FINANCE AND INVESTMENT
By CUSTOS So great is the City's faith in the Treasury's power to implement the policy of cheap money that Mr. Dalton's latest manoeuvre has fallen rather flat in the City. Admittedly, the Government is estab- lishing 2 per cent. as the basis for medium long-term borrowing, but the cheap money enthusiasts had been confidently predicting that a new 21 per cent. loan would be issued with a life of some- thing between 25 and 3o years. It is readily understandable, in the circumstances, that 21 per cent. Consols, which have been the sub- ject of a good deal of speculation in recent months, should have fallen back, and that holders of the 3 per cent. Savings Bonds should have seen fit to cash in the handsome premium over par in order to put themselves in funds for reinvesting in the new issue.
Those were the immediate technical reactions to Mr. Dalton's announcement, and need not be taken as the market's final judge- ment. It is important to keep in mind that at long last a Chancellor of the Exchequer, who has gone out of his way to express his in- difference to an expansion of the floating debt, has taken a first modest step on the path of funding. Instead of offering holders of the £490,000,000 of 2i per cent. National War Bonds, 1946-48, a new short-dated security, such as II per cent. Exchequer Bonds, he has chosen to tread the path of orthodoxy in presenting them with an option to take up the new 24- per cent. Savings Bonds with an average life of about 20 years. I do not pretend to know the tactics of this move, but it will be surprising if, after the first re- actions, the market does not move into higher ground. The mere reopening of the tap should not be taken too seriously, especially since the official hint has been dropped that the new bonds will not be on sale for long. If the " bulls " have been disappointed that the Treasury has for once decided not to drag the market upward by the scruff of its neck, the odds are still in favour of a gradual improvement.
DUNLOP RESULTS
That the market as a whole has not interpreted the latest Govgrn- ment announcement in a genuinely " bearish " sense may be judged from the fact, that prices of first-class fixed interest stocks and of leading industrial Ordinary shares are still moving up under the pressure of investment demand. The discrepancy between yield; on first-class industrials and gilt-edged is still quite wide. Stock market values are, in fact, inflationary, and so long as the Govern- ment is prepared to allow producers outside the rigidly controlled area to pass on higher costs to consumers through higher prices there will be a solid basis for rising quotations of equity shares on the Stock Exchange. Latest among the large-scale industrial undertakings to announce a higher Ordinary distribution is the Dunlop Rubber Company, which is paying 12 per cent., including a 2 per cent. cash bonus, against to per cent. for 1944. Distributable profits have been influenced favourably by the incidence of taxation, but there can be little doubt that in present conditions this group should be able to earn satisfactory profits. Moreover, the 4 per cent. Debenture stock can be replaced by a lower-rated issue now that Mr. Dalton has seen fit to relax the ban on the conversion of securities bearing interest at 4 per cent. or less.
PROPERTY SHARE UNDER PAR Some few weeks ago I called attention to the-long-term merits of the £I Ordinary shares of Associated London Properties. The market quotation was then around 16s. 9d., and in the meantime there has been a modest improvement to i8s. 9d. At today's level I still regard these shares as very moderately valued, in that con- ditions are steadily improving for this type of company. Preference dividend arrears involve a net sum of about £100,000, but for the year to June 24, 1945, the company carried forward £140,283. Last November one year's dividend was declared on the First Preference stock, and there will be no surprise in the market if a further sub- stantial payment is made in the near future. This company's mort- gages have been refinanced on an economical basis and, as mar readily be imagined, the gross rental position is improving. The properties include Westminster Gardens and Marsham Court and Grosvenor Millbank Estates. Once the Preference arrears have been cleared off, the way will be open for a resumption of Ordinary dividends, which before the war ranged up to 6 per cent. For the year to June 24, 1945, earnings on the Ordinary capital, after allowing for one year's Preference dividend, were as high as 0.6 per cent. For investors who are prepared to be patient, the Li Ordinary shares, now standing below par, should turn out well both for income and for capital appreciation_
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