Rail implements have sold their stock to the pub- to public utility bonds and preferred shares of lic, and in most instances part of the proceeds manufacturing and trading companies, both was used to buy other plants. But in each because of their high income and perhaps case care was taken not to buy plants which because of their freedom from the suspicion made the same products. There is no reason of "high finance," other classes of securities whatever, to judge from the revolution which are by no means going into discard. is going on in this trade, why business should not be big, nor any reason why one concern should not make a great variety of products. But this is not monopoly. This is merely utilizing the unquestioned advantages of working on a large scale. road earnings have been increasing rapidly of late and the mild winter has made railroad operation far less expensive than it often is. One of the largest and strongest of our steam railroad systems has just offered a great quantity of convertible bonds to its shareholders at a price which returns about 5 per cent.—a high return considering the class of security offered. Bonds which are convertible into stock at option of the owner form what speculators call a "straddle." Many economists agree that in a period of high living costs such as the present, stocks, or bonds which partake of the nature of stocks, form a Thus The great bulk of securities now being offered to investors are of the non-monopolistic variety and such as need not be affected by whatever punishment is inflicted upon the "Money Trust," the Stock Exchange, or the New Jersey incorporation laws. From the very nature of the case, mail-order firms or department stores cannot be monopolies, and yet their preferred shares may prove good better investment than regular bonds. investments. And if we glance at the bonds the railroads, which have had no little trouble of public utility companies, we find the same in raising capital by bond issues, are meeting situation. The popularity of these bonds the difficulty by selling bonds which one can seems to grow by leaps and bounds. In the retain as a bond if bonds continue in favor, last few months it has been notably rapid. or can change into stock if stock becomes the The forthcoming census report on the electri- more popular investment. cal industry will prove astonishing in its story of the growth of this industry. But one can hardly think of a street or interurban railway, a gas company, or a hydro-electric company which is an interstate monopoly. Many of them are local monopolies, but only with the consent of the locality. The telephone business is practically a monopoly, but the Attorney-General of the United States has just decided that its regulation by the careful and scientific Interstate Commerce Commission will be far better than its attempted breaking up by the Sherman Law. While investors are turning more and more Such a general broadside of attack as that which is now being made upon the New York Stock Exchange cannot fail to arouse interest among investors, but they should know all sides of the subject before becoming particularly excited. A revised edition of Sereno S. Pratt's "The Work of Wall Street" has come off the press at a most opportune time. It explains the fundamentals which every investor should know about markets, stock exchanges, and the banking questions which Congress has been so energetically investigating with the aid of the astute corporation lawyer, Samuel Untermeyer. TYPICAL INQUIRIES AND ANSWERS No. 425. "MORTGAGE NOTES" There are offered for sale "mortgage notes" in denominations of $500, each note being one of a series, which series totals the amount of a mortgage taken by a brokerage firm. The specific notes I have in mind seem to be secured by first mortgage on improved city real estate, and yield 6 per cent. Insurance policy, title, etc., are retained by the bankers, the separate notes being registered in the name of the purchaser thereof. Interest is paid directly to the nete-holder by the mortgagor. Is there any reason why these notes are not as good as the original mortgage? As a general proposition, no; provided, of course, the notes are drawn strictly in accordance with the terms of the mortgage, and with all of the necessary legal formalities. This method of handling loans on improved city real estate has been in vogue for a good many years, perhaps more especially in the Middle West, and has proved very satisfactory from the individual investor's point of view. Of course, whether in connection with the notes or with the mortgage, itself, the ultimate safety of the investment would depend upon the character of the property, the ratio of the total amount of the loan to a conservatively appraised valuation of the property, and to some extent upon the responsibility and experience of the mortgage brokers. In the absence of specific information about the proposition you have in mind, it is possible for us to report only in this general way. I No. 426. MARKETABLE HUNDRED-DOLLAR BONDS Is it possible to secure safe hundred dollar bonds that are shall need cash at sometime in the future, but meantime I readily marketable? If so, please mention some issues. wish my money to be earning something. There are a good many standard investment bonds, obtainable in hundred dollar pieces, which one ought to have little, if any, difficulty in disposing of at any time with reasonable facility. To mention a few representative issues: Colorado & Southern ref. and ext. 42's to net about 4.85 per cent.; Chicago, Milwaukee & St. Paul conv. 42's to net 4.25 per cent.; Norfolk & Western first consolidated 4's to net about 4.10 per cent:; Southern Pacific-San Francisco Terminal 4's to net 4.50 per cent.; American Telephone & Telegraph coll. tr. 4 per cent. ctfs. to net 4.60 per cent.; Liggett & Myers and P. Lorillard debenture 5's to net 5.20 per cent.; General Electric debenture 32's to net about 4.70 per cent. All of these are parts of widely known and well established issues that have a satisfactory market on the New York Stock Exchange. For that reason, they would probably be found more readily salable than a large number of others, perhaps no less secure and satisfactory in other respects, but enjoying markets only such as can be made by the banking houses among whose "specialties" they are numbered. You doubtless know that there are several reputable firms of investment bankers which devote particular attention to bonds of small denominations. No. 427. SIX PER CENT. UTILITY BONDS I have from eight to ten thousand dollars for investment. Can you recommend any public utility bonds paying 6 per cent? I should prefer them not to mature under ten to twenty years. I am investing for income only. We should hesitate to recommend by name any public service corporation bonds yielding income at the rate of 6 per cent., for we do not recall ever having had occasion to examine any bond of that kind, yielding such a high rate, that we believed to be entitled to the rating of a strictly conservative investment. The best bonds of this type do not yield much more than 5 per cent. There are a good many such as we are accustomed to refer to as middle grade" bonds, which may be had to yield from 5 to possibly 534 per cent. But when you go above that rate, you are likely to encounter a class of low grade, and more or less speculative securities. Of course, we do not mean to say that there might not be found occasionally a good public utility bond selling on that high basis of net income for reasons entirely aside from any marked deficiency in underlying security; but that would be the exception, rather than the rule, and would call at once for closer scrutiny than the average investor is wont to give to his purchases. We think, if you examine the lists of offerings of the big, strong investment banking houses which have specialized in this type of securities for so long that their judgment can be accepted as the most expert, you will find our suggestions confirmed in practically all respects. No. 428. FARM LOANS AND MORTGAGE For a young man, who does not care to leave his money in a savings account, do you recommend farm loan and first mortgage participations, when offered by trust companies that are reliable? How much interest should they bring? I am getting 5 per cent. for first mortgages and 6 per cent. for You Especially in cases where there is no necessity for giving serious consideration to the feature of ready convertibility, we believe properly selected farm loans and first mortgage participations to be among the best things into which a small, and necessarily conservative, investor can put his money. doubtless appreciate that there is no market for securities of these types, as there is for standard railroad, industrial and public utility bonds, for instance. In a general way, the rates of income you are getting on the mortgages and farm loans which you now hold, indicate that they may be representative high grade securities of their respective types. It would be impossible to say which of the two classes was affording you the soundest security of principal and interest without analyzing each on its own merits. We have never been inclined to look with a great deal of favor upon bank and trust company shares as securities for people, to whom we are accustomed to refer as "average investors." Stocks in this category seem to us to be better adapted as a rule to the investment of the surplus funds of business men. Your own suggestion about $500 bonds is timely. Making your next investment in that way would give you a start toward the kind of diversification that is held to be of great importance by every scientific investor nowadays. No. 429. DENVER & RIO GRANDE REFUNDING What do you think of Denver & Rio Grande first and refunding 5 per cent. bonds? We consider that they have to be classed as second grade railroad securities, but that they are not without promise. For the last few years the Denver & Rio Grande has had a problem on its hands by reason of the way in which it committed itself financially to the construction of its Pacific Coast extension, the Western Pacific Railway. As you may probably know, the "Denver" itself furnished a considerable amount of money for this new line, and in addition to that, obligated itself to make good any deficiency in the interest on the Western Pacific's $50,000,000 first mortgage bonds. The new road has not yet been able to earn the full interest requirements on these bonds, and in order to stand by its guarantee, the Denver & Rio Grande found it necessary to omit the payment of dividends on its own preferred stock, temporarily. There is no indication, however, that the "Denver's" position in this, or other respects, is such as to endanger any of its bonds. It seems reasonable to expect that, unless something entirely unforeseen occurs, during the next two or three years the Western Pacific will be able to pay its own way, and that the Denver & Rio Grande will, therefore, be able to devote surplus earnings that are now being used to help carry the new property through its first stages of development to the building up of equities back of its mortgage debt. 392 393 394 395 396 396 397 The New Administration. Quality of the Cabinet.. High Conceptions of Public Duty. Plain Living and Attention to Business. A Mentor for McAdoo. Monetary Reform in Prospect. New Financial Authorities in the Senate. A New Revenue System.. Growth of Federal Expenditure. What Shall Be Our Naval Policy? Creation of a New Federal Department. Arbitrating Industrial Disputes. 392 Consumers' Coöperation ... 455 BY ALBERT SONNICHSEN 396 Coöperation in Wisconsin.. 464 BY ROBERT A. CAMPBELL With map Taft's Veto of Literacy Test 398 The Floating Workers of the World. BY J. M. VAN HARLINGEN 399 With illustrations 399 The "Original Package at the State Line 400 TERMS: Issued monthly, 25 cents a number, $3.00 a year in advance in the United States, Porto Rico. Hawaii, Cuba, Canada Mexico and the Philippines. Elsewhere, $4.00. Entered as Second Class matter at the Post Office Department, Ottawa, Canada. Subscribers may remit to us by post-office or express money orders, or by bank checks, drafts, or registered letters. Money in letters is at sender's risk. Renew as early as possible in order to avoid a break in the receipt of the numbers. Bookdealers, Postmasters, and Newsdealers receive subscriptions. (Subscriptions to the English REVIEW OF REVIEWS, which is edited and published in London, may be sent to this office, and orders for single copies can also be filled at the price of $2.50 for the yearly subscription, including postage, or 25 cents for single copies.) THE REVIEW OF REVIEWS CO., 30 Irving Place, New York City THE AMERICAN REVIEW OF REVIEWS VOL. XLVII NEW YORK, APRIL, 1913 No. 4 THE PROGRESS OF THE WORLD The New Administration The new administration is at work, and the Democratic party has come into power, the country having felt not the slightest sense of shock in the transition. There has been little harshness in the tone of recent political discussion. While the succession to Presidential authority has meant civil war and inestimable disasters in the neighboring republic of Mexico, we have transferred power from a Republican to a Democratic administration with partisanship laid aside and good will expressed on all sides. President Taft, who departed on the afternoon of Inauguration Day for Augusta, Ga., had done everything in his power to make the incoming of the new President convenient and comfortable. The new cabinet members were aided by their predecessors or by other high department officials in taking up the current business pertaining to their respective portfolios. Until the morning of March 4 there had been only conjecture about the new cabinet appointments. President Wilson had kept his counsel well, in order that he might not be embarrassed in case of changes at the last. He was wise enough to conceive of his cabinet as a whole, having in mind its relation to the country and to Congress, as well as the fitness of its individual members for their several departments. We have elsewhere in this number discussed at length this new cabinet, and President Wilson's views of the nature and functions of the administrative group in our scheme of national government. they are in close touch with current affairs and public opinion, and they are in sympathy with scientific methods and progressive policies. It is no small advantage to the country to have a really intelligent cabinet. Under Presidents Roosevelt and Taft some notable men of brilliancy, power and high patriotism. were brought to Washington and put into offices of lower rank than the cabinet. Two of these men, Lane and McReynolds, have now been assigned to portfolios. Washington The cabinet selections, in our is the home of a great number of scientific the cabinet opinion, are not only good ones, men and scholars, whose services have bebut even better upon the whole come indispensable to the government in than the country has yet realized. Every many fields of work. It is pleasant to know man of the ten is a worker, alert, vigorous, that under the new administration there will and fit for his job. Taking them as a group, be no lack of appreciation shown for high Convricht 1013 hv THE REVIEW OF REVIEWS COMPANY 387 |