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Show TREND OF BONDS Bubson Discusses Factors That (joveru Market Wellealy Hills, Mass. April 27, 1923: Bonds have declined since last September until at the low point ot March 2 7, they were back to the level jot December 1921. Investors who ihave been somewhat dismayed by Una turn of affairs will be particularly particular-ly interested in a statement issued today to-day by Roger W. Babson in which he ejplains the situation. "Bond prices," says Mr. Babson "are governed by a combination of i three factors: the. demand for goods, I the supply of money, and the psychology psychol-ogy of the times. The combination of these three set the price for money (the yield of bonds) which governs the market value of the individual security. "If we begin at the bottom we find commodity prices, dull business and little demand for commercial money. Add the psychological factor of increased in-creased confidence on the part of the public and demand: picks up, prices 'strengthen and manufacturers bestir themselves to take care of new business. busi-ness. As soon as these conditions exist, buying starts in earnest. I People always like to buy in a rising jmarket. The more they buy the f higher prices go and we head a boom. I All this buying takes more money and j the manufacturer requires added I funds to take care of increased de-imand. de-imand. "Funds that would otherwise be invested in bonds are used in business j in fact, many bonds are sold to (jet the necessary cash to carry on operations opera-tions on the new scale. ,The banks meantime have a heavy demand for commercial loans and the bonds they bought with idle funds during dull times are sold. All this reduces the demand for investment bonds and increases in-creases the available supply of such issues. I "Aa the boom goes too far, banks : get owrextended and must call in j loans. More bonds are sold and prices tumble. Concerns which arc caught must liquidate and forced sales mean sacrifice prices. The moment the public sees prices begin to weaken, demand disappears as qulcldy as it appears in a rising market- Business slows up and funds ber.in to accumulate both with the investor in-vestor who saves more in dull times than in boom times and the banks who now have a slackened demand for commercial loans. "Both turn again to the bond market mar-ket and seek to invest these surplus funds. Demand for bonds again pickfi up and prices begin to rise. A they go up the buying Increases. A certain speculative element, busy in the stock market during the boom turns to bonds for a possible specu lative profit. "Th.e true investor," concluded Mr. Babson, "should not be upset by these fluctuations but should buy for regular regu-lar locome rather than speculative profit. The position of the market when the funds are available should govern only the type of security selected. se-lected. If bond prices are high, buy-short buy-short time issues that funds may be re-invested to advantage later on. , When bond prices are low, buy long time issues that the relatively high income available at that time may be enjoyed as long as possible." General business continues Its side-wise side-wise movement. The Index of the Habsonchart shows activity at 3 per cent above normal. The same level as last week. |