Detroit evening times., 1942-05-18
Mart Reaction
Natural, But Not
Too Important
Weakness Of Armament
Stocks Doesn't Indicate
That Peace Is Near
BY LEWIS HANEY

Professor Of Economics. N. Y. University
About the only thing we know
for sure concerning the stock
market Is that the reaction last
week was natural and expected
. by experienced observers. In
fact, it was. If anything. some-
what overdue.
The significance Of this OBJ
p .servation is that IL should keep
one from attaching too much
importance 10 reaction which
is clearly a technical and minor
one. To this. may be added the
fact that the way the reaction
:, has been halted at a point a
little above the level where the
preceding rally showed a slight
hesitation, sugge greater
sbuoyancy than has appeared
since January.
II is unusually difficult now
10 form any clear-out opinion
as TO the nearby course of the
market. Even this crumb of a
suggestion. therefore, may be
worth something.
Perhaps some clue 10 the
markets action is 10 be found
/. in the different performance OF
the so-called armament stocks
as compared with peace stocks.
The former have been relatively
weak. IL seems TO me, however.
that il is mistake 10 attribute
such weakness 10 the idea that
peace is near-an idea for which
there is no apparent basis.
/ II is much more likely that
] the basic weakness is due 10 the
burden Of excess profits taxes
which the war babies" will have
10 bear. Then the notion that
the weakness is due 10 the likeli-
hood OF short war, gets around,
and traders sell the group in
discriminatory.
The fact that motors, which
are now about 100 per cent war
stocks. have been relatively
strong can hardly be explained
on the ground that peace is near.
II seems that the market is
partly eXplainable in terms OF
three classes of stocks:
1)-There are straight srma-
-ment stocks. which led in the
early strength and in the
January rally. These were over
bought. and have been leading
the downward drift for several
months.
t2)--There arc mixed stocks
which began as civilian pro-
-ducers but have switched 10 war
goods. as in the case Of motors.
These were relatively late in
getting war benefits. and came
along somewhat later. They
have reacted somewhat more
slowly.
tO--There are straight peace
stocks which were weak al the
outset Of the war. They were
oversold. Now belatedly, the
better ones OF these are coming
back.
Thus there arc cross currents.
and the averages represent a
mixture OF several different
tendencies. I think that there is
much confusion Of thought on
these matters. and that a good
many So-called armament stocks
are now cheap.
The fact that such dividend
cuts AS those made by Republic
Steel and Continental Can had
no more effect than they did
shows that the decline in profits
and dividends now under way
has in general been well dis
counted.
Another fact in that the mess
being made by The government"
in handling the rationing Of
gasoline. and in the fixing of
prices, is giving the public a
good lesson IN the futility of
social planning. A little more.
and we will not have TO fear
that any one viii want social
planning in the postwar period
any one but the government
officeholders and their pets.
The worse things get now. the
less we have 10 fear collectiviSn,