Sumatra Tobacco

The trend in smoking from cigars to cigarets has hit the American Sumatra Tobacco Co.-producers of cigar wrappers-very hard. For four years, deficits have been piling up, and now amount to about $4,500,000. As a result, inventories have had to be liquidated and dividends on its preferred stock suspended. Finally, on June 1 next, a 7 1/2% "gold" loan matures. So hopeless was the outlook for funding this issue that the Company was placed in the hands of receivers.

The asset position of the Company, while not good, is at the same time not at all hopeless. The real trouble lies in the apparent impossibility in showing actual net earnings.

On the Stock Exchange, the Company's difficulties were brought to the fore through the peculiar "action" of the preferred stock. Many speculators, deeming the issue of little value, sold it "short." There are, however, only 19,635 shares of it, and few of these are in Wall Street available for trading purposes. In consequence, there followed a signal case of "squeezing the shorts." From under 50, the stock shot up to about 70-not because it was intrinsically worth so much as because so many people had sold it who did not own it. The Stock Exchange is closely watching the stock, in fear of a corner developing. The "shorts" must either buy Sumatra preferred at high prices and get rid of a bad bargain, or else stay short, borrowing, the stock and paying a premium of 1/2% or more a day ($50 a day on each 100 shares).