Evening star., 1936-11-22
CAUTION. APPEARS
AS RECOVERY SETS
SPECTACULARPACE
Roper Hopes Nation Win
Avoid Speculation of
Seven Years Ago.
PUBLIC NOT WORRIED
BY TALK OF REACTION
Dividend Flood Spurs Markets.
Treasury Disappointed by Net
Benefits in Profits Levy.
BY CHARLES r. SPEARE.
.acial nisnatch to The Star.

BY CHARLES F. SPEARE.
Special Dispatch to The Star.
NEW YORK, November 21.-The
picture of prosperity presented this
week by markets for securities, for
many commodities, by increased and
extra dividends and by industrial and
retail trade statements is rather daz-
cling. 1t also has its fearsome as
poets. People are again asking where
we are going and how far? Can we
avoid another reaction?
Secretary of Commerce Roper, while
describing the many ways in which
business Is improving and predicting
q Christmas trade nearly equal to
that of 1929, hopes for an era that
will not duplicate the speculative ex-
cesses OF seven years ago. Buyers OF
stocks and Of commodities are minded
to take q profit at the opportune
time. No one has any very positive
idea when this will arrive.
The safety Of the situation lies in
an appreciation that there Is dan
ger in too much promotion OF spec.
ulative commitments from the pres
ent level We are, however. dealing
once more with q mass psychology
which, at the moment, responds only
to the rosy hues that surround Amer.
ican business and seems not In the
least disturbed by the serious de-
velopments abroad.
Revenue . Disappointment.
Stocks and bonds have been rising
together on different days Of the
week. The appreciation in the for
mer has followed another food Of
dividends, impelled not only by cur
rent earnings, but by the desire to
distribute either cash or stock to on
set the corporation surplus tax.
Advices from Washington hint at
disappointment in the Treasury over
the net benefits Of this to Govern
ment revenues. That has been q pros
pect ever since the law Was passed.
There Is no evidence now that the
loss to the Treasury Of the returns
from the processing taxes will be bal
anced by the gains predicted BY the
sponsors for this new tax legislation.
Change Is Likely.
That IN attempt will be made In
the next Congress to annul or revise
the capital gains tax Is generally ac-
cepted in well-informed circles. 1t
Is q vicious and ineffective type Of
tax legislation.
The history Of 1t Is that it has
always produced large revenues when
the Government was least in need Of
them and dried up the tax sources
when the Treasury became
borrower.
1t encourages evasion of proper pay
ments on incomes, through the system
Of tax selling" to establish losses,
and prevents the natural working out
of q speculative market situation BY
retarding profit taking when it Is
essential to market stability.
A recasting Of the entire corpora
ton and personal income tax sched-
ules Is required, not only that the
Government may obtain its rightful
share of the national income, but in
order more fairly to adjust the rate
Of tax responsibility among the diff
ferent classes of income producers.
Rails Are Backward.
Rails, as a group, are backward. In
spite of brilliant monthly statements
by q majority Of the carriers, the pub
Lie looks with apprehension at the
railroad situation. The threat Of
higher wages once more disturbs it.
The possibility that the surcharges
may be abandoned next year means
the difference with q number of sys-
TENS between covering their fixed
charges or again running in the red"
One basis for the long rise in stocks
has been the inability of those with
funds to invest to place them on q
satisfactory income paying basis.
When their bonds were called at an
annual loss in return Of from SIS to
$40 on each $1,000 Of par value they
have reinveSted in stocks with the
hope of an appreciation that would
balance reduced income. In this op-
Grafton the majority so far have been
successful. Their purchases have
taken hundreds of millions of dollars
Of stocks out of the market and so
increased their scarcity.
The extent of foreign buying has
been 50 great that attention has been
called to it by the administration.
The present foreign investment in
American securities is estimated at
over $1,000, 900 900, probably equal to
that in 1929.
u. s. Bonds Climb.
The rise in United States Govern
ment bonds this week-an direct and
indirect Treasury loans reaching the
highest levels In their history-is pred
icated ON continued low interest rates.
Municipal and corporation bonds have
followed their leadership. Professor
Z. w. Kenmerer, 80 far incorrect in
predicting serious period Of imitation,
now assumes the role Of . prophet Of
rising interest rates.
Obviously the cost Of money cam
not remain at current levels indefi-
nitely. But it Is rather early to be-
gin to scare the holder Of United
States Government loans or high
grade corporation mortgages with cal
culations Of how far this or that bond
would fall II the interest rate went to
81 or AZ per cent.
Copyright. 1896. BY the North American
Newspaper Alliance lnc.)