Evening star., 1941-01-01
War Events Dominate
Trading in Stocks
During Year
Fall of France Started
Present Trend to
Conservatism
BY ARTHUR II. NORRIS,
Cannhrldnn ASSnrlaieS Sfaf

dominate the financial horizon. the
broader movements in the stock
market last year we're almost wholly
related to the fortunes of war as
they developed on and over the bel
lgerent countries of Europe.
AS has so often been the case in
recent wears of social change and
conflict the rather widely held prem
ises and convictions Of people as
to the development Of the war
premises upon which investment de-
ClSions were necessarily based
were rather badly shattered by the
force of events last year
AS the year 1910 opened, reaction
and do-nothing tendencies in the
market place were largely explained
In terms of the lack of previously
ANTICIPATED business from the Allies
due to the nature of the So-called
'phonev war" At that time most
investors. like the French and Eng
lsh people. were supremely conf
dent Of the impregnability Of the
Maginot Line and the superiority
of the French Army and general
staff.
If ANYTHING. investors early IN
1910 were impatient for the war TO
begin in earnest, thus providing the
anticipated war orders with which
to provide the background for us
ing common stock prices. The trSt
offensive of the axis powers against
Norway was actually greeted by a
rally in the stock market as 1t was
rather generally felt that such an
offensive across the open water OF
the North Sea would provide an
opportunity for the British fleet to
inflict serious damage to the German
military machine and German Navy.
Invasion Brings Collapse.
With the success Of the Germans
in Norway. previously held con-
CeptionS began to be questioned and
when, on May 10. the German Army
moved against the Netherlands, Bel
Cium and Sedan, security prices col
lapsed in almost a straight line down
TO the lowest levels since March.
1898. At this point, most people IN
the United States and practically all
Of the military experts, having had
their illusions about the French i'm
pregnabillty shattered went all the
way over to the side OF extreme
pessimism. The chances that Britain
would survive the expected assault
across the Channel were rated as
very small indeed Actual events,
however. proved that the British
capacity to fight off daylight air at
tacks and to prepare for an invasion
in time were as much underrated as
the previously held conceptions OF
the superiority Of the Allies behind
the MaginOt Line had been over
rated.
During this period interest began
to center somewhat more upon the
rapid rise in the business curve and
upon the outcome Of the national
elections. The market was able to
progress upward with intervening
reactions to level just under that
prevailing early in the year.
Stock Prices Lag.
AS the year 1910 closed there has
been considerable amount of dis
CusSion Of the fact that business was
standing at a level entirely COM
parable with, and in many cases eX-
Ceeding. those attained in the boom
years 1929 and 1887, but that stock
prices were far short Of those ruling
in the earlier periods of business
prosperity. For instance. in 1887
the DoW-JOnes Average reached a
level only so per cent as great as
that in 1929 and again in 1910, with
the same level of business as in the
two earlier years. the peak level of
152 early in the year represented
only 40 per cent Of the 1929 level
While this relation between busi-
ness and stock prices does not at
first glance seem reasonable, it de-
velops rather naturally. under eX-
animation, from the attitude of in
vestorS towards the future of the
corporate business.
Reflection of Confidence.
In 1929, for instance. the average
investor was so confident of the
future as it applied to business enter
priSeS, that he was quite willing to
pay up to 25 times earnings for lead
ing industrial common stocks. In
1887, however. he was willing. on the
same type of stocks, to pay much
lesser number of dollars for each
dollar of developed earnings. This
because Of taxation and social
changes that seemed to threaten,
even at that time, the integrity of
the so-called capitalistic system.
Thus in 1887 the prevailing capital
izatiOn of earnings was something
like 10 to IS times earnings.
In 1910, with business again back
to the level of 1929 and 1887, the
background Of security markets has
so far changed, in the estimation of
most investors. as to make them
unwilling to pay much more than
to 10 times earninos for leading
common stocks. Certainly the elimi-
nation Of the CapitaliStiC system in
practically every country outside of
North America and the implications
to its continued existence in this
country inherent in the world war,
provides some reasonable justif1ca-
ton for the prevailing conservative
appraisal of business and earnings
at what were formerly considered
prosperity peaks.
War Fear Paramount.
As the year 1941 opens some seri-
Gus questions confront the investor.
They stand out as the major con-
siderations in determining invest
ment policy for the new year. First
in importance. is probably the pos
sibility that this country may actu-
ally go to war. Entrance OF this
country into war would undoubtedly
be an enormously costly undertaking
from a financial standpoint alone.
The war economy resulting would
make necessary the ALLEGATION of the
major portion Of the national in
come to the military and defense