Bear Friday

Speculators chewed ragged cigars last week, conferred past midnight, lost their sleep. Thursday's stock market had closed strong when the Bank of England did not raise its rediscount rate. Then, late in the afternoon, came announcement that the Federal Reserve Bank of New York had raised its rate from 5% to 6%. Wall Street was caught unprepared. Tycoons rushed to telephones, brokers called up bankers. Ten members of the Stock Exchange were seen leaving a Broad Street building in one nervous, gesticulating group. Long after the dinner hour two Rolls-Royces still waited outside the austere House of Morgan.

Federal Reserve. Last February the Federal Reserve Board harassed the market by convening every Thursday to discuss a raise in the rediscount rate, then reporting "no announcement.'' It formally announced that "when it [the board] finds that conditions . . . obstruct Fed eral Reserve Banks in . . . so managing credit facilities as to accommodate commerce and business, it is its duty . . . to take measures to correct them; which, in the immediate situation means to restrain the use of Federal Reserve credit facilities in aid of the growth of speculative credit." For months no more was heard. Brokers and speculators forgot. Last week when the Federal Reserve Board went into a conference, expected to last three or four days, few noticed it and fewer guessed the purpose.

Governor of the Federal Reserve Board is Roy Archibald Young, 47, solid, capable, popular. When the announcement was made his words were few and cryptic: ". . . [We] have considered how the resources of the Federal Reserve System might best be conserved and made available to meet autumn requirements. The problem has presented difficulties because of certain peculiar conditions." The increased rate was not adopted however for the Reserve Banks of Chicago or Philadelphia.

What the "peculiar conditions" were he did not say. But they obviously included the English situation, easier credit needed for moving the fall crop. Stock Market excesses, high call money rates. For Governor Young to have been explicit would have been untraditional. Because it is impossible to make a complete statement taking into consideration every factor discussed, the Federal Reserve Board makes no explanations, merely presents the simple fact of its decisions.

The Market. Commuters on their trains last Friday morning discussed and laid grim bets on how far the Market would fall. The Los Angeles and San Francisco markets, still open on the previous afternoon when the Board's announcement was made, had crashed badly. Six hours ahead of New York, Friday's market at Amsterdam had opened with U. S. Steel plunging downward. To add to the threat of another Black Friday*; was the fact that brokers loans reached a new all time high, over six billion dollars. At the New York Stock Exchange, the gallery was packed with spectators by 9:30 a.m. Five minutes before the opening the ticker flashed: "The floor is filled with sellers."

When the gong sounded, trading began with clamorous confusion. Ten thousand shares of A. T. & T. were sold at 266, 15 points off; 1,000 of General Electric, 14 off; 11,000 American & Foreign Power, 12 3/4 off; 20,000 of General Motors, 3 5/8 off; 15,000 of I. T. & T., 5 5/8 off; 7,000 of Packard, 9 1/8 off.

The New York Times averages showed a decline of $9.66 compared to the record May 22 decline of $8.12 and the Dec. 8, 1928 break of $5.47. Through all the fury, call money ruled at a modest 8%, and during the day there was a brief rally as bargain-hunters bought, shorts covered with large profits. But then the rise stopped as if some heavy hand lay upon the market, gradually driving prices back into low ground. Heavy as the hand might have been on Friday, it soon lost its strength. Saturday saw gains in the general list. By Monday the rise, although not universal, bore up many stocks and U. S. Steel, the market leader, reached a new all-time high, 229 5/8.

Rediscount Rate. Banks that are members of the Federal Reserve System meet credit requirements by borrowing from the Federal Reserve Bank of their district. Because of publicity, the rediscount rate of interest charged on this borrowing, has assumed an importance beyond the purely economic significance of a price paid for a service. However, as an indication that experts realize a change in the credit situation, a rise or fall in the rate warrants a good deal of the attention it receives. The general rule is that a higher rate will reduce borrowing by the banks, and higher rates will be paid for funds on call. Detached observers were inclined, however, to view last week's rediscount rise as an adjustment to the high rates on call money already established, not as an indication of more expensive call money. Some experts, notably Col. Leonard Porter Ayres of the Cleveland Trust Co., even suggested that the result might be a further expansion of credit, for they bore in mind that while raising the rediscount rate to 6% the Reserve Bank had done another thing: lowered the buying rate on acceptances from 5 1/4% to 5 1/8%.

Acceptances. Bankers' acceptances, or bills, are drafts against a bank, bearing a future maturity date and the bank's stamp "accepted." Representing specific commodities in warehouses or transit, they are used mostly for imports and exports. More than one-third of U. S. crops are financed through them. Lowering the rate on acceptances to 5 1/8% was practically an invitation. At the new rate banks can profitably sell their acceptances to the Reserve, thereby liquidating capital previously tied up. With cash in their hands instead of acceptances, the banks will be better able to extend credit for moving the crops, also for speculating.

* Black Friday, Sept. 24, 1869, when Jay Gould and "Jubilee Jim" Fisk tried to "corner" the gold market and gold fell from 162 to 135.