WITH every passing day there is developing a somewhat more optimistic turn in the general attitude toward the business situation. This is not to say that business conditions at the present time are presenting any very bright features but that over the rim of the business horizon there is beginning to appear a ray of light that promises a return, if not to war time prosperity, at least to a solid measure of business activity.
Henry Ford was recently quoted to the effect that the immediate return to normal conditions was dependent almost entirely on a matter of getting commodities down to a reasonable price basis. Quite apart from the experience of Mr. Ford’s own business there seems to be a solid foundation for this contention.
Drop in Implement Prices VI7TTHIN the course of the last few vV days some of the large implement concerns have announced substantial cuts in the selling cost of their product. They have done this in the face of a heavy holding of raw material stocks, and of fabricated materials bought at the peak of the market. Despite this fact however they are announcing reductions of from 15 to 35 per cent, or probably an average reduction of about 20 per cent. This reduction is a definite-effort to meet the conditions of the market they serve. The buying power of the farmer in the past year has been very substantially reduced. His commodities have been, and continue to be, well below the average of commodity prices. The result has been that the farmer has definitely refused to buy commodities that in his judgment had not faced the same reductions that he had been compelled to face. These implement manufacturers, then, have fixed their policy to meet this situation. They are enabled to do so in a measure, through some reduction in material costs, though owing to the heavy holdings of raw materials this has not been a large factor. The largest factor in making this action possible is in the expectation of an adjustment with labor. They hope to be able to prove to labor, that some such reduction is imperative if the industry is to be revived, and that they are ready to meet the situation as they are asking labor to meet the situation, by practically eliminating profits until the industry can again be placed on a substantial basis.
Will Others Follow?
T'HIS action is indicative of what may -*■ be expected in many other industries, where the element of labor cost has become so burdensome as virtually'to strangle the industry. It must go hand in hand with reductions in raw material costs, so that this readjustment with labor may not bear unjustly on the laboring classes.
The problem of unemployment both present and potential is presenting a very serious situation. There is a popular feeling that the Government, both federal and provincial, should do something to provide employment during the coming months. Sober judgment, however, demands that any such action shall be a help to readjustment rather than a hindrance. The assistance given to the unemployed must not be in the nature of a hand-out, but must be based on a strict business basis. The wasting of public moneys is the same as giving it away,
and the present is no time for thoughtless expenditure either by a person or a government. Unwarranted expenditures must reflect on the circumstances of the taxpayer, and become an added burden to the country at large. More than that, it is imperative that any agency that is endeavoring to help the unemployed, whether it be governmental or municipal, must govern itself by the existing labor market. By setting a false standard of payment for labor, by buying above the prevailing market, it will create a serious situation. The essential element in a return to normal is a reduction in production costs, and any influence that would tend to militate against this effort will have an undeniably serious effect. It is not possible under certain conditions, for private enterprise to compete against a government or a municipality, therefore it is imperative that there should be no element of competition to unsettle the gradually recovering business enterprises.
Money Not So Tight
TT IS customary at this time of the year to expect a money scarcity owing to the demands made by the financing of the wheat crop. The bank statement for August however just recently made public indicates that this condition does not exist this year. Instead of the usual increase of credits customary at the crop season, the statement shows a decline, an evidence that there is no great demand from business as a whole for money.
As an offset to any possible feeling of depression also, there is the interesting fact that the past few weeks have seen the issuing of a considerable number of bond issues that mount up into substantial figures. It is evident that these substantial industries and municipalities consider that the time is opportune. They have confidence that there is money available for use in sound enterprises. The viewpoint of these executives indicates their belief in the essential soundness of general conditions, their belief that we are, industrially, on the road to recovery. Moreover the public response is an evidence that their belief is well founded.
Altogether, while the trend of events of the past couple of weeks has not varied appreciably from that of the weeks preceding, there is noticeable a growing feeling of relief. In the United States there has been a complete reversion from the profound gloom of some months past. The surprisingly high bids for some of their bond issues is an evidence of this returning wave of optimism. In Canada there is not the same tendency to descend to the depths, and consequently the swing of the pendulum cannot hope to lift us to such heights of optimism, but, in our soberer mood, there is still an underlying sense that the corner has been turned, and the indications, slight as they are, all point to the soundness of this judgment.
(Answers to queries, p. 7.)
I Answers will be given freely I I to subscribers to MacLean’s 1 I Magazine in regard to industrial | I investments (if a stamped adI I dressed envelope is enclosed) by 1 I addressing Financial Editor, | I MacLean’s Magazine. I
Question—Will you kindly grive me your opinion on Canadian-American Resources, Limitée? I would also like your opinion on the R. T. Scott Company, of Toronto ; the Mortgage, Discount and Finance, Ltd. ; and DetroitWindsor bridge bords.—P. D. Q., Toronto.
Answer—Canadian-American Resources, Limited, is a Canadian company formed some time ago for the purpose of promoting the development of the natural resources of this country and elsewhere, particularly in mining, in oil. Two blocks of property have been acquired including a 60 per cent Interest in 4,800 acres in the oil district of Oklahoma and 1,000 acres in Northern Ontario. This latter property has little present value but the oil properties in Oklahoma are stated to be close enough to the Burkburnett field to give good promise of successful development. However, the entire proposition must be treated as pure speculation.
We have consistently advised against purchase of any of the offerings of R.T. Scott and Company as being too speculative for the average investor. Mortgage, Discount and Finance, Ltd., is a company organized for the purpose of buying in second mortgages, a business that is going to become more hazardous as building costs decline. The Detroit to Windsor bridge bonds are equally speculative.
. Question*—As I have four sharês with fifty per cent, common in the Canadian Famous Players yielding 8% on preferred, I would like to know your opinion as to whether this stock bears good security and worth me holding.—
X, Y. Z.? Cochrane, Ont.
Answer—Famous Players Canadian Corporation is a company that controls and operates a large number of high class motion picture theatres from coast to coast in Canada. The company is only a little more than a year old and is probably suffering to some extent at the present time from the depression in the theatrical business but you have not given your investment time to work itself out.
The corporation has very excellent prospects for success, as it is a very important factor in its field in Canada and we would advise you to hold your securities.
Question—What do you think of the L.. R. Steal Realty Development Corporation ?—A Subscriber, St. John, N. B.
Answer—We would advise you not to purchase the shares of the L. R. Steel Realty Development Corporation. The proposition is highly speculative.
You will not lose if you invest your money in good bonds, Victories or provincial and municipal issues. In the Steel propositions you are assuming a great risk of losing all you put in in exchange for possibilities only.
Question—I want your advice on the selling of twenty preferred shares of the Canadian Crocker-Wheeler Company. Limited, of St. Catharines.—B. B., St. Catharines, Ont.
'Answer—Compared with other preferred stocks it would seem that the offer of $90 for Canadian Crocker Wheeler preferred is reasonable although as the ¡stock is net listed it is difficult to know the present market value. Preferred shareholders are only entitled to what their agreement calls for which is usually a set rate of interest. The sale cannot go through without the consent of the shareholders which I think will be given. It will then be for the new company to make an offer to the preferred shareholders of the old company or to continue paying -the interest under the conditions on which the stock was issued.
Queation—I am a holder of a number of »hare» of Brazilian Traction and Power Company, for about three years. The stock is juat now half the price I have paid. Would you advise me to buy some to average down at the present prices, or not?—R. B., Quebec.
Answer—We would advise you to " hold your Brazilian Traction shares. "The inability of the security to climb back to former levels is not due to any weakness in the company’s earning position, for it has been having a great deal of success in its operation in South America, but to the low rate of Brazilian exchange which means that net earnings when converted into British or Canadian funds are away down. The future of the stock depends more upon exchange than any other factor. It may be a long wait and it has already tried the patience of the shareholders to a great extent but you stand to gain in the end if you can hold your stock. , , , , ,
“Averaging” is a very doubtful way of reducing a loss. View your original purchase of Brazilian Traction and the
additional deal you are contemplating now as entirely separate transactions and you will see that the net result to you wpuld be the same whether you buy Brazilian Traction stock or another security of about the same calibre. You should not put too large a percentage of your funds into Brazilian. Hold what you have but seek a security with a more definitely established future for additional investment.
Question—In 1919 I invested in Monarch Tractors, Limited, of Brantford, Ont., to the extent of five shares of preferred cumulative and participating stock, and was given one share of common stock. Recently 1 have been asked if I would accept $150 for my sh-are of common stock. Will you please tell me what this offer signifies and what is your opinion of the investment.—A. A. L., Kitchener, Ont.
Answer—Regarding the common stock of Monarch Tractors, Ltd, Brantford, we are rather surprised that you have received an offer for $150 for your share of common stock and would be inclined to doubt whether this offer was made in good faith. There have been a number of stock selling propositions which have recently been attempted where offers have been made for shares with the idea not of purchasing them but of encouraging the holders to buy more stock. The position of this company at the present time is not very satisfactory and the dividend on the preferred stock has been suspended, the management explaining that this has been for the purpose of conserving funds towards other activities. We cannot believe that common stock is worth $150 a share when the dividend on the preferred stock is not being paid.
Question—What is the chance of shareholders getting anything out of the 8% preferred Riordon? What was the cause of such a change in the position of a company so lauded one year ago?—X. Y. Z., Woodville, Ont., (and many others).
Answer—We presume from your letter that you hold some of this stock which you would have purchased at c’ose to $100 a share with the bonus of common stock. May we urge however, if you do not hold this stock, not to think of purchasing it even at the very low price of around $3 a share. We cannot hold out much hope, we are sorry to say, of the shareholders getting much, if anything, from their investment in this stock. The Company needs from six to eight million dollars to keep it going during the next two years in the presence of a rather unfavorable pulp market.
The question that has been bothering those in charge for months past, as you probably are aware, is how this money can be raised. Every plan tried so far has failed and it looks now as if the Company might have to go into liquidation and the bond holders with the banks take charge of the property. In this case it might be divided up into two parts according tó the grouping of the bonds.
. If this is done it seems unlikely that even the preferred shareholders, not to speak of the common, would receive any ponsideration. There might be an opportunity given them to reinvest in a new company, but so far as their old stock is concerned there does not seem now much chance of their being able to realize upon it. The market price for both the common and the preferred is dragging around two and three dollars a share and seems likely to go even lower.
You ask the cause of such a failure of a concern that “was lauded so highly” a little over one year ago. It is quite true that confidence was felt in this undertaking by some of the shrewdest financial and industrial men in Canada, and the greater bulk of the purchases of preferred stock consisted of genuine investments. So far as we have been able to figure the question, the two main causes for the collapse of this Company must be considered mismanagement of an extreme character, and the adoption a year ago last June of a top heavy reorganization. By that we mean that we do not think that the company was well advised in taking on heavy obligations for the Gatineau timber limits, as these called for large expenditures of money which the company required for the development of its pulp mills, and tnese limits were not revenue producers to any extent, especially when the lumber market slumped last year, and continued in a very unsatisfactory condition up to the present time. The excessive expenditures on the Kipawa plant make it difficult for it to operate at a profit.
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