FINANCE—PUBLIC AND- PRIVATE.
STOCKS MOVE IRREGULARLY.
INVESTMENT STOCKS REACT ACTIVITY EXTENDS ELSEWHERE—LOOKING AHEAD--CITY EQUIT- ABLE AFFAIRS—CONFIDENCE AND CAPITAL [To vie EDITOR OF THE " SPECTATOR."]
SIR,—The course of business on the Stock Exchange has altered a little and the cause of the change is interesting and suggestive. I referred last week to the •tendency for interest to shift from purely gilt-edged stocks to other directions, giving a slightly higher interest yield, and that is what seems to have happened during the past week. Gilt-edged securities have suffered a moderate but general reaction, while, on the other hand, activity in some other departments, including home and foreign rails and even oil shares, has increased, while a still more pronounced feature has been the demand for fresh issues of capital.
To see, as I did last Monday, long queues of stockbrokers' clerks and others extending from the offices of Messrs. Barings and Messrs. Schroders far into the street waiting for prospectuses to be given out of the • Paris, Lyons and Mediterranean issue was to fancy oneself back in the most " boom "-like periods of the pro-War days. Needless to say that the issue, which was for £5,000,000 and giving a yield, including redemption, of well over 7 per cent., was over-subscribed within a few hours, while on the previous day a loan for the Belfast Corporation for £1,000,000 and an issue of three-quarters of a million in Cumulative Preference shares in Peter Robinson were also greatly over-applied for. Nor, at the time of writing, is there any indication of a slackening of these demands for new capital: On the contrary, I expect to see some more French railways come here for considerable amounts and some other impor, taut foreign and domestic loans are impending The rumours include a City of Paris loan.
When to the fact of this rush of- new capital issues is added the circumstance that there have also been some indications of a slight stirthig in the dry bones of trade— which,, by the by, has been quite sufficient to occasion some journals to speak of the impending " boom " in trade—it. is not surprising_ that. the investor should -feel -a: little puzzled at the moment as to the probable course of markets. Indeed, more than one reader of the Spectator, has written asking me to state my views as to the probable course of the investment markets during the next few years. One correspondent raises the question in very definite and practical form in relation. to a particular situation, and while I must decline to adopt the role of prophet in anything so uncertain as the future of money rates or security. prices. I would like to offer one.or. two comments on the point he mentions, net only because itis raised obviously by a genuine investor but because -there is no doubt that it refers to a situation in which a goods many investors may be placed. * * * * Briefly the case is one where a person owning property with a mortgage upon it,, on which interest is paid at the- present time of 5 per. cent., has to face- the prospect of those terms of interest being varied some two years hence. Assuming for the moment that a person so placed is- possessed of Government loans such as the .5 per cent., War Loan, or National War Bonds, would he be well advised• in realising such securities now, or would he be well advised to wait until the time when the mortgage terms, might be revised ? Obviously in such a problem there are , two main considerations to be borne in mind; they are, however, very closely connected. One of them is concerned, with the probable value of money two years hence, for should there be some great permanent slump in money: rates there would, of course, be the possibility of mortgage interest rates falling proportionately.. The other is con- cerned with - the giestioia whether the advance in gilt- edged securities may not go much further, thus making -it . more profitable to wait at all events before selling. It will be seen, therefore, that in its essence the problem is- really concerned. with the whole question of the future, value of money and the general course of public securities.
Needless to say that it is impossible to express any confident view on> such: a -.matter two years ahead _of, time, and I can therefore -only say how I think the .proposition: would strike most thoughtful. observers. I think, that whatever may be the temporary in and out movements et money, and even assuming that beca.use of inactive trade) a further decline might .occurin the near future, the general- consensusoff.. opinion would be that two years hence; mortgage interest, which is usually fixed for a considerable. period ahead,.would probably. not show any material fall, and perhaps not, much variation from the present level.. Moreover, having regard to the enormous capital demands > no in . evidence, and the likelihood that ultimately. there will be a recovery in the economic conditions: of Europe,. leading .to a renewal of activity- hi international trade, .I cannot help -thinking than two years' time we may. see' trade sufficiently- active, to keep- money rates at, I will say, a healthily high level with securities- affected by those considerations; in other words, not_ at prices yielding an inordinately low, rate- of interest. On the other hand; and: especially bearing in mind the possibilities- of economy in National expenditure and a reduction in Income. Tax, the . City rightly or wrongly believes that in the comparatively near future gilt-edged securities, after suffering a temporary setback, may experience a further- moderate advance,. in. which case my correspondent and others similarly situated.. may consider-it-well to -utilise that opportunity-for realizing in order to:repay mortgage or any, other_ obligations where: the lender might elect to impose onerous terms on. the expiry of present agreements.
A fortnight ago I. had to .comment upon_ the unpleasant circumstances sturoimdingthe collapse ofthe City Equitable Fire. Insurance • Company; and. since then developments! have continued! to be _of a moat unsatisfactory hind,. the latest. being the deftaite.statement by the Officiid:Reoeiver,. to the effect that the immediate cause:of the: difficulties. of. the company was the highly speculative fmanoialdealings: entered into largely- by thecactand-under> the direction lot: the Company's chairman" Moreover; tire :Official Receiver: adds thee -further unpleasant statement that the balance- sheet as :at ,February 281131 last year " did, .not:-disclose tire; ;true position of: the company's affairs at that date." There are three points arising• out of this City Equitable business! which the City is, therefore, now 'taking considerably to 'heart. The first is that yet another example is added to the list of concerns where directors of high standing seem; to have been utterly unable to check the irregularities of one member of the Board, although by accepting a director-: ship they had. also accepted. joint responsibility. It may not always be a case of what is known as the actual " Guinea- ,pig " director, •but of .inen .wholly ill-fitted either by capabilities or temperament for holding responsible positions -as directors, but it is high time that the same or even ..greater care was 'exercised in appointments to directorships as to positions actually concerned with direct management. Again, as regards-the -Auditor's ceilicate of a year ago it is felt that a fuller explanation- is oalled for, because as a matter of fact the clause certifying the balance-sheet of an insurance-company is an -exceptionally severe one, and that clause signed' by the auditor appeared on the last published balance-sheet of the City .Equitable Fire Insurance Com- pany. Finally, remembering Mr. Bevan's aeroplane flight to France, and his subsequent journey to Italy, followed by the announcement of the issue of a warrant for arrest, the City, really...fails to understand why, in view of the rumours so freely circulated from the very moment that the troubles of the City Equitable Fire Insurance Company •were disclosed, these jeumeyings slrould.ever have been possible.
I am glad that some of the daily journals have directed attention to some common-sense remarks made by Mr. Henry Bell, the Managing Director of Lloyd's Bank, in the course of an address recently delivered to a gathering of accountants at Birmingham. Mr. Bell was dealing, amongst other matters, with the desirability of greater co-operation between Capital and Labour, and without entering into any grandiloquent schemes, he expressed in homely terms the belief that such co-operation, and a restoration of mutual confidence, was most likely to arise -from practical bankers and men of business being at the pains • to seek every possible opportunity for explaining to the workmen and to wage-earners generally the elemental ' truths 'of. economics. 'Why should not many of us, he said, " speak simply of the business we really understand to those—and there are many—who are only too glad to be told the truth of things by men who know-their subject." The Morning Post, which commented in warm- terms on Mr. Bell's remarks, said :— • " We know that at heart the working men of this country are sound to the core, but we know also that the agitator, and especially the foreign agitator, is abroad in the land, and through sheer lack of knowledge of the simple elements of economic truths our wage-earners have often been led astray, to their own and the country's disadvantage. Who should so enlighten Ahem as those who by their practical handling of business problems have far mom influence than the mere theorist, however able ? The eomplications of modern business organization, coincident with the extension of the joint stock principle, have done much to interrupt that free communication between employers and employed which characterized former years, but if co-operation between Capital and Labour is really to be secured it behoves 'the- former to endeavour to recapture the old spirit without -which there can be no return of the old. confidence."
'believe that it is now when Labour is showing a more reasonable attitude that Capital should seize the oppor- .tunity to anticipate. disaffection and Socialistic legislation by using every means, including those advocated byMr. Bell, for strengthening the relations between employers and employed.—I am, Sir, yours faithfully,
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