The Open-Mouth Campaign

On Wall Street, they began calling it "the open-mouth policy." Out of Washington last week poured a torrent of talk about the economy, clearly designed to halt the stock market slide and to counter the impression made by William McChesney Martin Jr. in his "1920s speech" three weeks ago. President Johnson, who often uses the jawbone technique to get things done, called upon just about everyone on his team -- with the understandable exception of Bill Martin -- to soothe Wall Street's jittery nerves and hymn the economy's health. It was quite a performance, and it worked.

"Excellent." "Great." Early in the week, the President called half a dozen of his congressional leaders to the White House for breakfast, urged them to talk up the news of rising profits, paychecks and production. On the way out, Senate Majority Leader Mike Mansfield lost no time in assuring the press that the nation's economic picture is "excellent." Next day, Commerce Secretary John Connor told the National Press Club: "Business is great, and it's going to get even better." At the same time, speaking in Manhattan to the American Marketing Association, Chief Presidential Economist Gardner Ackley forecast that "continued solid advance is still ahead of us through 1965 and into 1966."

In Manhattan also, Treasury Secretary Henry Fowler used a different kind of forum -- the National Conference of Christians and Jews -- to make tempting talk of possible further income tax cuts. Vice President Humphrey said in a television interview from London: "I think that Mr. Martin is wrong." At week's end, President Johnson issued four bullish press releases in one day, devoted about 15 minutes of his press conference to praising the economy. Lesser lights in the Administration were sent out to make glowing economic predictions on platforms from Buffalo to Barcelona.

Double Turn. The Administration started its campaign because the market had been falling sharply for a month, retreating from what many Wall Streeters had considered an overbought condition. At last week's start, the Dow-Jones industrial average plunged another 13 points. When the talk from Washington grew loud and clear, however, the market turned around, in the next three days regained more than 14 points.

The Administration's message obviously had got through to the small investors, who trade in odd lots of fewer than 100 shares. The odd-lotters had been big sellers almost every day since early May, but midway through last week they plunged in to buy almost twice as many shares as they sold. Many little people took advantage of the rally to grab their profits and get out of the market. On the final trading day, the Dow-Jones index worried off 3.89 points, closed the week at 879.17.

The source of Wall Street's nervousness is certainly not the cold statistics of the U.S. economy: they continued last week to be predominantly bullish. One factor in the market's recent dip, however, is the inactivity of the big institutional investors, which have been cautiously waiting on the sidelines for stocks to dip lower. Meanwhile, much of their free cash has been sopped up by a huge quantity of new bond offerings and secondary stock issues. In the past three weeks, for example, four new issues totaling $1.4 billion have been brought to the money market by the Chase Manhattan Bank, the First National City Bank, the Ford Foundation and the Federal National Mortgage Association.

War Concern. A number of Wall Street's full-time professionals are also conservatively opting for bonds instead of stocks because they are concerned about the uncertainties of the war in Viet Nam and the troubles of the British economy (see WORLD BUSINESS). Standard & Poor's President Frederick Stahl goes so far as to say: "The reasons for the current market decline are at least two-thirds based on the foreign situation." Since the foreign situation is not apt to improve very soon, and since many investors will likely be tempted to settle for a good profit now, the market quite possibly may decline a bit farther. But the New York Stock Exchange reported after the market closed last week that short sales have fallen to a five-month low--a sign that the smart money does not expect the market to stay down for long.

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