FINANCE-PUBLIC & PRIVATE;
By ARTHUR W. KIDDY.
MARKET OPTIMISM. [To the Editor of the SPECTATOR.] Sin,—During the past week developments in external political and financial affairs do not, to the ordinary eye at all events, appear to have been very favourable. The French advance into the Ruhr Valley increases almost daily the complications of the whole European situation. Near Eastern affairs remain a source of difficulty and perplexity, while the bright hopes of a few days ago concerning the progress of negotiations at Washington for the funding of the British Debt to America have suddenly become very seriously dimmed. Indeed, the latest advices are, to say the _least, discon- certing. Nevertheless, the Stock Markets continue to display something stronger than indifference to these developments, and while there has certainly been some pause m the activity and buoyancy which characterized dealings at the beginning of the week prices, especially in the gilt-edged section and in such speculative depart- ments as rubber sharei, have for the.thest part moved favourably. Even since the beginning of the year Consols have risen from 551 to 56 11-16, the Conversion Loan from 75 to 77, London, Midland and Scottish Railway Ordinary from 1081 to 107, and to turn from the Investment group to Speculative descriptions, some leading rubber shares have risen from 20 to 50 per cent. Inasmuch as I have no desire to play the unoriginal role of Skeleton at the Feast, I am not going to suggest that the firmness of markets may not be justified. Indeed, I pointed out last week that in addition to the factor of very cheap money, the very uncertainty and impairment of confidence occasioned by the political developments were tending to drive both foreign and domestic resources into the market for investment stocks. Moreover, the Volume of resources available for investment is very considerable, and quite apart from the rise in existing securities there has been an absorption of some few millions in new capital creations during the last two weeks, while at the time of writing a Dutch East Indies loan for 15,000,000 is being readily applied for and is to be followed by other important flotations, including a Colonial loan. Money cannot stand idle, and I am not disposed, at the moment, to challenge the view that the Security Markets may exhibit further improve- ment.
Nevertheless, I do suggest that the cheerfulness of the Stock Markets, with its addition (on paper at all events) to our liquid resources, should not be allowed to obscure the unfavourable features of the situation. Socially, politically and economically the need for a more settled peace in Europe is overwhelming. In our own country id particular the record figures of unemployment and the national finances alike cry out for a revival in inter- national trade—a revival, however, which cannot assume any important proportions so long as international political unrest is rampant. It had been greatly hoped that the arrangement of the terms for funding our debt to America would have been the first step towards the straightening out of Europe's economic tangle, as well as proving helpful to general co-operation between America and this country, and any delay in that matter is therefore in itself a matter which justifies the deepest concern. Moreover, is it impossible to disregard the state of affairs in Ireland, which, if continued, must constitute a menace to this country. These are points which should be fairly obvious, and It ,would be unnecessary to emphasize them if the pre- War financial barometers in the shape of a normal Money Market, an effective gold standard, and inter- national dealings in securities were in full working order. Such, however, is not the case, and while, in particular, the absence of an effective gold standard may for a time permit greater latitude in the matter of cheap money and credit expansion than would be possible under the automatic restrictions of a free gold market, there is unquestionably some danger of an insufficient apprecia- tion of unfavourable political and economic developments which would have been more clearly revealed under pre-War conditions and pre-War monetary systems. —I am, Sir, yours faithfully, P.S.—Since my letter was written, there has been a moderate reaction in sympathy with the fall in the Foreign Exchanges.
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