FINANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.] THE MARKET OUTLOOK. [To the Editor of the SPECTATOR.] SIR,—The month of May is not infrequently characterized by cheerfulness in securities as well as in the world of nature, and while many psychological reasons might be assigned for this phenomenon, the more practical point, perhaps, to be borne in mind is that on June 1st in each year more than £50,000,000 is disbursed in Government dividends. The Stock Exchange, which always antici- pates either favourable or unfavourable factors frequently, therefore, indulges in a preliminary canter in hoisting- prices in the gilt-edged section, relying upon the reinvestment of the dividend money in British Funds at the higher level of prices established. Immediately previous to the Easter holidays optimism certainly characterized most sections of the House, almost the only exception being South African mines, which are overshadowed for-the moment by the impending elections. How far this optimism will be justified by the course of prices during the next few weeks will probably be determined by certain political developments in the immediate future, chief amongst which, of course, will be the forthcoming Budget and the practical and definite acceptance or rejection of the Reparation Experts Com- mittees' Reports with which I dealt in the Spectator last week.
As usual, Budget secrets are being well guarded, and in some quarters that fact is now producing an impression in the City that Mr. Snowden's statement will be of the humdrum order. This, however, I should rather be inclined to doubt. If, for example, the Chancellor should make some important remissions on sugar or on tea, or upon both, the Budget could scarcely be called hum- drum, and if, in addition, there were to be some further contributions towards social reform schemes, it is difficult to see how the task could be accomplished either without some immediate addition to direct taxation in one form or another, or—as was the case when Mr. Asquith introduced Old Age Pensions many years ago—by the Budget being of a character involving apprehensions of a deficit to be dealt with at some later date. If there should be developments at all on these lines, the Budget may well prove a hindrance._ rather than a help to financial recuperation, for, in considering even. the possibility of any addition to direct taxation, however slight, it must not be forgotten that it is a reduction and not an addition to such taxation which the public has now the right to anticipate. If, however, on the other hand, it should be found that. Mr. Snowden's first Budget takes cognizance of the real facts of the situation and recognizes that relief of the direct taxpayer would react favourably upon the financial situation generally, and, further, that rigid economy is still urgently called for in the National Accounts, it is quite probable that the favourable conditions hoped for during the month of May would receive their first stimulus from relief concerning the Budget.
With regard to reparation developments, it is rather difficult to forecast in advance the effect likely to be produced upon the Stock Exchange. There is little doubt, however, that, if there were- to be a- definite acceptance by the Allies of the recommendations of the Experts Committees, and there were to be evinced on Germany's part determination to co-operate in carrying them out, the first effect on public securities would be good, for it would be recognized that a. most important step had been taken in the re-establishment of real peace in Europe, and it is likely that, starting from British Funds downwards,. prices would tend to harden. It is also believed, however, by very many that it would not be long before activity in the stock markets tended to drift from high-class investment securities to the more speculative departments and also to fresh capital issues. A real improvement in the international political situation would immediately stimulate trade, and, as a consequence, increased demands for money would probably become apparent both in the money market and in the shape of industrial capital flotations. Money rates might then tend to harden, and while that circum- stance should have no injurious effect upon public securities as a whole, it might conceivably affect high- class investment stocks where the yield to the investor at the present time is by no means a large one. Per contra, should disappointment once more arise as a result of a breakdown in the fresh reparation proposals, it is probable that the first effect would be to occasion a reaction in all securities on the Stock Exchange, but that ultimately stagnant trade and lack of confidence generally might again drive the investor into the gilt- edged market.
It would seem, therefore, to come to this : that thanks in part to the sound technical position of stock markets, the chances of any great fall in gilt-eged securities— always supposing that money does not become really stringent—are not very great, while the direction of activity in the near future seems likely to be determined by the two political factors I have referred to.—I am,
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