Evening star., 1940-06-19
Rear|mament Puzzle
But One Of Many
On Wall Street
Recommendation Possible,
With Toxution Sure
To Be Heavier
BY GEORGE r. HUGHES,
pecial DISPATCH to The Star

Dy OEOhUf L. HUGHES,
Special Dispatch to The Star.
NEW YORK, June 19.-If the
stock market is even approximately
correct, the rearmament boom in
the United States will not be halt
ed by the surrender of France.
Rearmament itself was bound to
go on at an accelerated pace, but
there has been much doubt as to
its developing into boom. Yet
that was what the market seemed
to be forecasting in its first reac-
ton of the news of the French COL
lapse
1t is not to be taken for granted
that the initial response is the
final one. The verdict may yet be
revised, if not reversed The dis
aster to the Allied cause is so COL
lossal and the victory of the Nazis
so overwhelming that the full sig
niflcance of what has happened
may not yet have been grasped.
Nevertheless, the markets response
left old-timers in Wall Street deeply
puzzled.
Heavy Taxation Is Certain.
Looking farther ahead, the un-
answered questions are many and
difficult. The one uppermost in all
minds is whether the United States
is to be forced to use the arms and
munitions it is so hastily assem-
bling in its own defense, and If so
how soon. Second to that comes
the question of how much regi-
mentation is to be imposed during
the rearmament period and what
form it is to take
Heavy taxation is certain. as Is
some degree of profit limitation, but
until this situation is clarified there
is insufficient data for estimating
the proper market value of stocks.
On an income basis dividend, pay
ing stocks are modestly priced; that
is If future earnings permit dis
bursements at the current rate.
There is no overcapitalizing Of earn
ing power in the present market as a
whole, however it may be with in
dividual issues. The comparison
with bonds has never been so greatly
in favor of the stocks.
Street Favors Willkie.
The political situation cannot be
left out of the analysis. 1t is less
! than week to the Republican con-
vention and the selection of the
| standard bearer is still in doubt
| Naturally Wall Street would look
| with favor on the nomination OF
Mr.. Willkie, for he personifies the
financial districts quarrel with the
New Deal as does no other candi-
date.
| However, in these matters Wall
Street is nothing if not realistic
and it knows full we'll that nomi-
nation is not election. For the time
being the war has relegated the elec-
ton to back seat, but it will not
stay there and as the campaign gets
| under way its progress will have some
influence on the course of prices.
There is no change in the pros
pect of commodity price imitation
Prices could go much higher with
out raising the specter of imitation
AS to the national finances, there
is no present occasion for concern
Financing of the defense program
is not likely to present any special
difficulty Notwithstanding the size
of the existing debt and the huge
new additions to come
Interest Notes Not Advancing.
Government obligations hold their
preferred investment position with
flrmness. Interest rates are not
advancing as they might be ex-
pected to do. The desire for safety
first is as strong as ever which is
one reason why seasoned invest
ment stocks give so generous q
yield
Imitation, if it comes, probably
will take the form of more swollen
reserves due to more gold imports
and of more swollen bank deposits
due to more deficit financing, but
that kind of imitation puts up bond
prices rather than those of com.
moditieS.
Meanwhile, there is no doubt
about the adverse effect on foreign
trade of the defeat of France ano
the increased dominance of Ger.
many whether one takes the short
or the long view. Eventually, unless
the British can fight on and win ir
the end, German competition ir
Latin America must have a devas-
tating effect on United States ex.