Evening star., 1955-05-08

cash basis is about the same as
in other cities.
A staff report of the Senate
Banking and Currency Commit
tee throws some light on what
proportion of securities buyers
operate on margin. It said New
York Stock Exchange spot sur
veys last December 8 and is
showed SIS per cent of all public
individual transactions were on
margin.
Similar surveys had been made
in March, 1858, when the per-
centage was put at As, and
in March, 1854, when the per-
centage was 42.4
The regulation of April % was
not entirely unexpected. But
observers were impressed by the
fact the last two margin rule
changes had been made in 10 per
cent stages. Between mid-1945
and last Januray changes were
in Is per cent stages.
Effective Wednesday, January
S, the Reserve Board raised the
margin requirement from SO per
cent to so per cent.
On Monday Of that week the
Associated Press index for 30
industrials had gone up 2.6
points. with a 4.3 million share
volume of trading.
Market Sells OFF
On Tuesday the market sold
off, and again there was a big
volume.
On Wednesday, after the new
regulation was announced, there
was a big selling wave. The AP
industrials index dropped 5.4
points in a As million-share
day.
Thursday the volume in
creased to So million shares and
the index fell Of points more.
On the next two trading days
there was some recovery and
then the market went up again.
William McChesney Martin,
jr., chairman of the Federal Re-
serve Board, described the jan
uary action as more than a
tapping -on the wrist warning"
that speculation was being
watched carefully.
This statement was made
March IA at the hearings con-
Quoted by Chairman Fulbright
of the Senate Banking Commit
tee. Mr.. Martin said the law
gives the Reserve Board respon-
sibility for preventing excessive
use Of credit for the purchase
and carrying of securities.
Credit Is Concern
He said this responsibility re-
lates to stock market credit and
not to the price of stocks. But
he also said 1t seemed to him
there were signs of unhealthy
tendencies" when business men
and the public generally become
unduly preoccupied with stock
markets and prices. He added:
"An unsound speculative psy-
chology may then develop that
can have an adverse effect on
the economy"
After the January 5 action,
the rise in prices was at a slower
rate than formerly. Standard
and Poor's Index of 480 stocks
rose at the rate of 7.6 points a
month in the last half of 1854.
In the first part of this year the
rise has been at the rate of At
points a month.
The amount of credit in the
market. however. showed no such
definite trend. The number of
margin accounts on the New
York Stock Exchange increased
in the first quarter Of this year
at about the same rate as in
the last half Of 1854.
Brokers are not inclined to
believe the amount of margin
retards speculation. One re-
called that in 1916, when the
margin was 100 per cent-that
is, purchasers had to put up
the total cost of stocks-there
was an extremely speculative
market. But it was in low
priced "cats and dogs"
After the 100 per cent rule
went into effect January 81,
1916. the market continued to
rise, but about midyear 1t turned
downward.
Long Bull Market
The present bull market is
generally dated from June, 1949.
At that time margins were so per
cent, They were raised to rs
per cent in January, 1851, and
held there for about two years.
Then the SO per cent rate was
re-established. That held good
until last January S.
What would affect prices, ac-
cording to most opinions, would
be a rise in interest rates. This
would tend to put a brake on
business activity. Higher bond
yields would make bonds more
attractive in comparison with
stocks. But since the first half