Big Casino

Autumn has wrapped the stock market in a persistent chill. Seven weeks ago, on Sept. 25, the Dow-Jones industrial index of 30 blue-chip stocks climbed to a 1967 high of 943.08, climaxing a 27% rebound from its October 1966 low of 744.32. Since then, a triple threat to the U.S. economy--uneven corporate profits, early signs of a new money squeeze, and the stalemate between the President and Congress over raising taxes--has knocked stock prices for a loop. Though the industrial average rallied 6.19 points last week, to close at 862.81, it has still lost more than half of its 1967 gains.

In the face of that downturn, one of Wall Street's more perplexing puzzles is a new outbreak of speculation. As usual, the American Stock Exchange, home of many low-priced and volatile shares, unwillingly serves as the principal gambling casino. Its trading volume has swelled to record levels. So far this year, 975 million shares of stock have changed hands as against the previous full-year record of 690 million shares set in 1966. Last week the exchange predicted that annual volume will soon pass a billion shares for the first time in its 118-year history.

In the Basement. Delighted as they are by that burgeoning business, Amex officials are frankly concerned by the heavy concentration of activity in low-priced issues, which entice speculators because small gains mean hefty profits. Three weeks ago, when trading volume surged to a record 33,459,514 shares, the ten most active stocks sold for an average price of $5.69 a share. Seven of them were priced below $3 a share. Investors were clearly gambling in the bargain basement. Burma Mines Ltd., for example, with zinc properties that have long since been nationalized by the Burmese government, led the active list with a turnover of 3,614,500 shares. Even though the company's principal asset is an investment portfolio reported to be worth about 8-c- a share, Burma stock rose from 50-c- to $1.06 a share. Last week Siboney Corp., a money-losing manufacturer of asphalt for highways, led the active list; it gained 75-c-, to close at $3.63 a share. Both companies have professed ignorance of any solid reason for all the activity.

To stem the speculative tide, the American Exchange now spends half of its $12 million annual budget in an increasingly close watch over trading. Says Amex President Ralph S. Saul: "We must be alert to the problems of fraud and possible manipulations." Having helped to expose a scandal involving alleged price manipulation of several Amex issues earlier this year, Saul has also admonished the exchange's 583 member organizations to cool their customers' ardor. Last month the Amex reinforced that effort with phone calls to 50 big brokerage houses urging "the need for care and caution." Says Exchange Vice President H. Vernon Lee Jr.: "They share our concern. But in spite of all their efforts, they are having trouble persuading customers that there are serious risks involved in buying speculative issues."

Curbing Credit. Resorting to its penultimate weapon against speculative excesses, the Amex so far this year has banned credit purchases of the stock of 84 of its 1,000 listed companies. Such moves not only limit speculators by forcing them to use their own money but also sound a public warning that a stock has been gyrating unduly. At the end of last week, 18 companies still remained on the no-credit list--as against ten on the Big Board.

The Federal Reserve Board also acted last month to curb the flow of "excessive credit" into the market. Specifically, it proposed to extend its 70% margin requirement--the rule requiring investors to put up at least $70 of their own money for each $100 of stocks purchased--to such hitherto unregulated sources of credit to speculators as individuals, corporations with idle funds, partnerships and tax-exempt groups. The board also proposed to bring all other types of securities that are convertible into registered stocks under the same regulation. It can put the new rules into effect any time after Nov. 20. As far as the exchanges are concerned, that will be none too soon.

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