Finance—Public & Private
Problems for the Investor
THE lot of the investor at the present time is certainly not a happy one. If he elects to pursue the motto of "safety first" and resorts to British Funds and the best class of trustee securities, he finds it hard to obtain an adequate income. Moreover, having regard to the present high level of gilt-edged stocks, the investor may even be harassed by some doubts as to whether" safety first applies to capital as Well as to income, for admittedly many of the influences at present keeping up gilt-edged stocks are abnormal in character, and inasmuch as these same influences have been responsible for the joint stock banks holding more than double their usual total of Government securities, the• investor may well wonder whether any turn in the monetary situation 'might not involve considerable sales by those institutions. There is still a further circumstance which might well cause some perturbation in the minds of holders of high-class securities, namely, the tendency for the law of sanctity of contracts being invaded by considerations of expediency. At the present moment, for example, vast numbers of American and foreign holders of U.S. Gold Bonds are finding that their claim to demand payment of principal and interest on their securities on a strictly gold basis has been ruthlessly set aside by the present U.S. Administration. The only justification offered is that it is in the interests of the United States as a whole that commodity prices should rise, that inflation is necessary to secure this advance, and that to carry out in untrammelled fashion a policy of inflation, abandonment of the gold standard and repudiation of the gold clauses in bond obligations are necessary. Yet, both as regards these repudiation clauses in Anierica and as regards the low yields offered at the present time here on gilt-edged securities, rentiers are told by Governments and economists alike that the situation is one calling for a considerable rise in commodity prices with a probable increase in the cost of living. The prospect for the investor, therefore, as I have already said, is not a cheering one. TI cannot, however, believe that this ruthless setting aside of contracts can in the long run be helpful to a solution of the problem of world depression. It makes for a further impairment of public confidence, and it is want of confidence which lies at the very root of industrial and financial depression.
RISE IN COMMODITIES.
During the past week the -perplexities of the investor must have been increased by observing the tendency for gilt-edged stocks to react a little and for the more speculative markets to advance. The movement has been connected with the very considerable rise which has taken place in prices of some of the leading com- modities such as wheat, cotton; rubber, tin, copper, &c., the idea being that this advance may be the forerunner of an increase in trade activity, for, as has already been stated, the doctrine has been proclaimed for some time past that a rise in commodity prices must precede a trade revival. Nor have there been entirely lacking some indications of improved conditions here and elsewhere. English railway traffics have been a trifle better, and, although still above the level of a year ago, the -figures during the past few weeks of unemployment in this country have been rather better.
THE " USES " OF INFLATION. - Now let it at once be admitted that this rise in com- modity prices can be connected directly with the infla- tionary policy of the United States, and it can further be admitted that a rise in_ commodities, if continued, be the cause what it may, undoubtedly has a tendency to set certain forces in motion. Thus, for example, if the -rise in the price of the principal commodities exported by countries such as Argentina and Brazil should advance, then the advantage secureir_bi those countries is not limited merely to the more favourable_ trade balance resulting, for there ensues, or should ensue, a greater - freedom in the exchanges of Argentina and Brazil which, in its turn, should facilitate trading with those countries.
In consequence, therefOre, of this recent rise in com, modifies and the possibility of its continuance, there has been considerable dismission whether we are at the beginnings of conditions making for a trade revival so that the investor is more likely to find satisfaction from the purchase of industrial shares and, indeed, the shares Of any concern likely to be favoured by a trade revival, than from a continued purchase of gilt-edged securities.
AN OBSCLTRE OUTLOOK.
At this point it will, no doubt, be expected that I should indicate the most probable trend of events, but this, excepting within very narrow limits, I find myself unable to do, for at the moment the chances seem to be very evenly balanced and no better indication, perhaps, could be given of the uncertainty which prevails with regard to the outlook than- the fact that not a few holders of capital—mostly, it is true, hailing from abroad—have fallen back upon actual purchases of gold as the only way out of their perplexities. Not that I consider they have found a solution of their difficulties in the purchase of gold, for while there may be excellent reason for believing that gold will continue for many generations to have a special monetary value by reason of a return by all countries to the gold standard, it is quite another matter whether future prices of the metal will justify the quota- tions of to-day. - -
THE COMING CONFERENCE.
Where, however, I consider it is for the moment unsafe to trust too much to the recent rise in prices of com- modities as a guide to the future is that so far the advance has been based upon speculative buying, and although the action taken by the United States with regard to gold may conceivably have the effect of increasing the desire on the part of all countries to re-establish gold standards and effect a stabilization of currencies, the 'attitud of the United States as a whole, and especially of Congress, to some of the knotty problems which have to be solved, and especially the knotty problem of War Debts, scarcely promises well for the composing of differences at the Conference, and especially for a speedy agreement on such vital matters as the basis of devaluation of cur- rencies to be adopted by the leading countries. In the United States there is a disposition to imagine that it is possible to secure an early return not only to the pre-War level of prosperity and of standards of living but to the conditions which prevailed in America during the years from 1922 to 1929, when industrial and financial activities and the standards of living anticipated conditions of prosperity which are not likely to be attained for a very
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