March 15 1922


March 15 1922



THE steady rise in the price of wheat during January and February when the market rose from $1.07 a bushel fairly close to the $1.50 mark (for May wheat) is likely to have an important effect on general business conditions. Generally speaking the declines in commodity prices have been welcomed in all directions as the necessary steps before the dangerous inflation could be remedied. Any prolonged delays in the reductions of prices of raw materials and manufactured goods in the hands of the mills, wholesalers and retailers, have been deplored as just so much time lost in allowing business to resume a more normal course. In the slump of prices, however, many extreme re-actions have taken place that have passed far beyond a moderate deflation and reached a scale of prices that often was below that of pre-war levels. In these instances serious injury has been done those who were forced to adjust themselves to prices that involved heavy losses on all production. These movements included raw sugar, rubber, copper, cotton (for a time) and'a large proportion of agricultural products.

Wheat at $1.00 a bushel had become a menace to the whole country. It was too low. It was impossible for the producer to make a profit at that price with labor and the cost of living showing only moderate recessions. Had this low price continued it would have meant a very small surplus on the balance of last season’s crop that still remained unsold, and undoubtedly would have discouraged production for the season of 1922. In addition it would have held down the movement from the United States into the Canadian Northwest as offering too risky a future either for wheat growing or for mixed farming. Altogether the price that had ruled in wheat and other grains, as well as for a large number of other agricultural products, was unfair to the producer and militated against every class of the community. The recent advances then should be viewed with a large measure of satisfaction. Wheat at $1.50 a bushel represents a more reasonable level in comparison with the price of labor and the general level of manufactured products and most raw materials. This does not imply that the price of wheat should or can remain permanently at the $1.50 level. It does mean that for the time being it should hold aroupd that point until the general readjustment of prices downward enables it to be produced at a fair profit at lower levels.

Capital Shortage Cause of Failures

AN INTERESTING and instructive ^ analysis of the causes of failures in Canada and the United States during 1921 has been prepared by Bradstreet’s. At the outset of 1921, it is explained, the liquidation and deflation proceeding from burst war and post-war booms were in full career, and these and the events of the past

year, mainly flowing from liquidation, piled up a volume of failures and liabilities unapproached in any previous year in the country’s history. High priced money and restricted credits ruling throughout most of the year; price deflation, which hung up many business concerns with stock of high priced goods, and necessitated later unsparing cutting down of inventories. In addition, unemployment, which translated the voluntary buyers’ strike of 1920 into the forcedabstention from all but necessary purchasing of 1921; short crops of farm produce, sold in several cases at the lowest prices in a decade, and heavily reduced value, though not in most cases as greatly reduced as volume, of export trade, added their share to the things which made difficult sailing for all lines of trade and manufacture, and covered the commercial sea and shore with the wrecks of many one time promising ventures.

ft is pointed out that these two years differed materially from other similar periods in that there was no occurrence of the old-time acute panic with its whirlwinds of shortages of actual money, currency premiums and unsparing sacrifice of values. Credit for this is given in the United States to the Federal Reserve Banking System, and although the conditions in Canada are not referred to in this respect by Bradstreet’s, much of the credit here is due to the careful nursing of the situation by our Canadian banks.

In Canada, failures numbered 2,395, the highest recorded since 1915 and 144 percent. greater than in 1920. Liabilities of $51,000,000 were 130 per cent, above those of 1920 and five times those of 1919. Personal causes are credited with bringing

72.6 per cent, of the failures in 1921 as against 79.3 per cent, in 1920 and 77.3 per cent, in 1919. It is interesting to note that the chief cause of failure in Canada was lack of capital, covering 34 per cent, for each year. Incompetence was the cause of only 23.2 per cent, of failures and in 1920 only 20.8 per cent. In the United States, on the other hand, incompetence stood as the leading cause with 32 Der cent, and lack of capital as only 29.3 per cent. Lack of capital had been the chief cause from 1890 to 1911 in that country but since that time incompetence stood first.

The second cause of failures, and the one which the majority probably would consider the chief cause on a guess, is the nonpersonal specific conditions which claimed

25.6 per cent, of the failures in 1921 as against only 18.6 per cent, in 1920. Fraud, the fourth cause, accounted for 6.9 per cent in 1921, showing up much better than 1920 when it was 9.9 per cent, or in 1919, when it was 8.9 per cent.

The lack of capital stands even more important as a cause of failure for if the total amount of liabilities is considered rather than the number, lack of capital was responsible for 45.3 per cent, and in 1920 for 52.8 per cent, or over one-haif. This would indicate that in the heavier failures 1 involving the larger losses lack of capital ] remains a very serious factor. Specific j conditions curiously enough created 25 per cent, of the liabilities as they did also j of the number of failures. That these ] conditions which made operation difficult ■ during 1921 for the manufacturer and re! tailer alike were much more potent in ¡ causing failures than say in 1920 when it was comparatively easy to do business on a profit is indicated also by the analysis which showed only 11.5 per cent, of failures in 1919 due to specific conditions. Incompetence while it caused 23. per cent, of the number of failures accounted for only 14.8 per cent, of the total liabilities.

Improved Exchange a Harbinger of Better Times

THE steady improvement in the foreign exchange situation which has brought back the pound sterling to a higher relative value in New York funds than for several years, and reduced the discount against Canadian funds to under 3 per cent. is. in our opinion, the most favorable indication in the business situation. For it has become more evident month by month that the only solution of really good business conditions in the United States and in Canada will be the opening up of trade with Europe, and other parts of the world. This is being brought about in a sort of negative manner by the actual cutting down of the balance of trade between the United States and Europe which for the year 1921 showed an excess of exports over imports of $1,500,000,000 as compared with one of nearly double this or $2,900,000,000 for the year 1920. The billion and one half excess may still seem large hut this was offset to a great extent by payments of $700,000,000 in gold to the United States. This change in trade relations together with the improved internationalfeeling, in a real tangible form, that has resulted from the Disarmament Conference, together with the brighter possibilities of a world economic conference that may result in some scheme for international credit, have all had their influence in the improvement of exchange. One financier in referring to the movement in exchange, and in welcoming it, declares that “We consider that exchange rates are far more impressive than the views of any one man, no matter how well formed. Like the stock market they represent consensus of opinion, and are superior to any individual judgment.”

Railways’ Showing Improved

WHILE the heavy deficits that the country must meet in the operation of the National Railways continue to exercise those responsible for providing revenues to offset this drain, or making loans where revenues fail, there is at least some encouragement In the gradual improvement of the relation of operating revenue to operating expenses. Taking all the railways under the control of the Government and figuring out revenue and cost -of operation if is seen that for the four months of 1921 ending in November—the latest available figures—revenue exceeded operating costs. This applied most of all to the Grand Trunk System which during the past two years has fallen below the line in revenue only three months, January and February of 1920 and January 1921. The Grand Trunk Pacific gradually is being brought up from a point where its costs of operation were over three and one half times the revenue to a point where in October and November the revenue actually exceeded costs. The Intercolonial System which had been below the line during the whole of 1920 and most of 1921 ran ahead also in October and November. Taking the year for eleven months the position showed an improvement of about $15,000,000 of smaller deficits than in the preceding year. This, of course, unfortunately takes no account of fixed charges, interest, etc., but there is a small consolation in the relative improvement shown.

Bonds More Favored by Investors

A COMPARISON of the cost of money for a loan made by the largest City in Canada, Montreal, late in February, with the prices it paid for its last series of loans between three and four years ago, emphasizes the marked improvement that has taken place in the position of bonds from the standpoint of the investor of a year or two ago, and also of those invested in the Victory Loans of 1917, 1918 and 1919. Early in 1918 for a loan of nearly $7,000,000 the City issued bonds and the price was so low that the money cost them 6.92 per cent, and the bonds were sold to the public at a price to yield 6 Vá per cent. The recent bond issue of $5,000,000 bore a rate of 5 Vá per cent, and was sold to the public at par, giving a yield of only 5Vá per cent, as compared with the yield of 6Vá per cent, which had to be guaranteed in 1918. The City itself at the price paid it by bond dealers secured its money at 5.61 per cent., a very material reduction in the rate. It is the general opinion that the better class of municipalities will be borrowing money at 5 per cent, within the next year or two. If this proves the case high class bonds should show a considerable advance in price between now and then, as these are certain to move up as interest rates decline and thus maintain a yield to the new investor that will be on a level with the lower yields of the new issue. This gradual appreciation should apply quite as much to Victory Bonds as to other first class securities, and particularly should this be the case with the tax-exempt Victories.

Forecasts of Business Probabilities

A REVIEW of industrial conditions with a forecast for the present year that has just been issued by Babson’s Statistical Organization will provide investors with a viewpoint that may aid them in figuring out the relative position of the industries in which they are especially interested. In agricultural implements, for instance, it is intimated that the present radical price cutting will continue and that the market will remain weak. In the case of automobiles the demand is increasing owing to seasonal tendencies and price reductions. There will be further cuts in prices and the demand will be most active for the lower priced cars.

In iron and steel the demand is improving, with manufacturing activity about 40 per cent, of capacity. Prices will continue weak but business will be better in 1922,than in 1921. In hardware, prices will continue weak for months to come and the outlook is only fair. In tires prices are at the bottom. There will be unusually keen competition, but demand will be better this year than last.

In lumber there will be an improved demand, with keen competition and conservative buying. The condition of the leather industry is fair. Tanners are working to about 50 per cent, of capacity. Stocks however are low in the trade and the basic tendency is upward.

In boots and shoes demand will improve in the next few months. Prices will remain and further reductions will be made in the retail trade. The demand for brick will increase during the spring and summer. Stocks are low and activity will begin early in the spring and continue throughout the summer. In the case of cement, however, stocks are said to be relatively heavy. There will be an improved demand and production will be fair.

Men’s clothing will see a continuation of cut-rate sales for'some little time. Producing costs will continue low. There will be a slight increase in manufacturing activity. General clothing prices will reach the low point this summer. In women’s clothing labor troubles will increase costs of production. The demand will be good and continue throughout the summer.


Question^/ would like an opinion of the International Bridge, Windsor to Detroit, as an investment.—A. L., Maple Valley, Ont.

Answer—The proposal to build a 'big international bridge between Canada and the United States as a'private enterprise, to be financed by selling securities to'the public, seems rather unusual in these days of public ownership but if proper charters are secured from the governments, it would seem to be sound. The men behind this project to link up Detroit and Windsor include substantial business men with a stake in the community which should benefit but it is not indicated that they will be large investors in the venture itself.

Apart from the project itself the investor has to carefully consider the price he is paying. On the terms indicated bonds at 87 would show a'return of 8.155 per cent, but it. must not be forgotten that $100 is being paid for common stock onfwhich there would only be a return when profits warranted. A conservative view then might put the price of $300 of bonds at $361 and the basis of the return would have to be adjusted accordingly. Another point which should be considered in relation to the yield is the provision in the prospectus that the directors may, if considered necessary, suspend payment of interest on the bonds for a period of five years after the bridge is opened for traffic. Thus, if the bridge were not opened before 1925, and it would not seem likely that it would be ready before that time, it might easily be that no interest would be paid until 1930.

Question—Please give me your opinion as to the reliability of the Northern Life Insurance •Company.—J. R. K., Spring Lake, Alta.

Answer—The Northern Life holds a Dominion Charter, and is subject to federal inspection. It is therefore safe to insure with.

Question—ƒ would like your opinion ;f the Grand Trunk Pacific Bonds. How is it that they are carrying a better ro.te of interest than Victory Bonds'!—B. McC., Princeton, Ont.

Answer—Grand Trunk Pacific Railway 4% bonds due in 1955 are a good railwray issue, but are not obligations of the Dominion of Canada. The bonds offered you are secondary obligations of the G. T. R. Mountain and Prairie sections and so long as the railroad remains under public ownership you are practically assured of your interest payment being met promptly.

The bonds give a higher yield than victories; first, because they are not a government obligation either directly or indirectly and second, because they have a 4% rather than a 5% coupon rate.

With the understanding that they are not in the same class as Victory bonds, but are simply a good rail bond, we would recommend their purchase.

Question—I want to sell some Canadian Associated Gold Fields stock. How should I proceed"!—R. E. Davidson, Sask.

Answer—According to an agreement for pooling the stock of the Canadian Associated Goldfields, shareholders have undertaken not to sell their holdings. This arrangement was entered into, we understand for the purpose of supporting the stock until active production was taken. We are not aware that this pool has as yet been ended. If you are not party to this agreement, you of course are at liberty to sell your stock if you can find a purchaser. No transaction has been recorded for some time, and we are therefore not in a position to quote you any price. Would advise you to communicate with the head office of this company in Toronto.

Question—Would like your opinion as to whether or not you would consider the purchase of preferred and common stock of L. R. Steel Service Corporation a sound investment?—A. L., Oromocto, N. B.

Answer—We could not advise you to buy stock in the L. R. Steel Realty and Development Corporation as anything but a speculation and in our opinion not a very attractive one at that. It should not be considered by a person like yourself with whom we believe safety of principal is more important than the chance of obtaining a larger income.

Question—What is your opinion of an investment in German marks at the present timel—C. G. P., Queenston, Ont.

Answer—Buying German marks for a rise can only be regarded as a gamble. If you have good grounds for thinking that they will return to value at anything like the rate mentioned you would be quite justified in backing judgment but if you take a flyer we would advise you to forget about it and accept any profit in the future with thanks to providence.

Question—What do you knou> about the Dominion Combing Mills'!—I. M . M Toronto.

Answer—The Dominion Development Corporation was organized as the selling agency for the flotation of stock of the Dominion Combing Mills. A. E. Rea is behind both propositions. Mr. Rea has had a long business experience, particularly as a merchant. He was head of the A. E. Rea Company, a department store at Ottawa, which, however, got into some difficulties financially during the war.

The project would seem to be one on a reasonably sound basis and Mr. Rea is a man of energy with confidence in it. However, woollen manufacturers inform us that they have looked into the proposition

and doubt whether it will be a success. They claim that there is not a wide enough market in Canada for all the products of a combing plant and then under the present conditions it is cheaper to send our wool out of the country and buy the required products for our own needs. An important point would probably be as to whether or not something in the way of a protective tariff could be secured. We have been informed that a tariff of 10 per cent, would ensure success but Mr. Rea is convinced that even should there not be a tariff the undertaking could still be made to show profits.

Question—What is status of Methodist Book Room bonds'!—Subscriber.

Answer—These debentures are a first mortgage on the property with conservative valuation of between two to three times amount of debenture issue. In addition to this the Methodist Church as a Corporation stands behind the issue. The security would therefore seem to be perfectly sound.

The Book Room has never refused to take up debentures when debenture holders under pressure have required their money.

Question—Are preference shareholders in a close corporation entitled to receive a copy of the by-laws'!—B. B., Niagara Falls. Ont.

Answer—A shareholder is at any time privileged to inspect the books of his company—and this of course includes bylaws as well. But whether copies of the by-laws be printed for distribution to the shareholders is a matter, we judge, to be left to the discretion of the directors and the shareholders themselves.

Question—What is your opinion of The Banking Service Corporation as an investment?—W. J. H., Golden Lake, Ont.

Answer—The Banking Service Corporation is an underwriting organization and is acting in this capacity for a number of affiliated organizations headed by the Mutual Finance Corporation. The companies thus organized have an aggregate capitalization of $8,200.000, and are engaged in the business of advancing credit accommodation in the instalment sale of homes in the different cities in which the companies are located. The Mutual Finance Corporation wasfirst organized in the city of Windsor, and its operations were considered so successful that it was decided to organize similar companies and operate in other Ontario cities. Success in thisbusiness is almost wholly dependent upon management: and judging by the companies’ experiences so far the management in this case would appear to be satisfactory. The stock should hardly be recommended as a buy for a widow or orphan, or for one solely dependent upon such income, but as a speculative investment for a limited amount it has attractions.

Question—What is your opinion of Parker Motor Car Company of Montreal as an investment?—L. F., Newfoundland.

Answer—Like all new industries the Parker Motor Car Company of Montreal must be considered as a speculative purchase as distinct from a security of a company that has passed successfully through a period both of good and bad times, which tests it thoroughly. In its favor the Company would appear to have designed an excellent type of car, and it is conserving its resources by purchasing the parts rather than equipping plants for this out of capital. We understand that some 3,000 cars have been sold to dealers and the Company expects to start deliveries in two or three months. It will be impossible for us to tell what real success it will have for several years, so that in investing you would naturally be taking the chance that lies in all new industries, and for that matter in a great many of the older established ones. There is no dividend being paid on the common stock.

Question—ƒ should like your opinion of the Zenith Companies' stock as an investment.—A. G., Elmira, Ont.

Answer—The Zenith Companies Inc., is a holding company, controlling the Merchant Casualty Company, the Union Fire & Casualty Company, both with head offices in Winnipeg Man., and the Merchants Life & Casualty Company with head office In Minneapolis, Minn. The Canadian companies do business in every province and the Merchants Life operates in eighteen states on the other side. According to the annual statement covering the operations of the subsidiaries for the year 1920, each company shows a gain in premium income, the Union Fire from $198,621 in 1919 to $304,762 in 1920; the Merchants Casualty from $465,820 to $495,909 and the Merchants Life from $204,184 to $281,246. We are informed by the fiscal agents of the company in Toronto that dividends at the rate of 6 per cent, were paid on the company’s stock for 1918, 10 per cent, for 1919, and 10 per cent, for 1920. The company has been building up along conservative lines, and with capable management there should be a splendid field of opportunity in Canada. Until the Company has passed the development stage, however, and has become established upon thoroughly stable lines we can only regard the stock as speculative.

Question—Pícase advise me whether you consider it safe to take stock in the Climax Rubber Company.—Mrs. W. P., Hamilton, Ont.

Answer—We see little attraction in the stock offer of the Climax Rubber Company, as an investment for a woman. In the first place this is a new concern which has not yet been tried, and there is, therefore, a very big element of speculation present. It is a rubber concern, and is entering a field which is highly competitive, and where conditions change rapidly. The stock is by no means safe, and we would urge you to place your money in some gilt-edged security such as government bonds.

Question—Do you consider stock in The Commercial Life of Edmonton a good investmentl—G. E. C., Hillcrest Mines,

Answer—The Commercial Life is facing the usual problems of the younger insurance company, but with efficient management we see no reason why iit should not maintain a profitable basis from the shareholders’ standpoint.

Question—What do you think of the stock of the Tiger Tire and Rubber Company as an investmentl—E. M., Petrolia Ont.

Answer—Late last year the Tiger Tire & Rubber Company completed the installation of additional equipment in its plant at Belleville bringing the possible capacity to 450 tires a day. Officers of the company report a fair demand for their products with substantial contracts on hand. The concern is a comparatively new one but seems to be getting under way in a satisfactory manner. The tire industry has passed through a period of adjustment and the outlook for the future would seem to be improving. However, it is an industry in which there promises to be very keen competition with production costs in favor of the large highly organized concerns.

Question—Please give me your advice

on Canadian Associated Goldfields stock._

Subscriber, Bolton, Ont.

Answer—If you are a prospective purchaser of Associated Goldfields we advise you to look for some other investment.

If you already hold stock there is little that you can do but wait.

Ouestion—I hold some L. R. Steel stock, please advise me the best way to sell it.—

F. B., Kitchener, Ont.

Answer—;We would advise you to communicate with .1. F. Carter, Investment Broker, Guelph, Ont. We understand that he has a connection through which shares of the L. T. Steel Corporation can be disposed of but you would probaby only get half, or less than half, what you paid for them. On this basis you might not of course, care to give up your holdings at this time. In our opinion the proposition is a very speculative one with a future rendered doubly uncertain because of the conditions prevailing.

Answers will be given freely to subscribers to MacLean’s Magazine in regard to Canadian industrial investments (if a sta/mped addressed envelope is enclosed • by addressing Financia l Editor, MacLean’s Magaz-