet definitely in
sight. And is political uncer-
tainty ended?
3. In this connection, one
should not forget it is not always
fundamentally favorable indica
ton to find a market persistently
ignoring unfavorable news. At
least, there may be too much of
good thing. I also feel that the
idea of inevitable recovery" IS
little too simple to be a definite
basis for buying stocks.
4. It seems to me that we need
more certainty as to third-quarter
or second-half earnings, before we
can count on a sustained market
rise from here. We. can "hope"
for better earnings. Can one say
more just now?
S. Unquestionably, one can say
that the market has been trying
to 90 up." Reactions have been
few and mostly unimportant.
There has been little evidence of
liquidation. Furthermore, the
buying has been largely for cash,
and no weak public following has
developed. No clear-cut symptoms
of a climax" have appeared.
All this has rested primarily
upon the pressure of idle funds,
intensified by declining interest
rates on high grade bonds and
bank deposits, and sharpened by
relatively good dividends.
co Two obvious conclusions
follow: (al One should continue
to stick to stocks showing good
earnings and paying fair divi-
dend yields. This is the basis
of the move, so don't wander OFT
after cats and dogs.
Cd Anything which hurts earn.
ings or tightens money rates Will
be apt to put bad crimp in the
move. Therefore, consider care
fully the prospects for business
recovery in the second half year
Certainly there are some clouds
and though these may be dis
PEELED, it will not be done by wish
thinking.
These clouds on earnings are:
labor unrest and strikes, taxes,
foreign trade conditions, price
establishments following NRA, the
strike of AAA processing tax"
payers, and the decentralization OF
the New Deal spending program.
Accordingly, one should be
very careful in his selection.
Cd Another thought is that the
price-earnings ratio idea is again
becoming warped, somewhat as
in 1929. At that time, it was the
notion that earnings would rise
forever. Now it is chiefly the no
ton that money rates are going
to decline forever. I think that
there is danger in buying securl
ties at 30, or even 20 times earn
ings, merely because money rates
are near zero. This is an artl-
ficial and abnormal condition.
Remember, when you get no
interest on a bank deposit, your
money is in a bank. But when
you get no interest on a stock,
you have to sell the stock to get
your principal.
90 Finally, I will add that
am not so sure that Mr.. Roose'
welt is done for, as some people
seem to be. Patronage and a
four. billion-dollar relief fusd are
powerful medicine. The radical
voters are not all dead.
It might not be bad idea for
him to hold up spending and to
encourage some further-let-down
in business. Then he could say
that the growing opposition to
him is to blame! GA crack in the
stock market would help such
playO Then he could come back
with more steam for reform"
and Government spending.
The inflationistS would GER
tainly jump to arms.
So my thought is that we
should be hopeful, but not too
sure. Buy the right stocks, and
buy carefully-especially when
they are weak. Don't chase after
stocks which have risen, but look
for good ones that haven't.