Prices & Prospects

Rounding out a two-month decline last week, the stockmarket settled to new lows for the year, wiping out on the average all gains made since last summer. From a March high of 194.4 the Dow-Jones industrial stock averages showed a drop of some 27 points. Three times the market has rallied but each time the rally petered out, each time a fresh wave of selling carried prices lower than before.

In industrial issues the current downswing appeared even clearer than in the averages. Leader of the booming winter market, U. S. Steel has sold off from a high of $126 per share to a low last week of $93. Chrysler was down from a 1937 high of $135 to $106; Radio from $12.75 to about $8.75; U. S. Rubber from $72 to $52, Nash-Kelvinator from nearly $25 to $18; U. S. Gypsum from $137 to $107; General Electric from $64 to $50. Even such a symbol of stability as American Telephone & Telegraph was off 24 points from its 1937 high ($187). Railroad issues alone have demonstrated any real resistance to the market trend, the Dow-Jones rail averages still being well above the level of the year-end. Utilities, running as usual in their own particular bear market, have been on the decline since January.

Having watched the stockmarket hit its fourth bottom without a heartening rally last week, Wall Street began to lift an anxious eye to the general business picture. Was the stockmarket forecasting another slump? Pooh-poohing the "harvest of gloomy warnings," Cleveland Trust Co.'s Leonard P. Ayres observed last week: "The declines in stock, bond and commodity prices are not astonishing. They were all overdue, for prices had been marked up overly fast by speculation. . . . Probably the chief cause of our worries is that most of us have forgotten that even during recoveries there are no such things as one-way continuously rising markets."

Another explanation of the drooping stockmarket arrived from Britain last week in a fortnightly letter published by Silverston & Co., London brokers. Written by W. B. Burton-Baldry. a genial Silverston partner who sprinkles his work with classical quotations and likes to spend his vacations in the U. S., the letter suggested that in view of the fact that the London Stock Exchange had just enjoyed the worst three-week break since the War, Britain could do worse than get itself an SEC. Wrote sarcastic Broker Burton-Baldry:

"There are no margin rules on the London Stock Exchange, because its members are too intelligent to need protection. Their freedom from restriction (and this applies to Paris, Amsterdam and Brussels) brought them business from residents of the U. S., who lived in a foolish country where it was necessary to put up 55% margin on the purchase of stocks bought on speculative account. London only wanted 20% or 25% and, in many cases, ran contango accounts with no margin at all.* So London took all these commissions from New York and, by a process that is a little obvious today, shouldered what should have been New York's losses. It may have been that London only got New York's 'bad' accounts, but good or bad they got them to the point where probably nearly 70% of the selling on the New York market came from London, and Europe."

Whatever the precise percentage of selling attributable to Europe, it was clear that the pricking of the London speculative bubble had caused a wholesale dumping of U. S. securities. For once Wall Street had to admit that Franklin D. Roosevelt had been right--in his forebodings about foreign "hot money" (TIME, Nov. 23 et seq.).

Still jolting downward last week were two British-dominated commodities, rubber and cocoa. In Manhattan, following one of those perennially disastrous revisions in the estimates of the Gold Coast crop, cocoa broke the full 1-c--per-lb. limit, dropping well below 7-c-. There were strong suspicions that British cocoa interests had given U. S. speculators another thorough whipsawing, the British having the advantage not only of controlling the biggest source of supply but also of controlling the statistics. Only a few months ago the figures indicated a shortage, and cocoa was merrily bid up above 13-c- per lb. Last week's "revised" figures showed a threatening surplus.

Rubber statistics are by no means so elastic as cocoa's, and rubber has slumped only about 25%, a bad break last week caused by announcement of Nazi restrictions on German imports carrying prices below 21-c- per lb. Meantime tin had tumbled from 67-c- to 54-c- per lb., copper from 16 1/2-c- t012 1/2-c- per lb.

Consensus of economists was that commodities were now back in reasonably good line with other prices, certain farm commodities excepted. Even among them the readjustment was proceeding apace, with wheat down from $1.45 to $1.23 per bu., corn from $1.35 to $1.27 per bu., cotton from 14 1/2-c- to 12 1/2-c- per lb. Yet farm prospects are the best in years. With bumper crops expected, prices could drop much more and still leave farmers with the biggest income since Depression. Out last week was a U. S. crop estimate for winter wheat of 654,000,000 bu., biggest since 1931. Spring wheat, just sown, may yield another 240,000,000 bu., giving the U. S. a total of about 900,000,000 bu.. more than was raised in all North America last year--a "Billion-Dollar Wheat Crop." What is more, the U. S. will probably be able to sell it, regaining after a five-year lapse its traditional position as a major world exporter.

So bright are agricultural prospects that farm buying has been suggested as the fillip that might lift industry out of a mid-summer slump. Even Wall Street's gloomsters do not seriously believe that Recovery has run its full course. At worst they expect a normal summer lull to develop into a temporary business recession.

Extremists by temperament, the stock-marketeers have read the worst into recurring reports of slackening orders in almost every industry from steel to woolens. Production last week was still at a high rate, though the spring peak had probably been turned. Industry was undoubtedly operating to a considerable extent on orders placed ahead during the price scare a few months ago. It is undoubtedly getting less orders now than then, a natural aftermath of any frenzy of forward buying. Building was clearly feeling the deadening effect of soaring cost. Steel scrap prices, usually a reliable index of the future course of steel operations, have slipped from $24 per ton to $19.75. Carloadings last week declined slightly at a time when they would be expected to rise. Taken in one dose on top of a long draught of dropping stock prices, these facts made Wall Street feel bilious.

* For the privilege of taking a "free-ride" by deferring cash settlement or the posting of margin, a speculator in London may pay his broker "contango," a small premium which in effect is an extra commission.

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