August 21, 1909





RECORD   AND   GTTTDE





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By THE RECORD AND GUIDE  CO.

President,   CLINTON   W.   SWEET                        Treasurer,  P.  W.  DODGE

Vlce-Pres.  & Genl.  Mgr.,  H,  W.  DESMOND         Secretary, F. T. MILLER

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"Entered at the Post Office at New York. N.   Y.. as second-class matter.'
Copyrighted,   1000.   by   The   Record   &   Guide   Co,





Vol. LXXXIV.





AUGUST 21,  J909.





No. 2162





THERE are a great many owners of railroad and industrial
securities in-the United States who are feeling very
complacent over the recent rise in the price of stocks and
bonds. The great majority of them can iM-obably figure
that their investments would sell in cash for one-third more
than they would a year ago, and in most cases their current
value would total a substantially larger amount than they
did during the closing months of 1906. Such calculations
are very pleasing, but before taking too much satisfaction
in them the investor would do well to look a little deeper
and inquire wherein he will really profit by these increased
prices. What can he buy with fhem that will bring him
an increased income? Manifestly he cannot very -well ex¬
pect to beneflt by the transfer of his holdings from one
railroad or industrial stock to another, because they are all
selling at substantially the same level. Insiders may know
that the securities of any particulau company are still sell¬
ing below their probable future value, but there is no rea¬
son at the present time why an investor with only public
information at his disposal should expect to gain anything
by shifting his. investments. It will be very diffioult for
him to convert the increased capital represented by his se¬
curities into inereB,sed income. During the coming winter
a certain number of railroad and industrial corporations will
increase the rate of distribution on their common stocks, bul
the prices at which these stocks arc now selling already
pretty well discount every probable occurrence of this kind,
and an investor, well acquainted with the general financial
situation will realize that the chance for substantially larger
dividends than those now enjoyed by tlie owners of stocks
is very remote. Even if the country is entering upon an¬
other few years of business prosperity, the increased net
earnings of the great corporations will for the most part be
absorbed in paying for necessary capital expenditures. AM
of them still have many millions of dollars to spend upon
the improvements that are absolutely necessary for the
quick and economical transaction of a considerably increased
business; and there is small chance for the present at least
that the share-holders will obtain any substantial portion
of'the increased earnings. Those share-holders will indeed
be lucky in case the money market does not become con¬
gested with the mass of new flolations and in case even the
increased capital value of their securilies docs not shrink a';
fast as it has swollen.





THERE is, however, one way in which a wise investor may
convert his increased capital value into increased in¬
come, and that is by using it to purchasp improved urban
real estate. During the past year and a half there has
been no general increase in realty prices corresponding to
the increase in the prices of stocks and bonds. One hun¬
dred thousand dollars will buy just about as much improved
real estate now as it would in the spring of 1908. Of
course there are not so many bargains to be picked up now
as there were then, but on the whole the statement that the
investment value of real estate has not substantially altered
during the intervening period is unquestionably true. It is
also true, no doubt„that real estate did not suffer in ItlOT
any depreciation in price corresponding to the fall in the
price of securities, and it may look, consequently, as if the
rise in security values were merely a recovery which places
them once more on a parity with real estate. But while
Ihere is some Iruth in this qualiflcalion ol our general state¬





ment, it is not fhe whole truth. As we have already seen,
the values of securities have gone substantially higher than
they were early in 1907, and one cannot understand how
they can be pushed to a still higher level except at the cost
of severe'subsequent reaction. On the other hand, the turn
of real estate is slill to come. It is still selling at about
the same level as it was iate in 1906, when call money was
very high, and when the very best industrial preferred stocks
could be bought so as to yield almost seven per cent,. As¬
suming, then, that better times are coming and that there
will be an imperative trade demand for land, real estate cer¬
tainly looks like an extremely good investment purchase. An
investor who sells stocks or bonds that are bringing him
in less than flve per cent, should be able to buy improved
real estate which would bring him in a decidedly larger
net income, and a much more probable increase in cajiital
value. The real estate would be more trouble lo fake
care of, but it would pay for the labor spent upon il. There
seems to be no other sure way in which an investor can take
advantage of the recent increase in value of his securities
and make it equivalent to more spending money without as¬
suming any unbusinesslike and merely speculative risks.





IT is only a question of time when the reasons contained
in the foregoing paragraph will appeal to a great many
security-holders; and the man who will make money out. of
the situation will be he who will anticipate the inevitable
rise in the price of real estate to a parity with other sources
of income; that is, tlie man who buys his real estate next
fall. It always takes the majority of investors a long' time
to understand that a radical change has taken place in the
comparative value of different classes of property. Most
of them will not begin to buy real estate until they see the
first plain indication of a movement towards a higher level
of prices in that class of property. But we believe that the
first signs of such a movement will be very much in evidence
during next winter and spring. It can be ])revented by only
two possible obstacles. One would be a sudden halt in the ex¬
isting impulse towards business activity and prosperity, and
that is wholly improbable. The other would be the gradual
coining of another season of tight money. If the rates for
money are allowed Lo become as high as they were late in
1906 and early in 11)07, there will not be much room for an'
increased investment demand for real estate. In fliat case
the prices of securities will probably work towards a lower
level, and the parity between the price of stocks and the price
of realty will be reached, not by an increase in the value of
the latter, but by a diminution in the value of the former.
It is evident:, liowever, that in either event the man who sells
stocks at present flgures and invests in real estate will make
money. He wil! get a better price for his stocks now than
he would later and his real esfale, if wisely purchased, would
not have diminished in value, Bul we do not believe that
any excessive rates for mone-y will prevail during the coming-
year. It is absolutely necessary for the railroads that
money should remain cheap, because their coming capital
requirements will be very large; and while they and their
agents, the bankers, may not be able to prevent it from
becoming dear, it is probable that, if necessary, an abundance
of foreign capital will be available to keep rates down. An
American investor can hardly go wrong, in case he takes a
certain proportion of his capital now invested in stocks and
puis it into improved city  real estate.





THE statement issued by the Public Service Commission
during the past week again shows very plainly thai,
it wili not approve the plaus submitted to it by the Inter¬
borough Company; and il is a great pity that public opinion
is not fully alive to the damage which the commission is
thereby doing to the cause of a well-balanced and economi¬
cal rapid transit system. The "Times" is the only daily
.lournal that understands what the city will lose because
of the stubborn persistence of the commission in sticking lo
its plan of building a subway which compeles with the ex¬
isting subway, instead of supplementing it; and the attitude
of the commission is all the more singular because it has in
several of its pievioua decisions distinctly favored the crea¬
tion of monopolies in providing local public services. Yet
in the most esseniial public service of all it abandons all
the advantages which might result from a single rapid iran.'-il
system, all under one management, and transferring at many
different connecting points. So far as the Record and Guide
can see, there are only two ways whereby the advantages to
the city of a single coherent   ancl well-articulated  rapid Iran-