Document g20Z5y61xxK45qkqyw3Re8bV

"The Best New Broom Five times in the last two decades investors took a shellacking from the effects of tight-money policies car ried out, in the interest of combating inflationary trends, by the Federal Re serve Board under the chairmanship of William McChesney Martin. Mr. Martin's era has now come to an end, and today Arthur F. Burns takes over his post at the Fed. Mr. Burns prob ably is, in principle, no less conserva tive than his predecessor. But there are reasons to believe that under his leadership the techniques whereby the Federal Reserve executes monetary policy may, before too long, take a radical new departure. In recent years, more and more economists have come round to the view that the way in which the Fed has gone about implementing policy has had unduly destabilizing conse quences for the economy, because it tended to promote rather than avoid excessively inflationary growth of the money supply, which then had to be squeezed out by perhaps unnecessari ly painful deflationary strategies. The trouble stems from the fact that the central bank has been carrying out policy decisions mainly by trying to influence money-market conditions through the manipulation of short term interest rates and control of re serve availability for commercial banks. Studies indicate that tech niques designed to manage moneymarket conditions cannot also effec tively control changes in the money supply, in fact that such techniques risk a downright loss of control over the rate of money growth. There is, the monetarists suggest, some hope of managing either interest rates or the money stock, but not both; and since interest rates are an unreliable in dicator of monetary policy anyway, the Fed would do better to concentrate on trying to control the money supply and related monetary aggregates di rectly, while letting interest rates find their own level in an otherwise free money market. Two governors of the Federal Re serve Board, Messrs. Maisel and Mitch ell, are on record as favoring just such a change in money management technique, and the new board chair- Mr. Shulz is a partner in tire New York Stock Ex change firm of Abraham & Co. man reportedly is inclined to agree. One more convert would give the monetarist school of thought a sym pathetic majority on the Federal Re serve's seven-man board. Since the chairman's opinion may carry extra weight, this may now be more a probability than a possibility. Benefiting Stock Prices A prospect that the Fed will focus on managing the monetary aggre gates and let short-term interest rates "float" has some interesting implica tions for investors. For one thing, it should mean that the official "line" would de-emphasize the importance of interest rates as indicators of policy. For another, because the next policy shift almo . certainly will be toward less severe restraint, short-term rates could be expected to fall more sharp ly in a free money market than they would if the hitherto prevailing tech nique of manipulating money-market conditions remained in effect. This could scarcely help benefiting com mon stock prices. Longer range, un pegged short-term rates could add a new price risk to media, such as Treasury bills and commercial paper, in which investors traditionally have sought shelter from the threat of a falling stock market; the result could be a greater degree of stability for stock prices as investors thought twice about moving from equities into short-term debt instruments. No less important, if the monetary aggregates replace interest rates as "official" policy indicators, the fact that some of them rose in last year's fourth quarter from extreme-restraint lows in October could take on new significance. As this column suggested two weeks ago, business statistics ap pearing this quarter are likely to fur nish the money managers with enough no-growth evidence to warrant some relaxation of the monetary stringency. Since major aggregates are already well above their tight-money lows of three or four months ago, no great shift toward ease in new techniques of managing the money supply direct ly would be needed to make a trend of revived money growth clearly vis ible to all. Reassurance on this score might do more than anything else to bolster stock-market confidence. in the Business?" That's a reputation that anybody in our business would cherish. After all, there are just about 550 different member firms of the New York Stock Exchange that any in vestor can choose from; 550 different firms with roughly 4,000 offices and 45,000 Account Executives who would probably all be delighted to handle your account. Which firm should you pick? We think ours. ' Why? Well, we have a -12-page pamphlet called "Directing Your At tention to Reynolds & Co." that should go a long way to ward convincing even the greatest skeptic. It tells you just who we are and what we stand for-- details all of the facilities, services, and help we can offer any individual or institutional investor. You can read it in ten minutes. Ten minutes that might turn out to be the most profitable long term in vestment you ever made. If you're willing to take those ten minutes, we're more than willing to see that you get a complimentary copy. Just call, stop in at our office, or mail this coupon. Please mail me a free copy of Directing your attention to Reynolds & Co. Name Address State City Zip Telephone Reynolds & Co. ^ MEMBERS NEW YORK STOCK EXCHANGE AND OTHER LEADING EXCHANGES 120 Broadway, N. Y. 10003 Offices Coast to Coast FORBES, FEBRUARY 1. 1970 DSW 552174 59 STLCOPCB4090591