12 SEPTEMBER 1946, Page 22

FINAN,_g AND INVESTMENT

By CUSTOS

Wrrilout wishing to advocate anytiling but a cautious investment policy—I do not think this is a time to be fully invested—I am im- pressed by the behaViour of the London market. Prices; admittedly, have fallen, but taking leading industrialists, by only about 3 per cent, and not for a long time have they had to resist such a powerful downward lead from New York. London has, in fact, refused to accept the alarmist fie w that Wall Street's slump is pointing the way tO a prolonged period of depression in American business and accordingly has kept its nerve. In these matters it is foolish to be dogmatic but I, for one,.am not looking for another crash on the 1929 model either in New York or here. While I am prepared to see Wall Street follow an erratic course over the next few weeks and for an appropriate restraint among investors and speculators on this side, I see no reason for jettisoning good stocks-at these levels.

NEW SAVINGS TERMS

In sharp and significant contrast with the uncertain 'behaviour of the so-called sPectilative markets- gilt-edged stocks are Maintaining a firm front. To some extent safety-first investments benefit when- ever the "counter-attractions of equity shares are diminished, and there can be no-doubt that during the past fanlight there has been some switching of money from industrial and mining shares into the fixed interest field.: It is also true, however, that the firmness of gilt-edged-reflects the continued confidence of investors in official cheap money policy. The latest move, which takes the forin of a Treasury announcement of 'a new issue of National Savings Certi- ficates to replace the present 15s. issue after the end of next March, is calculated to provide- a fresh stimulus for savings and for gilt-

edged stocks. .

The technique adopted is the now familiar one of forecasting a further turn of the cheap-money screw without letting investors know just how far the screw will be turned. At the same time the maximum limit of individual holdings of certificates is to be increased, so that Mr.. Dalton is obviously hoping for some substantial improve- ment on the current level of " small " savings. Some little time ago he replaced the 3 per cent. Defence Bonds by a 2+ per cent, issue and it now only remains to make some downward adjustment in the rate of interest on Post Office deposit accounts to bring the interest on the " small " savings media into line with the yields obtainable on gilt-edged stocks. Meantime, the market can scarcely fail-to ignore the fact that Mr. Dalton has dug his- -toes in and is as:determined as

ever to intensify the cheap money drive. • PEARSON AND KNOWLES . POSITION

On several occasions in the past twelve months- I have dealt with the position and prospect of the Pearson and Knowles Coal and Iron Company. The, full accounts covering the year' ta- June 30th, 1946, amply justify my recommendations of the three classes of Preference shares, all of which are now receiving their full 6. per cent. dividend. In his survey the chairman indicates that the directors hope to be able to maintain these dividends until such time as liquidation of the company becomes praCticable., A year or two ago it looked as if Pearson and Knowles, which is purely a holding company, would be able to go into liquidation 'and pay out its'share- holders at 20s. in the £: Unfortunately, market conditions did not favour a sale of the Lancashire Steel Ordinary or the Wigan Coal Corporation " Ordinary shares, and in consequence the company will now remain in being until at least the Wigan Coal Corporation passes into public ownership. When that happens Pearson and Knowles should become possessed of something like £200,000 in Government stock. which would be marketable for liquidation purposes. There would remain the 647,67o £r Ordinary shares in Lancashire Steel, which at to-day's price are worth about £760,000. Unless the'steel industry is also nationalised a deal would have to be put through in thiS large block of stock to enable Pearson and Knowles to make a cash distribution, but there is the alternative that the Lancashire Steel share's might be distributed in specie and subsequently held . as investments by Pearson and Knowles share- holders or sold on :the market.

As I have previously pointed out, all three classes of Pearson and

Knowles 6 per cent. Preference shares are attractive; especially in present conditions of uncertainty. Quoted around their par value they offer a buyer a yield of 6-per cent. which should be forthcoming until liquidation is practicable, while, in the event of winding-uP, they should all receive 20S. in the £. There' is not a very free market in any of the three classes of Preference shares, but if the -opportunity, occurs to buy at or 'below par it should certainly be taken. -