A Question of Identity

In Wall Street, where there are some 1,150 purveyors of market letters to keep investors well informed, there had not been so much confusion in years. The trouble was that the experts violently disagreed on whether the upsurge in stocks in the last two months was a short term upswing in the bear market that had started last fall, or a new, rampaging bull market.

This question had split the experts into three groups: 1) the Dow theorists, who kept their noses close to their charts;

2) the "horse-sense" school, which kept its eyes on production and profits; and

3) the "historial parallelists," who expected everything that had happened to the U.S. after World War I to happen all over again.

At the core of their dispute were some hard realities. After its collapse last fall, the market edged up in February, fell again in May, then started up again. The strict followers of the Dow theory contended that, because the industrial average had failed to go any lower in May than it had last fall, the downward trend might be changing.

Said Francis I. du Pont & Co.'s Thomas W. Phelps, a leading exponent of the Dow theory: "The stage is set; if the industrials and rails now can advance above their February highs, the bull market will be signaled." On July 11, the industrials broke through the February high, but the rails failed to follow.

Last week, after a slight sag, the industrials broke through again, rising to a new 1947 high of 186.85. Once more, the rails failed to follow the breakthrough. To the strict Dow theorists, it was still a bear market, though some were trying to weasel through a semantic loophole: the so-called bear market might be only a large scale reaction in the wartime bull market.

The Retreating Bear. Such dogged chart-watching and weaseling aroused the scorn of the Herald Tribune's C. Norman Stabler, loud exponent of the horse-sense school. He contended that the rally last May was actually the start of a new bull market. Stabler's thesis was that the market, having slumped in a period of rising production (see chart), had counted too heavily on a recession which has not yet developed. And alltime record earnings (see Earnings) made stocks bargains which people were sure to buy, thus bid up prices. (He ignored the fact that the rise began as production dropped.)

Last week, as events reinforced the limb on which he had long been impudently perching, Stabler gibed: "Get yourself a compass, a divining rod, walk backward through a dark alley at three minutes after midnight and everything will be made clear. The first of them who comes out honestly and admits that the hocus-pocus of the Dow theory made him miss nine weeks of the bull market will deserve a seat on the Stock Exchange, upholstered in bearskin."

Aping the theorists' own gibble-gabble, Stabler said that the rise "disposed of surmises that [it] is merely a secondary move within a primary swing after testing double tops on a northeast course follow ing raising of a right shoulder in a southwest storm."

The Coming Slump. One target of Stabler's sarcasm was Major L. L. B. Angas, the ruddy, cigar-smoking Briton who made a considerable splash in 1934 with his The Coming American Boom. Since then, Major Angas has offered his prophecies, at $25 a year ($100 an hour for private consultations). Last week some of Angas' titles were typical of his gloomy views : Psychology of the Coming Slump, Short-Run Rally, Not a Bull Market -- Don't Be Fooled by the Rally.

Another merchant of gloom was Wall Street Analyst John H. Lewis,* a historical parallelist, who had made his reputation in July 1946 by announcing a bear market just as the market started down. Lewis, not willing to let go of his bear's tail, last week insisted that the market was still a bear. By the fourth quarter, he said, when exports fall off and more & more of the deferred consumer demand at home has been satisfied, a "real slump" will come; the "present bear market" will be intensified.

All the baffled investor could make of this brouhaha was that the market was in an interesting condition. And from the frequency of the labor pains, he would not have long to wait to see what the offspring looked like.

*No kin to John L. Lewis.

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