Animal, Vegetable, Mineral

Since February 1933, the general U. S. price level has risen 32%, cost of living 24%, prices of farm products 118%, wholesale prices 45%, Moody's index of spot prices of basic commodities 140%, prices of copper 188%, lead 115%, eggs 73%, flour 69%. Listing these figures and many others in the December Atlantic Monthly, Princeton Professor Edwin Walter Kemmerer commented: "That is inflation." Economist Kemmerer expects commodity prices to rise some 69% more and the cost of living to double. Nor is this a lone-wolf stand. Harvard's Professor Melvin Thomas Copeland made similar predictions last fall (TIME, Oct. 4). And 82% of the 2,560 ranking U. S. economists in the American Economic Association are on record that the present U. S. trend is toward dangerous inflation of money and credit.*

Back in 1933, in common with many another investor, a group of ultraconservative young men in Boston's Back Bay began to worry about possible inflation and how it would affect bond and stock values. After two years of quiet study, they decided that the only satisfactory hedge against inflation is commodities. Accordingly, in February 1935 they set up what they believe to be the first commodity investment trust in the world, called it Commodity Corp. Last week, after two years of "laboratory testing" in Boston, Commodity Corp. moved to Wall Street with assets of nearly half a million dollars in its coffers and big plans in its brief case.

Investment trusts of the run-of-the-mill variety are conspicuous enough to have SEC brewing plans to regulate them. Most consist simply of a pool of money kittied in by numerous individuals and invested in a broadly diversified number of stocks and bonds. Advantage for the individual is that his eggs are not all in one basket. Instead of putting his money on one or two stocks, he is banking on the combined action of a great number. Commodity Corp. uses the same procedure, but instead of buying stocks and bonds, it buys actual commodities or commodity future contracts. On December 31, 35% of its portfolio was in the warehouse, 65% in futures. It had future contracts to buy or sell in cocoa, copper, corn, cotton, hides, oats, rubber, sugar, wheat, wool and pepper. In the warehouse it held cocoa (179,482 lb.), lead (659,836 lb.), pepper (785,600 lb.), rubber (67,036 lb.), sugar (1,344,000 lb.), wool (51,751 lb.) and zinc (120,046 lb.). An investor who held 2% of Commodity Corp.'s outstanding shares on December 31 thus owned 2% less costs of each of these tangible properties, could sell out at liquidating value whenever he desired. If such a stockholder can find no buyer on the open market, Commodity Corp. is committed to buying back his shares. Major investing difference from a securities investment trust is that commodities do not pay dividends.

But the founders and investors of Commodity Corp. are not in search of dividends. Confirmed pessimists all, they are waiting for the inflation which economists predict. It may take ten years coming, but Commodity Corp. is perfectly willing to wait. As evidence of its wisdom it points to inflationary history in European nations. In France, for example, while the value of money in percentage of original gold money fell from 100 in 1913 to 16 1/2 in 1926, common stock prices rose from 100 to 233, but commodity prices rose from 100 to 695. Commodities thus showed a far greater speculative differential than common stocks. Even more significant from Commodity Corp.'s point of view, while all prices were rising, French common stock purchasing power fell from 100 in 1913 to 33 1/2 in 1926 while commodity purchasing power stayed at 100. In short, a pound of copper is a pound of copper no matter what the monetary situation may be.

A pound of copper, however, may prove an embarrassing thing to store for years, because warehouse charges total about $144 a year for 60,000 pounds. Buying futures avoids storage charges but involves frequent commissions, because no future contract is for longer than a year. To counteract these two difficulties, Commodity Corp. shifts its portfolio fairly frequently, taking advantage of arbitrage and of the spreads between near and far future contract prices. This has enabled it to pay dividends per share of $2 in 1936, 90-c- in 1937 (when outstanding shares had doubled). In general the company tries to keep an even balance between animal, vegetable & mineral commodities and between foreign and domestic ones. It is one of the largest U. S. holders of pepper.

President of Commodity Corp. is 35-year-old John Babcock Howard, who would have fitted well in the Boston of 1630, for he neither smokes nor drinks, eats an apple and retires at ten every night, rises regularly at six every morning. Mr. Howard used to be with F. S. Moseley & Co. His associates came from such solid firms as Scudder, Stevens & Clark, Jackson & Curtis, Francis & Co. Of the original capitalization of 200,000 shares, Back Bay residents bought $117,000 worth in 1935 and 1936 at from $28 to $33 a share. Price rose to $38 and in February 1937 the management declared a 100% stock dividend before selling $500,000 worth of stock at from $11 to $19 a share. Several investors presently got out, taking $125,000 with them, and the crack in commodity prices last spring cost the corporation almost $125,000, leaving it net assets of some $400,000 last week. Setting up his New York office last week as preparation for selling at least a million this year in Commodity Corp. stocK current price: $12), Vice President Hal Lee Hastened to point out that this depreciation is, ess than that suffered by the stockmarket.

* Professor Kemmerer's reasons include dollar devaluation, excessive silver buying, the Government's cheap money policy, heavy Govern-ment deficit and borrowing, hot money, heavy excess bank reserves, possible increase in bank-deposit circulation. This week came a further inflationary event when the Treasury revised its gold-sterilization policy so that only gold entering the U. S. in quantities larger than $100,-000,000 in any one quarter will be sterilized in the future. This meant the immediate release into the U. S. credit structure of the $30,000,000 in gold already received from abroad in the present quarter.

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