FINANCE—PUBLIC AND PRIVATE.

CREATING AN ATMOSPHERE.

BUOYANT MARKETS—RISE IN INVESTMENT STOCKS— THE NEW TREASURY BONDS—POLITICAL FACTORS —THE IRISH "PEACE "—" THE COMDTG BOOM "

LTo THE EDITOR OP Mg Sercrieros."3 SIR,—Not for the first time the closing weeks of the year on the Stock Excha-nge are being characterized by con- siderable optimism. ?he occasions are few when, however unpleasant may have been the experiences of the year drawingto a close, hopefulness fails to prevail with regard to better things in the New Year." Not infrequently this hopefulness is based on sentiment rather than on any particular reasoning, but there is one feature of post-War conditions which undoubtedly tends to emphasize the December cheerfulness of markets. In the pre-War days December was usually characterized by a certain amount of money stringency incidental to the end of the year, and anticipations of easier conditions in January, following the disbursement of the quarterly dividends on the Funds, were among the influences stimulating an upward move- ment in investment securities. In those days the civarterly Government dividends due on January 5th only involved a distribution of something like 16,000,000 ; but the prospect of their reinvestment was regarded as a sufficient reason for putting up investment stocks. Nowadays the dividend on the Five per cent. War Loan on December 1st involves in itself a distribution of nearly £53,000,000, and it will be seen, therefore, that quite apart from "end of the year hopefulness " the reinvestment of a portion of this large sum may well have a stimulating effect upon the investment markets. How considerable has been the rise in investment stocks during the past week alone may be gathered from the following brief table, while the outer column, will show the appreciation which has taken place since the beginning of the present year :— Nov. 30,

Dec. 7,

Jan. la

1921. 1921. 1921, Console 491 ..

441

31% Conversion Loan .. 63f ..

85

5% War Loan .. .. 89* .. 83 4% Funding Loan .. 73f .. 73f .. 761 Local Loans .. 531 .. 541 .. 501

Irish Land

.. 49 .. 49 .. 45f

The al per cent. Conversion Loan was not quoted at the beginning of the year, but it may be noted that the first dealings in the stock were on the basis of about 621, practi- cally representing the terms on which holders of the short term bonds were allowed to convert.

* * * Among other influences which have favourably affeeten the investment markets during the past week must be included the announcement of the terms of the new series of 51 per cent. Treasury Bonds. The old series, which had been offered at the price of 98, were withdrawn on November 30th, and there was considerable speculation as to whether the Government would be able to make its price for the new bonds a full 1 per cent. higher than in the case of the previous series. When the official announce- ment was made it was seen that not only had the Govern- ment fixed the price 1 per cent. higher at 99, but that the new bonds did not carry the option rights which attached to the former series to convert into the 31 per cent. Con- version Loan. Consequently, the effect of the new issue was good on all Government stocks and upon the Con- version Loan in particular. The Government undoubtedly acted wisely in no longer continuing the offer of these option rights, for in view of the large number of short term bonds carrying that privilege, it was felt that an influence was at work likely to keep down the price of the 3.1 per cent. Loan. * * * * But, while the release of Government dividends and the terms of the new Treasury Bond issue have stimulated investment stocks, still more potent influences affecting all markets have been furnished by the creation of what must be described as a more cheerful atmosphere in every- thing pertaining to the political and financial outlook. Acute anxiety with regard to the fall in the mark, and Germany's financial position, has given place to general discussion as to moratorium arrangements in the matter of Reparation payments, and the mark itself has rallied appreciably. At Washington, events have apparently taken a favourable course, and grave apprehensions with regard to problems in the Pacific have been lessened by assurances that America, this country and Japan have agreed upon a common policy. And, finally, as though to complete the week of good happenings, we have had the Government dispelling our alarms concerning the Irish crisis by the somewhat melodramatic announcement in the small hours of the morning that an agreement has been reached with Sinn Fein and that pease in Ireland is assured. * * Small wonder that amidst influences such as these markets should have responded, and it is not only in the gilt-edged section that prices have advanced. English Railways and some of the speculative markets, such as Oil and Mining shares, have also advanced. I referred a week ago in this column to the more favourable rumours as to dividend prospects in the case of the leading Oil com- panies, and these rumours have since been confirmed by the declaration of satisfactory cash dividends both by the Shell Transport Company and the Royal Dutch. The Mining market has also been favourably affected by better news as to the labour situation on the Rand, and while the annual reports of leading industrial companies continue to furnish a melancholy record of the effect of the pro- longed trade depression, some of the leading industrial shares have rallied a little on hopes of some slight improvement in trade. * * * * With regard to most of the foregoing remarks, it may be well, perhaps, that you should note the date of my letter, because it shows that I am commenting upon markets which are experiencing the first effects of these favourable developments to which I have referred, but concerning which there may in the near future be some modification. I hope, therefore, you will not think that I want unnecessarily to strike a jarring note if I suggest the desirability of some caution in weighing the pros and eons of the financial situation at the present moment. If the final outcome of the Washington Con- ference is the establishment of firmer peace relations between the nations, accompanied by a reduction in costly naval and military expenditure, the final effect for good upon the financial situation cannot be overrated. If the dismission concerning German Reparation payments should result in a better understanding between the nations as a whole in everything that pertains to the financial recuperation of Europe the effect can also scarcely be over-estimated. While, finally, if the feud, not only between Ireland and this country, but between,U1ster and the South, is ended by the proposed new arrange- ments, a great cause of anxiety will have been removed.

On all these matters, however, the more thoughtfully disposed in the City believe that the occasion is one when it would be well that hope should be tempered by sobriety. There is far too great a tendency nowadays to go to ex- tremes in all matters affecting public sentiment, while the gramophone character of a large section of the Press in praising Government measures is not altogether a favourable symptom. As regards German Reparation payments, for example, it is rather difficult to see why many journals, which but a few months ago were assert- ing that Germany could easily pay the whole of the Reparation payments, should suddenly come to the con- clusion that she must be released from all such obligations for a period of years. If it can be proved—and the question is one of facts and figures—that Germany is unable to meet the maximum demands of the Allies in the immediate future, there is no need why she should not pay as much as possible, leaving the balance to be deferred until a later date ! Moreover, as was ably demonstrated by Sir Henry Strakosch, in a letter recently addressed to the Times, there are other ways of meeting Germany's difficulties than by consenting to a moratorium. Sir Henry Strakosch suggested that large payments in the shape of supplying the Allies with these products of German labour such as parts of machinery, etc., most calculated to aid the actual productive activities of the Allies, might well be substituted for cash payments, which can only take the form of colossal exports of manufactured goods from Germany at cutting prices.

* * • This same tendency to settle economic problems by working up a kind of artificial atmosphere is also seen in the endeavours in many quarters to engineer not so much a revival of trade—if that were possible—as a kind of simultaneous commercial, financial and Stock Exchange boom all at the same time. Thus to-day, for example, we have the Daily Express, under the lead of Lord Beaver- brook, hailing the provisional settlement of the Irish crisis as heralding the Coming of the boom." The Express olamours for an immediate reduction in the Bank Rate and a fall in taxation. Both of these developments may be desirable, but I suggest that the real point is to strive for those conditions which will justify such developments. Severe economy in national expenditure must precede the power to remit taxation, while this very wild talk about ' coming booms " constitutes just the reason why mone- tary authorities must hesitate before taking any steps likely to give an impetus to pure speculation. What, of course, the country needs above everything is a revival in trade activity, but if that is secured it will mean that the demands upon credit for financing it will be large, and a simultaneous boom in trade and in securities is most unlikely. Moreover, I think that if a real " boom " in stocks were to be successfully engineered and to go far, the chances of a trade revival would proportionately recede.—I am, Sir, yours faithfully, The City, December 7th. ARTHUR W. KIDDY.