Building And Real Estate

Building and real estate activities are a fairly good index of the business conditions of a locality and of the country as a whole. Increased building operations in a city, which have not been stimulated as a result of a boom or to replace extraordinary fire losses, indicate prosperous business conditions. Increased activity in railroad building and supplies for railroads generally show prosperous conditions throughout the country. A great many of these tendencies are reflected in iron and steel statistics. The building statistics are, therefore, simply another method of reading the country's business conditions.

Business Failures

The number of business failures, together with the amount involved in the failures, indicates fairly accurately the business and money conditions of a country. A great many failures need not be discouraging to the investor. They may simply indicate that the top of a period of liquidation has been reached, On the other hand, too few failures may foretell disaster. In considering business failures as a guide such unnatural influences as the earthquake at San Francisco should be properly weighed in reading the figures.

Crops

The products of the soil are among the most important of our fundamental factors in forecasting business conditions, for upon our ability to produce commodities for our own uses and to sell for export, money conditions, foreign trade balances, and other factors are largely dependent The agricultural products which depend so largely upon climatic conditions are the most important factors in this connection. It is said that James J. Hill uses crop reports very extensively in determining upon his business ventures.

The most important crop reports are the monthly crop reports of the United States Government. Private institutions, such as banks and trade papers, frequently issue crop reports based either upon the government reports or upon their own investigations. These reports usually show the acreage of each class of products and the percentage standing of the crop at the given time. By means of these reports it is usually possible to tell in advance approximately what the wheat crop or the cotton crop of the country is going to be. These figures must, of course, be discounted by the crop conditions of similar products in foreign countries, when determining their influence upon security prices.

Gold Production

Throughout this book emphasis has been laid upon the influence of gold production upon commodity prices. From present indications no abnormally large increase in the annual production of gold is to be expected, and consequently the production of gold should not cause sudden fluctuation in the value of securities. However, should new discoveries be made, the intelligent investor will at once weigh the possible effects of such a discovery upon the trend of security prices.

Social And Political Conditions

Social and political conditions become very tangible factors in the general trend of security prices. War clouds at once affect prices. The pending or the enactment of a certain piece of legislation may have a wholesome or a depressing effect. A favorable court decision may advance affected stocks several points. A change in tariff policy always calls for some economic adjustment and therefore affects certain securities directly. With respect to all these movements the psychological factor has an important influence upon the trend of prices. A condition of fear and distrust decreases prices, while one of hope increases business activity and prices accordingly. When capital is timid the same effect is produced as when there is a great curtailment of capital. Even the uncertainties connected with elections are reflected in the trend which security prices follow.

A careful study of the foregoing factors will enable the intelligent observer to read the financial skies. He will not, of course, be infallible in his conclusions, but he will be given a degree of assurance sufficient to make them well worth while. In all cases the business man should bear in mind that any one of these factors observed alone is an uncertain guide, but when due allowance is made for the interaction of all of these forces, then business barometers become valuable steering charts in business affairs.

Business Barometers. Test Questions

1. What is the meaning of business barometers?

2. Name at least a dozen factors that may serve as valuable indexes to business conditions.

3. How does the course of commodity prices influence business conditions?

4. Explain in what way bank clearings are a guide to the business situation.

5. What do foreign trade statistics show with reference to business tendencies?

6. What precautions should be used in interpreting railroad statistics?

7. What is the relation of loans, deposits, and specie of banks to the general business situation?

8. Show how a business man may better adjust his credit relations by an understanding of banking conditions.

9. What do building statistics show in regard to the industrial situation at a given time?

10. What effect does the amount of gold production have upon the trend of security prices?