LONG before there was even the slightest thought of an armistice and, in fact, while the fortunes of war were still against the Entente, the story told by the stock ticker (as proved by subsequent events) was one of complete military victory over the Central Empires. In the light of the market's accurate forecast of last fall, what importance is to be attached to the great speculation for the rise that developed during the latter part of February, after a long period of inertia. that prompted the financial community to drift into a frame of mind bordering on despondency?

It is true that an advance probably would have been justified on "technical" grounds, but there may be a deeper significance. In all likelihood, the advance in security values represents the familiar discounting of the future -in this instance the prosperity that is expected to follow the solving of the most complicated political, financial and economic problems that have ever confronted the great minds of the world.

Prices of Materials

Fundamentally there has been a little improvement, still the substructure of business and finance can hardly yet be described as solid. The situation remains replete with anomalies. Wages remain high and so also do living costs and many of the commodities. The price of copper has been cut in half, yet this decline has failed to stimulate buying of any consequence. On the other hand, while steel and iron prices have been reduced the average is still far above pre-war levels.

There is very respectable support for the opinion that the major steel reductions will occur early in the summer. The best judgment of the trade is that heavy price-cutting now would not be compensated for in an adequate volume of business. And, at the same time, it would involve concessions on the 15,000,000 tons of business now on the books of the mills, which will be worked off by midsummer. The conviction is growing that within three or four months materials entering into building, etc., together with labor, will have reacted sufficiently to make

important cuts in steel prices productive of a fairly large volume of business.

The New Prosperity

What the markets, therefore, appear to be discounting is a general revival of trade and industry by fall. In many lines shelves are bare. In others, there is a plethora of materials and supplies. The next few months should provide the opportunity for clearing the decks for the next forward movement.

The new prosperity is being pioneered by the rubber and motor industries. In the South and the Western agricultural districts. there has never been so lavish a display of wealth. There are excellent roads to-day where only a few years ago none but the lightest of power-driven vehicles would have dared venture. And it is not stretching the imagination to say that in this respect the ground has only been scratched. Although the wheat-price guarantee may be economically unsound, it will nevertheless provide a great stimulus to the automobile industry; and furthermore it will bring into more general use the very efficient farm tractor, the product of a comparatively new industry that is closely related to the motor-car business.

In its broader application, this will tend to restore the confidence that has been so sorely lacking in recent months and which is so vitally necessary to put the nation again on its feet, commercially. Less will be heard in the next few months of the somewhat fantastic foreign trade and more of the deferred home requirements, which should fill the gap until Europe has weathered the storm of Bolshevism and has had time to nurse its sickly finances back to health.

The Railroad Situation

To follow the Wall Street theory of reasoning, one must avoid the obvious. Which explains why the Republican filibuster, leaving the Railroad Administration without funds with which to meet its obligations to the carriers, did not result in panic. The shock lasted about fifteen minutes, and "the Street" immediately began to reason that perhaps it was after all a blessing

in disguise. To the opponents of government control, with its attendant inefficiency (which has been demonstrated since the Government took over the roads), it represented a great opportunity.

This snap judgment has subsequently been partially justified. It has given the nation's large bankers an opportunty to play a big, unselfish hand, that should be of tremendous value in forming public opinion when the next Congress undertakes the task of finding an equitable solution of the railroad problem. The bankers, it was understood at the time of this writing, were prepared to assist the roads financially-and at the absolute minimum cost. The assistance of the bankers can be no more than a temporary expedient, as the amount owing the railroads on rent compensation amounts now roughly to about $450,000,000.

The railroad predicament will, in the judgment of banking interests, be productive of much good. Their conviction that there would be an active application of facts, rather than theory, at the Peace Conference, is already partially borne out. What the financial community wants first is peace, after that it is willing to listen to the League of Nations theory. With peace once definitely established it will be possible for the bankers of the nations concerning to evolve plans for the correction of the existing weaknesses of the foreign exchange structure, which must be eliminated before Europe can again become a large customer of the United States. Business interests just returned from France, for instance, report a most deplorable condition, both financially and industrially. England, through necessity, is carefully guarding

against an excessive importation of materials. and manufactures.

The Victory Loan

The next event of commanding importance on the financial calendar will be the Victory, and final, War Loan. Treasury notes will be issued with a five-year maturity and attractive tax-exemption clauses.

Obviously, the loan is planned to be attractive for institutional investment in the event the public should fail to respond as heroically as it has done on former occasions. Since the last loan the war has come to an end and the patriotic fervor of the masses has subsided appreciably.

There is excellent authority, however, for the assertion that one of the strongest points in the campaign of publicity will be the argument to the wage-earner and man of small affairs that the necessity for support on his part is imperative if the banks are to be left in a position where they can adequately provide the finances for an expanding industrial and trade movement, which in turn means full employment for the masses. The appeal undoubtedly will have its effect, but some capable students of finance are beginning to wonder whether, with no curtailment in wartime extravagance in living and the rediscount privilege of the Federal banks operative, not to overlook the extensive foreign financing that must be done here, instead of post-bellum deflation we are not likely to enter an era of intensive inflation such as was avoided during the war. It is too early yet to entertain definite convictions on this score. Yet the subject provides most interesting food for thought.

SUPPLEMENTING A LIBERTY BOND
INVESTMENT

Having bought my quota of Liberty Bonds, I have at present $1200 in cash which I would like to put out at higher interest than the 4 per cent I receive at the bank. Can you recommend anything?

If the purchase of Liberty Bonds marks the beginning of your investment experience, we hardly think it would be advisable for you to withdraw all of the money on deposit in the bank (presumably a savings bank, or a bank conducting a savings department) for investment in securities of any kind. It is always a good thing to have a little surplus put away for safekeeping in such a place, where it is usually available immediately to meet emergencies requiring ready cash. A part of your surplus, however,

might be used to purchase a sound bond of some kind to yield better than 4 per cent. The logical step from United States Government bonds seems to us to be into municipal bonds, which as far as fundamental characteristics go are very similar to Government issues, since they are supported by the taxing power of the communities which issue them. Possibly you might find a good bond of this class in $500 denomination that would yield around 5 per cent. Why not take the matter up with some reliable investment banking house specializing in municipal bonds?

MORTGAGES AND MUNICIPAL BONDS

I expect very soon to have a few thousand dollars to invest, and am desirous of putting it in securities that are safe and yield a good rate of income. I am thinking of dividing the money between a mortgage and muni

cipal or public-utility bonds. What would you think of such a plan?

We think your plan may very properly be approved.

In saying this, we assume, first of all, either that you would make your mortgage investment through an experienced and unquestionably reliable banker, or that you are in position to satisfy yourself personally about the security underlying the investment; and that you would employ well recognized principles of discrimination in the selection of the bond investments.

As between municipal and public-utility bonds, our preference at this time would be the former, even if at some sacrifice of net income. With a good mortgage investment, however, yielding perhaps as much as 6 per cent, you would be able to make the average of your net income very satisfactory with municipal bonds of essentially conservative character, and it is our opinion that, especially if your circumstances do not require a very high degree of convertibility, such a combination would be the best for you to make.

A COMBINATION FOR GOOD YIELD

I have had no experience in investing in securities. I need your advice, therefore, in the matter of an investment of $5000. What do you think I should buy?

Here is one combination that might be suggested in such circumstances:

United States Government Third Liberty Loan 44 per cent. bonds, due in 1928.

United Kingdom of Great Britain and Ireland 52 per cent. bonds, due in 1937.

Chicago & Northwestern general mortgage 5 per cent. bonds, due in 1987.

American Telephone & Telegraph 6 per cent. notes, due in 1924.

Swift & Company 6 per cent. notes, due in 1926.

We suggest the splitting up of your fund into five parts in order to get that degree of safety which is always afforded by minute diversification.

Such a combination as this one would give you an average yield of net income of about 51⁄2 per cent., which is perhaps the maximum yield you ought to undertake to obtain until you have added considerably to your general investment experi

ence.

MISSOURI PACIFIC GENERAL MORTGAGE BONDS

I noticed in the REVIEW OF REVIEWS some time ago that you recommend Missouri Pacific general mortgage 4 per cent bonds as a safe investment. Do you still re gard them so, and do you consider the present a good time to buy them? Will you explain about how they are secured? Is there anything else in this class of securities that you would recommend?

As you suggest, we have on a number of different occasions referred to the general mortgage 4 per cent. bonds of the Missouri Pacific as being in our opinion a good investment of their type and class. However, we would not be understood as giving these bonds the rating of an altogether high-grade, conservative investment. They are relatively new and unseasoned and, while appearing to possess some pretty strong equities, are not without certain essential ele

ments of risk. On the reorganized Missouri Pacific property, these bonds are a lien junior to 128,000,000 of underlying bonds which were undisturbed in the reorganization, and also junior to about $47,000,000 new first refunding 5 per

cents.

A bond which occupies very much the same kind of market position as the Missouri Pacific general mortgage 4 per cent. bonds, but which seems to us to possess in some respects stronger security, is the issue of St. Louis & San Francisco prior lien 4 per cents. These are also the obligations of a reorganized company which have not yet become seasoned. They are selling in the open market almost on a par with the Missouri Pacific general mortgage 4 per cents.

SAFE KEEPING OF LIBERTY BONDS

I have, or should have, several hundred dollars' worth of Liberty Bonds at the bank I patronize for safe-keeping. I have never seen the bonds, haven't their numbers, and do not possess anything to show that I am the owner of them. Can you recommend a better way of keeping bonds?

Your bank is the best place to keep the bonds, but if you have paid for them outright, it would be a matter of simple business prudence for you to obtain a receipt for them, showing their denomination and indicating which of the various issues they represent. It would also be advisable for you to inform yourself about the arrangements at the bank for collecting the coupons as they become due and either sending you the proceeds or crediting the same to your account.

RUSSIAN 5% PER CENTS

I have two Russian Government 51⁄2 per cent bonds, due in 1926. What would you advise me to do with

them?

In your place we do not think we should undertake to do anything with them at the present time. Their status is, of course, an extremely uncertain one, but it is by no means a foregone conclusion as yet that they will not ultimately come through all right. The next few months may bring forth some interesting developments in this situation.

DENVER & RIO GRANDE BONDS

Please tell me what you think of Denver & Rio Grande Refunding 5 per cent bonds as an investment and explain what position they occupy in the finances of the road.

These bonds are in our opinion extremely low grade speculative securities entirely unsuited to the needs of a conservative investor. They are secured by blanket mortgage on the Denver & Rio Grande properties, and have ahead of them prior liens represented by closed mortgages amounting to approximately $82,000,000. They are senior only to an issue of 10,000,000 Adjustment Income 7 per cent. bonds due in 1932.

As you may probably be aware the Denver & Rio Grande has been in the hands of receivers since January, 1918, and there are no immediate prospects for working out a satisfactory reorganization plan. It seems improbable in other words that any of the road's securities, aside from the underlying bonds, can be established in anything like a satisfactory position for a long time to

come.