Evening star., 1937-03-28
Ratio With Earnings High
and Market Is Alarmed
by Labor Troubles.
BOND RECESSION LAID
TO DIFFERENT FACTORS
Chief Buyers Refuse to Accept
Low Yields-Signs of Higher
Money Rates Seen.
BY CHARLES F. SPEARE.
Special Dispatch to The Star.

AVA eAA6AiV oAASlC lltho NSCAl liiOlC oJA lol4S
and more general discussion of the
threat of imitation than since 1888
Yet, within this brief period. common
stocks have had the greatest average
decline of any month of the last 12
This suggests two points of view
concerning stocks and their market
valuations. First, that they were high
with respect to earnings and return on
capital invested, and, second, that
Wall Street and the rest Of the busi-
ness world were more alarmed by
labor troubles, and what these might
lead to in disturbing the current trade
trends. than by soaring commodities.
The 10-point average drop in stocks
compared with one of over Is points
in the industrial group. With the
easing Of the situation in Detroit at
the end of the week. improvement
occurred in the most speculative Sec
tions of the list.
While equities" were losing ground
freely, the first substantial losses since
1884 were taking place throughout the
bond market. The average decline in
this class of corporation securities was
points. In the highest type of rail-
road mortgages it amounted to 7
points. In the newest Of the public
utility refunding issues it ranged from
to 7 points. In municipaS it ran
all the way from to nearly IS points
and in United States Treasury loans,
long term, from to about points
U. S. Issues on Sharply.
In the Government group of bonds
and notes a depreciation in market
values well in excess of $1,000, 900 900
occurred. This has brought disap-
pointment to holders who had not
taken their profits 1t has not, how
ever, occasioned any serious concern
among institutions which are the larg-
been pleased to take advantage of the
better bargains afforded by the de-
cline.
This abrupt change in the direction
of the investment list, however, Is i'm
portant in its implications. Again, it
is explainable in two ways; first, on
the score of price level that had be-
come so high that the chief buyers re-
fused to take new corporation issues,
waiting for syndicates to dissolve to
obtain more satisfactory returns, and,
second, ON the evidence that money
rates were working higher in spite Of
the policy of the Treasury and the
Federal Reserve Board to keep them
down. The proba ability that money
would be dearer from now on, as much
as the fact that commodities were ris-
ing and initiation was in the air, had
more influence on bond prices than
any other one factor.
Specifc evidence of higher money
was presented in the advance in COM
mercial paper rates from "a of l per
cent to l per cent, the highest quota
tion since 1894 and in another lift in
the rate on acceptances. This followed
figure on Treasury discount bills this
week above that quoted in several
years. Obviously, such manifestations
OF a new level for money in its primest
form work back into all classes Of
fixed interest securities. They suggest
the inability of the Government from
now on to finance its requirements at
the low rates for long term bonds
where refunding operations are essen
tial or for short-term paper on the
easy basis prevailing since 1894.
New Probe Presented.
Likewise, this situation projects new
problems into the field of corporation
financing. The recent experience of
underwriters with public utility re-
funding loans of high quality is not
of the sort to make them eager to
take commitments in 31a per cent
loans unless they are able to offer them
to the public at discount from par
In the present temper of investors it
is question whether 3s4 per cent
yield will interest buyers.
The solution of the railroad problem,
offered by the chairman of the Ken
lucky State Railroad Commission, to
the effect that the steam carriers call
all of their bonds bearing more than
a per cent coupon with 4 per cent
refunding issue, might, unless closely
analy9ed, have seemed reasonable 80
days ago. Now all Of the practical
elements have gone from it.
Corporations will probably be driven
to finance with stock or with convert
ible bonds. 1t would not be surprising
to see the first important movement
in this direction sponsored by the
American Telephone & Telegraph Co.
Events in the business world of an
unprecedented nature are developing
so swiftly these days that they greatly
modify the value of month-old statis-
tics. For instance, the latest reports
of industrial employment and indus
trial pay rolls are those of February
IS. According to these, employment
was the largest since 1929 and wages
at the 1880 level, in spite OF the fact
that strike had been in effect in
Flint for weeks and had only been
settled on February II with a wage
increase of $25,000,000.
Early in March the United States
Steel Corp. granted $60,000,0 600 more
pay per annum to its employees. Count
less smaller increases have been an
nounced since February. So it Is fair
to assume that the present ~verage of
industrial compensation is the highest
in American business history and that
it represents the largest flow of cash
from industry to labor ever known.
The farmers, too, have had their in
comes lifted by the sharp advance in
the money crops which they produce.
Their cash receipts are larger each
month than for the corresponding
period a year ago.
(Copyrisht, 1887, by the North Amsrie N
NswspApsr Alliance. Ine.)