19 MAY 1923, Page 25




[T.o the Editor of the SPECTATOR.] Sha,;—Those who are desirous of discerning the trend of securities at the present time would do well not to over- emphasize either the depression which characterized the Stock Markets during the latter half of last week or the sharp rally which occurred on Tuesday and which is maintained up to the time of writing. In my last letter I dealt with some of the conflicting influences operating upon markets, and it is the literal truth to say that those who give closest heed to market prospects are those who would confess inability at the moment to take a decided view concerning the immediate outlook. What then, it may be asked, are the causes of the alternate depression and cheerfulness to which I have already referred ? Their recital may not go very far to clarify the outlook, but it is well to note them because they will doubtless contribute in due course to formulating condi- tions and opinions which will ultimately sway markets in one direction or another.

The main causes responsible for the reactionary tendency in prices, and especially in the Investment markets, may be said to have included the following influences :—(a) A recognition of the great extent of the rise already established ; (b) doubts as to whether in connexion with the rise an unwieldy speculative position might not have arisen ,(this second consideration was emphasized by the proximity of the fortnightly settle- ment) ; (c) a belief that the Ruhr crisis had entered upon an acute stage ; (d) the sudden announcement of an Indian loan for the unexpectedly large amount of 120,000,000 ; (e) indications of slightly firmer monetary rates ; (f) signs of forced sales arising out of the liquidation of some commercial and financial positions ; while finally, the fact that the fortnightly settlement on the Stock Exchange was to be immediately followed by the Whitsuntide holiday undoubtedly tended to stimulate realizations and restrict fresh purchases. So much for the causes responsible for the set-back in prices. For the recovery which commenced on Tuesday one main influence was responsible, namely, the fact that the fortnightly settlement, which commenced on that day, not only showed the speculative account open for the rise to be a small one, but revealed the existence of some moderate " bear " positions. That circumstance, together with the fact that apprehensions of the banks calling in loans were not realized, occasioned quite a sharp rally in many directions, the recovery being especially pro- nounced in the gilt-edged group. Neither, however, as regards the days of depression nor those of recovery were dealings on a. large scale, and it may be said that, on the whole, the experience of the week has been rather to demonstrate underlying strength in the markets, offers of stock during the dull days.. being pretty readily ab- sorbed, while prices proved very sensitive to any renewal of buying orders. It will be noted, however, that apart from the one circumstance of the fortnightly settlement revealing more stable market conditions than had been anticipated, the' other depressing factors I have enumerated may or may not have ceased to operate. It is, in fact, with regard to these, or with regard to some of them, that the best opinions in the City would at once confess to uncer- tainty, and the net result must, I think, be to restrict activity in securities for a time. Probably before this letter appears in print the result of the India loan will be known, and as soon as it becomes clear that the stock has been or is being absorbed by the investor, one of the temporary depressing factors in the gilt- edged market will have been relieved. As regards monetary conditions, it is difficult to discern signs of any change sufficiently radical to disturb markets in the immediate future, although, as I pointed out a fortnight ago, the chances of any great further capital appreciation in British Funds and kindred securities have been lessened by the extent of the rise already established.

(Continued on page 858.) Finally, it may be said that political factors both at home and abroad constitute the greatest element of uncer- tainty, and at the moment it is quite impossible to say whether they will shape in a direction tending to stimulate trade and industrial enterprise, and probably an upward movement in industrial securities, or whether they will prove to be of a character restraining activities in these directions, and through sheer lack of confidence and continued ease in money act as a force impelling the investor into gilt-edged securities. It is for clearer indications of the trend of developments in these directions that many are anxiously looking, and pending which they are for the moment restricting operations in stocks.—I am, Sir, yours faithfully,