Book versus market;

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VOL. XII NEW YORK, DECEMBER, 1929 No. 9
Book Versus Market
NOTHING has exemplified more con­cretely
Einstein's theory of relativity
than the recent debacle in the stock market.
One might almost say the "common stock
market." While common stocks slid off,
bonds moved up, and preferred stocks were
slow to show the influence of the general
market.
The cause, or causes, are difficult to
assign. Over-supply of new securities, in
accordance with Mr. Kent's theory, may
have been partially accountable. The
manipulations of blind pools may have
contributed their effect. A definite cam­paign
of deflation may have been respon­sible.
Or the time for gathering in the
"fleece" may have brought about the
result.
Whatever the cause, the effect has been
an unparalleled decline in market values.
Stocks which formerly had high sale and
loan values have declined from one to two
hundred points. Verily, this is a market
so filled with bargains that the small in­vestor
is like a child before a resplendent
candy case, with a penny to spend.
The decline has brought sharply to the
attention the comparison of values as de­termined
by the supply of and demand for
certain stocks and the values of those stocks
as determined by the books of account of
the corporations issuing the stocks. Never
before, perhaps, has the disparity between
market values and values based on earn­ings
been so apparent.
Statistics for the first nine months of the
calendar year show that business generally
has been moving ahead satisfactorily.
What the effect of the present disturbance
will be, it is safe to predict no one can fore­tell.
Those who have been caught in the
market probably will economize. Econ­omy
usually begins with luxuries, so that
one may expect those industries which
make and dispense luxuries to suffer some
contraction in sales.
The concerns which have enjoyed good
business during the first nine months of the
year, have built up their surplus from
earnings, and have kept a proper propor­tion
of their assets in liquid form, probably
will have little difficulty in continuing
their cash dividends. Those corporations
whose surplus is based in any substantial
amount on assets which are priced at
market values will be faced with a more
difficult situation.
The get-rich crowd of individuals who
were enamored of the market generally is
sad to behold. The plodders who have
saved their money and invested it intelli­gently,
even in common stocks of con­servative
and substantial corporations,
probably have nothing to fear on account
of their investments. In relation to the
market, many high-grade stocks, pur­chased
a year ago, show a loss. In relation
to the book value and dividend yield, they
are as good as they ever were. All things
are relative.