HALT IN BUSINESS

Evening Post, Volume CXXIV, Issue 133, 2 December 1937, Page 14

HALT IN BUSINESS

WALL STREET REACTS

AMERICAN BANKING OPINION

"Evening Post," December 2. . Mr. W. W. Aldrich, president of the Chase National Bank, New York, in arecent address at Rochester, N.Y., outlined, some of the causes as he saw them, which were responsible for the collapse, of prices in Wall Street. The break-which occurred in mid-August, he said, was'not to be attributed to current business, or to foreign selling. The response in stock market prices to a moderate volume of selling was extraordinarily drastic and severe. | Moderate selling' of securities found a stock market so. restricted that it "could;'not take it." The stock and share market, once so broad and active, once so capable of absorbing a tremendous volume of security sales with moderate price recessions, could now absorb a greatly-reduced volume of sales only with very serious breaks in prices: Conversely a very moderate amount of buying would bring rapidlyrising prices. ..The i factors which have brought about' this change, Mr. Aldrich considered, were the cumulative effect of a variety of Government policies, some of which were directly concerned with the activities of the Stock Exchanges themselves, and others of which, designed for a different purpose, none the less drastically restricted the trading, of the customers of the exchange. TRADING RESTRICTED. Mr. Aldrich. adversely criticised the rates of taxation on capital gains as Being ■responsible for the-reduction and, in many cases, elimination of a factor which had always "been helpful to the markets in bad times, and always helpful .' In sustaining . new . capi.tal issues, namely, the savings of men of substantial means,.savings which1 iir the past had gone in greater degree than other savings into the purchase of corporate shares. Many factors had combined to eliminate informed buying and informed trading activities of all kinds. 'Mr. Aldrich also pointed to the disturbing effect of inquisitorial visits of agents of the Secudities and Stock Exchange Commission, deterring the volume of transactions on the Stock Ex•change and to the margin regulations and great range of uncertainty on the part of traders as to what activities are permitted and what are not. BUYING CURTAILED. The-National' 'City Bank of New ' York in its November review of economic conditions remarked on the unfavourable business news . during October. It referred to prevailing weakness in the share and commodity markets and'td the fact ,that there was a tendency to curtail, buying and work down inventories, \ or stocks. Caution in forward planning- had become more pronounced. Sales were slow. • "So far1 as new business for industries is concerned the fall season trading is an admitted disappointment. Mean- '. while the markets have been spreading unsettlemcnt. ■ Many, business men reject the theory that the stock market forecasts' or even "accurately reflects the business'situation.1 . . However, the fact that ;such violent movements influence business--is generally accepted. - " "Or' course the state of confidence is important in business at all times and the will to spend is diminished when the markets are proclaiming, uncertainty." It was expected, stated the ba»k, that October production would show a substantial decline when compared with that of-last September or October of last year. It was mentioned that, sharp falls1 had taken place in production of steel, copper, and textiles. Railway car loadings had also dropped on the returns for October, 1936. The fall in-price's of staple commodities in October was: described as,, "severe." Automobile assemblies, however, had increased arid November and December were expected to be big'months. Reference,was.made to the tendency of costs'and prices to get out of line during a rapid forward movement. Profit margins, however, have been reduced. There was no tightness of money,, but an-abundance of it was, available at cheap rates. CREATED CREDIT. The U.S. Government is described as having been /'a prolific creator of purchasing power during the recovery," borrowing from the banks ■ and creating credit and that credit had been new purchasing power. This borrowing had been "a major influence in the upswing." But the Government, it was stated, was no longer expanding credit and creating purchasing power, but "it is taking purchasing power from taxpayers and routing it through Government channels, to other people, but not adding to the total. Moreover, the .use1 to .which part of the tax collections are put is unproductive." The National City Bank concludes its comments by insisting on the fact that: ' "Incomparably : the greatest need now, as it has been throughout the recovery, is to get private investment going. "To sustain business In this country the accumulation of savings and the flow of capital into productive use have always been necessary, and there is no evidence that it is any less necessary than heretofore. . . The rate of saving and investment is greatly influenced by Government policies," special reference being made to taxation.