| Show GIVES ONES RULE FOR LOANING MONEY Economist Discusses Bond Market Situation for Future Special Dispatch BABSON PARK Fla Flu Jan 29 22 In an exclusive Interview today Roger W Babson discusses the money market with ref ref ref- reference ret ret-crenco to mort mortgage age bonds and other securities His official statement 11 Is as follows T MONEY RATES Money foney conditions B at the tho mo- mo moment mo moment ment are arc somewhat easer This Thle Is evidenced by tho by-tho the call rate for money In New York On the theother theother theother other hand this Is not highly sill sg- sg as Interest rates rat are aro us- us usually usually us usually som somewhat what lower after atter the turn of the tho year ear However as business works farther Into the present period of ot expansion a abad gradual firming n up p In rates r should bad bo expected duo to a greater demand for tor money with which to finance trade Rates should aver aver- aver ago ao ago higher 1926 than dur dur- durIng during during ing 1925 PERIOD A d study of ot tho the shows that money rat rates always stiffen as we wo enter a period of expansion and we certainly cert are certainly In such a L period at present these ih ie-h-ih show enow that t tIl Il loans e have bavo been Jeen steadily Increasing during tho the past year although unfortunately speculators In Wall all reet have havo received the greatest benefit from the these so loans The reason for tor this Is that when banks loan Joan to Wall Nall WallStreet WallStreet Street they can get can get their money at any time whereas with loans to business men and nd farmers they cannot The Tho bankers cannot be blamed for tor following this tills policy of preferring to loan loat en cn Wall WallStreet WallStreet Street but It Is unfortunate unfortunate en No statistics are aro av available to show what is being loaned to the ulti- ulti ultimate ulti ultimate mate c consumer on a account eo of o In Installment purchases but this uro lg-uro urn uro is exceedingly lame larre and se Is probably Increasing rapidly 1 i iSTOCK STOCK MARKET LOANS LOAS When want th-lr th th lr money from Wall Street t brokers these bankers are ore id compell-id to call upon their customers customer for tor the tho needed funds If It these theMe customers sufficient cash In n the banks to pay up 11 the tb brokers without selling the tho stocks upon which they are borrowing this Is 18 very ory fine tine but usually the man roan who buys hocks Locka on margin cannot pay for tor them In iii fun tull and end Is obliged toI to II I when the tho brokers want more margin This selling causes caus a In stock prices When stork stolk prices s f tall fall ll buyers become stricken stricken panic panic and prices go even enn k p pin p In mind the definite rela rela- relation Hon tion between the mone money market and th the stock market WATCH GS Another significant straw h shows the way the wind 1 mowing ing Is the large amount of stork stock offerings wo we now see tn In the dally daily papers Th These There e stocks WI are arc being offered for tor sale may be perfectly good but hut such offerings usually ly Indicate that either the owners are selling out or tearful fearful ot of being of-being being bothered bytho by tho thi hi banks these theto corporations are their bank loans Into tock stock Issues Issus Doubtless this Is a wise course courso for the corporations to 10 but investors should keep this In mind when purchasing purchasing purchasing ing stocks at this time I be- be behove be hove levo In public offerings but I tike Uko to see Beo them scattered through the year rather than bunched together at one time I GOOD BONDS SCARCE SU Notwithstanding ot the large amount of stock Issues offered hire haa hns been a B rel small amount of good corporation bonds recently offered Moreover In hf he w case of many ninny offerings one at the top of ot the adver adver- advertisement These bonds have bave all allo o en sold and this advertisement Is 1 Inserted only as ns a II matter ot of record This Thie scarcity ot of good corporation I bonds Is duo both to the large demand from banks for Cor good bonds when commer commercial lal paper rates are low as they have o been beon for tor the past years year and also alao alsoto alsoto to the fact that the corporations are now putting out Stocks in- in instead In Instead stead of ot bonds There la is 1 a D real scarcity ot of good first mortgage bonds booda of operating companies secured se- se secured se secured cured directly by the physical property Usually the th bond market declines de- de declines de declines clines with the stock market al- al although al although though of ot course to no such proportions A rough rul rule Is la th that t for tor each 10 points point the stock Mock mar mar- r ket market declines the bond boni market will decline about two points More More- Moreover Moreover More over the over the decline In bonds usually tha the decline In stocks stock Whether or not this rule will work during 1926 depends depend de large rge ly Iy largely upon tho the working of ot the tha new tax law Reducing surtaxes to a maximum ot of 20 per cent should help corporation corporation bonds bond and the tho sale of ot mortgages and other forms forme of l Indebtedness If It the he new tu tax law which last month passed the tho house bouse of ot representatives Is also passed by the senate and signed by the president It should enable business men to borrow money more moro readily and moro more easily eully than heretofore Whether lor or not this new tax law Jaw will help th bond market enough to offset natural declines on account of ot in- in increasing increasing In Increasing creasing money rates only the fu- fu future future fu future ture can tell Let me mo add udd how how- however however ever for or tho the benefit of ot bankers manufacturers merchants merc and andreal andreal real estate men that money rates should not Increase enough dur dur- during during ing 1926 to general There Thero Is a II tremendouS amount of ot money In the tho country and only reason why any le- le le legitimate business s Is not getting Its share Is because most moat prefer preter to loan their money on Walt Wall street rather than loan it itIn itin ItIn In their local towns i LESS D DEMAND L LD D ran FOR IU MUNICIPALS PALS P The The anticipation ot of this same samo new tax law has helped the tho sale ulo of taxable corporation securities and has at the same sll-me time hurt the tho sale of ot securities which are taxable taxable non The market for tor mu- mu mu municipal state and other tax non nontaxable nontaxable able corporation bonds has al- al already al already ready suffered from the tho pro proposed new tax legislation Hence cities and towns which are aro contemplating contemplating ing selling bond Issues within the next year or two had better sell no In case caso the tho taxable non non bond market eases eues off oft still more During the past few years ears the sale of ot non was IlS exceed exceed- exceedingly exceedingly easy eaRY and all nil communities have taken advantage of ot the situation sIt sIt- sItuation sit situation All AU good things thing how how- however however however ever can be bo overworked and the Issuing and sale of ot non taxable bonds has been no exception to tile the rule It If If fewer state county and mu- mu municipal mu municipal bonds are Issued during the tho next year It may may be a good thing for tor tho the country These counties cities and towns have competed with businessmen business me men for money money for tor things not very ery pro pro- productive pro productive I While the tho national gov go hu has ha been beon getting out of debt debt these states slates counties titles cities and towns have been increasing their debt to an alarming rate Hence any change which would reduce the borrowings of ot municIpalities municipalities and other public groups should be a good food thing RULE FOR LOANING MONEY JO During the Inevitable readjust readJust- readJustment readjustment readjustment ment which ma may come during 1926 It Is Important that bank bank- ers Cr In connection with t their loans and the business men In la connection connection connection tion with their credits ss es s well as investors In In connection with their i purchases purchase look carefully to the character of ot the tho borrowers borrower As- As Ascertain Ascertain As Ascertain certain whether the financing Is being done to enable the tin owners to get let out of the business busil ess or to dove develop lop the tho business Ascertain whether the tha borrowers are aro ot de Ing log Ing their exclusive timo to the business or whether they are mixed up with sidelines of various kinds which distract from the business This Is an age ago of con con- concentration con concentration cent atlon and It is a gloat teat mis- mis mistake mistake mis mistake take for tor a man to neglect the business In which ho was trained In order to branch out Into side side- sidelines sidelines sidelines lines Such new ventures take up ones one's time limo and often absorb capital which should b bi bJ J used for forthe forthe forthe the original business finally In- In In Investigate the tho character of o the tho bor- bor borrowers borrowers bor rowers Including their motives and record remembering that men make values and souls make mako men TR DE A ABOVE O E NORMAL The continues high standing at 14 1 per cent normal compared with 4 percent above normal at et this pe- pe period period pe period a year ago This Index of business conditions should hould be carefully watched during the year 1926 1916 Remember that In follow follow- following ing log this Index It Is Important to sell when the Index la 1 I high and anto to buy when the tho Is la low although almost every one follows the very reverse policy I Copyright 1926 Publishers Fn Bureau |
