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Secrets of
Wise Investing

Thirty-nine years of sound, conservative financial experience were necessary before we acquired the investment knowledge given in this book. It gives the three secrets of wise investing which everyone should know.

HOW TO SELECT SAFE BONDS
A postcard or letter will bring your copy of this book, "How to
Select Safe Bonds." For 39 years no investor has ever lost a penny
on any investment purchased from us-an unsurpassed record.
Send today for your copy of this valuable book. No obligation.
GEORGE M. FORMAN & COMPANY
Dept. 154, 105 West Monroe St.
39 Years Without Loss to a Customer

74

Chicago, Ill.

conclusion was that economic forces larger than speculation, or superfluous gold reserves, or even deficient crops, were at work in the situation.

NOTHING has yet occurred thus far in 1924

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Wall Street

to indicate change in the attitude of American capital toward European enterprises and securities. So little did the course of events indicate reversion to the free-handed subscription to new European loans, which in 1922, according to the De- and Europe partment of Commerce experts, amounted to $131,725,000 out of total sales of $495,758,000 foreign securities in America, that the movement of capital continued to be largely in the opposite direction. Disturbed by the recurrent talk of "inflation" in France or England and by political uncertainties in both countries, capital continued to be withdrawn from the Paris and London markets for transfer to New York.

The absence of any countervailing influence in the way of American takings of new European loans occurred notwithstanding the visible presence of an immense American fund available for such investment. Public loans taken by our market last January were larger than in January, 1922, though none of them was issued by governments elsewhere than on the American continent. The market's capacity for absorbing large foreign loans was demonstrated in February, when a Japanese Government loan of $150,000,000 was placed before American investors. This American offering was the largest loan ever placed at one time in the United States, except for the $500,000,000 Anglo-French loan of 1915, the $150,000,000 loan to Great Britain in February, 1919, the $250,000,000 British loan of November, 1919, and our own government war loans; yet it was instantly oversubscribed on such a scale that applicants received only 60 per cent of the amounts applied for.

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AS

S a measure of the investment market, the operation was interesting and convincing; not the less so when this was the first loan on record, made jointly by English and American investors, in which the Americans took the larger share. In some regards, however, the circumstances were The exceptional. Out of the total bor- Japanese Loan Subrowing, $170,500,000 was to be used scription to take up that amount of 41⁄2 per cent bonds, issued by the Japanese government in the Manchurian War of 1905 and now approaching maturity.

In writing to advertisers please mention SCRIBNER'S MAGAZINE

earthquake and fire of last September; a task which was expected to involve the purchase of at least $300,000,000 supplies in foreign markets, to be paid for partly from the proceeds of this new loan and partly from credits already existing to Japanese account on foreign markets. Since a great part of these purchases would be made in the United States, our own subscription represented for the most part, not actual export of home capital but its reinvestment in home industry. Put in another way, something over 50 per cent of the subscription would be paid in maturing Japanese bonds of the older issue and the rest in goods.

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Now the 42 per cent Japanese loans which are about to mature and to be redeemed with the new loan's proceeds, had been placed in 1905 at London and New York for 875%, which made the yield to the investor something like 51⁄2 per cent. Those loans were placed by Japan while the war with Russia was still going on; the question was therefore raised, in regard to this year's new loan, why Japan at peace, and with a twenty-year interval of untarnished public credit, should have had to pay 15% per cent more for its borrowed capital than in 1905.

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Cost of Capital, 1905 and 1924

mulated capital of the whole world that Japan was drawing in 1905. Even Germany took a third part of one of Japan's £30,000,000 41⁄2 per cent loans of 1905. Another explanation, more technical in character, is that the Japanese loans of 1905 were expressly secured by a first charge on receipts from the government's tobacco monopoly, whereas the loan of 1924 carries no collateral security. But the more convincing reason is the world-wide rise in the price of investment capital since 1914. When Japan's 41⁄2 per cent loans were

(Financial Situation, continued on page 76)

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7%
7%
First Mortgage Bonds

We furnish these Mortgages in denominations of
$200 to $10,000, secured by City Properties in
Georgia, Alabama and Florida, and on Improved
Farms.

Collection of interest and all services rendered
without charge.

These Mortgages run for a term of five years, with-
out right of redemption.
Write for information.

THE GEORGIA LOAN & TRUST CO.
MACON, GA.

THE TITLE GUARANTY & TRUST CO.

Northern Representative

FIRST NATIONAL BANK BUILDING

BRIDGEPORT, CONN.

(Financial Situation, continued from page 75) placed in 1905, Great Britain's 21⁄2 per cent consols were selling on the Stock Exchange at 90; they were quoted at 56 when the Japanese 61⁄2s were offered. The 3 per cent rentes of France sold at par in 1905, the Italian 5 percents at 105; their price this past February was 54 and 60 respectively.

Even the United States Government had put out 2 per cent bonds at par in the earlier year (with the "circulation privilege," to be sure), but it had sold a 434 per cent loan to its own citizens at par a few months before the Japanese borrowing. Japan's government and financiers, who are traditionally good judges of the international market, recognized these outstanding facts and made their own bid for capital accordingly. Yet the incident throws an interesting light on the two questions: What will be the cost of subsequent reconstruction or resumption loans by Europe, and what will be the market rating of such loans a decade or two from now.

A1

LL of these numerous and varied incidents played their respective parts on the Stock Exchange. Prices on that market advanced on the average about 5 points between the beginning of January and the early part of February;

of Stock

then fell back something like 4 The Course points, first because of realization that the excited "boom in trade" Exchange Prices of this time in 1923 was not being repeated, and next because of the "oil-investigation scare." When Wall Street had recovered from that particular agitation, the market merely swung irregularly back and forth within a narrow radius. Prices of bonds moved somewhat similarly; the average of a

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typical list of such securities going from 7634 at the end of December to 781⁄2 at the end of January; then falling back, partly because of the large Japanese borrowing and the resultant demand on investment capital, to 772.

Taken as a whole, the movement of speculation and values, both on the Stock Exchange and in the various markets for commodities, was a highly interesting commentary on the theory that the existence of an immense superfluous reserve of gold in a country's central banks is certain to force up prices. At the beginning of 1923 it seemed to be doing so. But we know to-day, looking in retrospect at the markets of a year ago, that the actual motive force was the urgent buying orders which came suddenly on the industries when consumers in almost every industry decided simultaneously to make good their deficiency in supplies of goods caused by the "under-consumption" of the two preceding years.

DURING the last half of 1923, prices of com

modities went gradually lower on the average, although the country's stock of gold increased nearly twice as rapidly as in the first half of the year. In the first two months of 1924, as we have seen, prices rose

only slightly, and the advance did Rising
not hold, although in that period Supply and
Money
the Federal Reserve's gold holdings Halting
rose $50,000,000, the gold in circula- Prices
tion in the form of gold certificates
increased something like $75,000,000, and the
Reserve system's ratio of cash reserve to note
and deposit liabilities went from 73% per cent
at the beginning of the year to 82 per cent in
February, the highest since our entry into the
European War. At one time the system's cash
holdings in excess of the 40 per cent against
note circulation, and 35 per cent against de-
posits, required by the Federal Reserve Act,
reached $1,770,000,000-the highest surplus
reserve in the system's history, and $170,000,-
ooo above the high mark of May, 1923, when
Wall Street economists were confidently pre-
dicting "credit inflation." The necessary in-
ference is that, up to the present time, economic
forces much more effective than the existence
of a large surplus credit fund have been at work
in shaping both prices and trade activity.

A THEORY lately much in vogue among
А

both American and British "anti-deflation" theorists, has insisted that the sustained "trade boom" and the uninterrupted rise of prices was prevented only by strong-arm interference by the banks, who are alleged either to

(Financial Situation, continued on page 85) In writing to advertisers please mention SCRIBNER'S MAGAZINE

have refused the requisite credit to their clients or else to have checked the use of it through fixing high discount rates. But the

The

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contention never had a shred of Theory of evidence to sustain it; as an inter"Banking pretation of visible facts it was Interferquite on a par with the Congresence sional accusations of the Brookharts and Magnus Johnsons, that the Federal Reserve Board in 1920 deliberately cut in two the price of wheat and cotton through manipulating the system's credit facilities. Bank loans increased during the trade expansion of 1923 in full accordance with the needs of customers; open-market rates for money, both then and in 1924, were close to the lowest figure since the war; the Reserve Bank's rediscount rate was always below the open market.

But the action of prices, considered from the viewpoint of practical merchants and bankers, presents no mystery whatever. It means that, large and continuous as consumption of goods in the United States has been, production has fully kept pace with it. The achievement was possible, first because of the immense increase of manufacturing plant and agricultural acreage during the war; second, because, with the exception of two or three months last year, the consumer's purchases have been made in orderly fashion and not in a sudden rush which would take the producers by surprise. But the absence of any rapid and sustained upward rush of prices is also explainable by the fact that each distinct move in such direction quickly produced signs that producers were losing their market because of it-the American market, because home consumers were no longer "short of goods" and had their own ideas about prices; the foreign market, because no corresponding advance was made, or was likely to be made, in competing foreign goods.

FINANCIAL LITERATURE

[SENT WITHOUT COST]

Following are announcements of current booklets and circulars issued by financial institutions which may be obtained without cost on request addressed to the issuing banker. Investors are asked to mention SCRIBNER'S MAGAZINE when writing for literature.

INVESTMENT BOOKLETS AND CIRCULARS Banking Service: All forms of banking service, commercial, investment, and fiduciary, are rendered by the Continental and Commercial Banks. Full details will be furnished upon request. 208 South La Salle Street, Chicago.

"How to Select Safe Bonds." Geo. M. Forman & Co., 105 W. Monroe Street, Chicago, Ill. An interesting and instructive booklet describing various kinds of bonds and what measures the investor may take to be sure of the safety of his funds.

"Bonds-Questions Answered, Terms Defined" and "A Sure Road to Financial Independence" are two excellent booklets issued by Halsey, Stuart & Company, 14 Wall Street, New York City.

"For Buyers of Bonds," a booklet published by The National City Company, 55 Wall Street, New York. The booklet explains many of the facilities of a large bond house, and describes the financing of nations, cities, or corporations. A folder listing the current investment recommendations of The National City Company is available for investors about the first of each month.

"How to Build an Independent Income "-a booklet showing advantages of first mortgage investments in Washington, D. C. Offered by The F. H. Smith Company, 815 Fifteenth Street, Washington, D. C.

"Common Sense in Investing Money" is a comprehensive booklet published by S. W. Straus & Company, Fifth Avenue at 46th Street, New York, outlining the principles of safe investment and describing how the Straus Plan safeguards the various issues of first mortgage bonds offered by this house.

The Title Guaranty & Trust Company of Bridgeport, Conn., for 38 years dealers in Farm Mortgages, will furnish booklet and descriptive lists on request.

The Adair Realty & Trust Company, Healey Building, Atlanta, Georgia, has an interesting booklet, "57 Years of Proven Safety," which can be obtained upon request.

"Monthly Investment Plan": Financial independence through the purchase of high-grade securities on a ten-payment plan. Offered by H. M. Byllesby & Company, 208 South La Salle Street, Chicago, Ill.

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"Bonds and How to Buy Them": Offered by Otis & Co., 216 Superior Ave., N. E., Cleveland, Ohio.

"8% and Safety": A booklet explaining the reason for 8% sccurities based on improved Real Estate in Florida. Offered by The Filer-Cleveland Company, Miami, Fla.

"Half a Century of Investment Safety in the Nation's Capital"a new 32-page booklet, profusely illustrated with views of Washington, D. C., telling about 6%% and 7% First Mortgage Investments in the Nation's Capital. For free copies write to The F. H. Smith Company, Smith Building, 815 Fifteenth St., Washington, D. C.

"Investment Opportunities" published by the American Bond and Mortgage Company, of 127 North Dearborn Street, Chicago, Illinois, and 345 Madison Avenue, New York City.

Service Bureau

Excerpts from

Questions and Answers

Upon request this Bureau of Scribner's Magazine, which is maintained for the service of subscribers, will furnish information concerning investments.

Q. I am desirous of obtaining information as to the past, present, and future of the stock of the American Locomotive Company.

I hold considerable amount of this common stock, bought at 73. Would you advise holding it for long pull, as I bought it outright. What do you think would be a fair profit, and do you regard it as being high, at the present rate?

A. We have your inquiry regarding the common stock of the American Locomotive Company. We take pleasure in enclosing a brief report regarding this company.

As you own this stock outright, we would advise you to hold it, awaiting future developments. Based upon the price mentioned in your letter and the present dividend rate, your stock is yielding you about 8.20%. It is possible that it may work to a higher figure.

AMERICAN LOCOMOTIVE CO.
CAPITAL STOCK

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AUTHORIZED OUTSTANDING .$25,000,000 $25,000,000 500,000 500,000

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Also wish to ask concerning a life-insurance policy which I carry. The policy is a 20-year endowment for $1,000 maturing July 31, 1925. On July 31 this year it will have a cash surrender value of $924.79. To carry it to maturity will require payment of about $38.45 in premiums. It seems to me that it would be to my advantage to cash in on it and invest in some good bond. Will you advise? I am carrying $5,000 in endowment policies in addition to the one mentioned.

A. We are in receipt of your valued favor of recent date, in which you list a number of securities, regarding which

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you request our investment rating. Our rating of these bonds is as follows:

GILT EDGE

Cleveland Elec. Illuminating Co. 55 Shawinigan Water & Power Co. 5s

EXCELLENT

City of Montreal 58
Detroit City Gas Co. 6s.
Detroit Edison Co. 5s

Indiana Ry. & Light Co. 5s

American Bond and Mortgage Co., issued named

SOUND

Anaconda Copper Co. 6s

Detroit Edison Co. Con. 75

FAIR

Northern Ohio Traction & Lt. Co. 6s
Portland Ry. Lt. & Power Co. 6s
Tennessee Elec. Power Co. 6s

You also ask our advice regarding a 20-year life insurance policy for $1,000 maturing in 1925. You state that on July 31 of the current year this policy will have a cash surrender value of $924. In our opinion it might be advisable for you to adopt the course you have in mind, namely: cash in on the policy and reinvest the proceeds in some good bond. We would suggest something similar to the new Japanese Government 61⁄2s which are now being offered to the public at 92%. The bonds at this figure yield 7.10%. The proceeds from your life-insurance policy will be just about suificient to purchase one of these bonds.

Q. Would you be so kind as to suggest a small list of bonds which you would rank as first grade, and including perhaps both railroad and public utility issues, from among which the writer might safely choose in making a small investment. I would like to obtain a yield above 6%, together with a ready market in case I should have to sell on short notice. I am not

interested in tax-exempt securities. Would you kindly indicate in connection with the list suggested the approximate yield and date of maturity for each issue.

A. We are very pleased to reply to your letter of recent date, in which you ask us to suggest a short list of bonds which we would rank as high grade, and including railroad and public utility issues.

According to the provision outlined in your letter, the securities must yield over 6% and have a ready market. We take pleasure in enclosing a list meeting the requirements you specify.

The best method in buying bonds is one of diversification, where the issues purchased would comprise real estate, railroad, and public utility bonds. We believe the following list to be a good one to select from:

LIST OF BONDS, YIELD 6% OR OVER

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In writing to advertisers please mention SCRIBNER'S MAGAZINE

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