FINANCE -P HMO AND PRIVATE
THE INVESTMENT- OTTLOOK HY Attlinrit W. lan- WY_ A WELL-KNOWN economist writing recently' in one of the Sunday papers regarded the poor response Which was made to the recent issue Of:two Trades Yaciliti4 Loans guaran- . teed by the Government as reflecting a decline which had taken place in Government credit, In all fairness, how- ever, I think that this particular statement must be challenged, The 'result-probably would hitve been just the same if the-Loans had been in the form of a Colonial issue or a First Debenture of the finest industrial under- • taking, always assuming that the_ Priceliad not been made sufficiently attractive., At the _present moment the position of the market for gilt-edged securities is a some- what peculiar one. -So fir as -the general public is con- . cerned the. demand is strictly limited; preference at the • moment being given to stocks with a reasonably good security giving a fairly high yield. The big trusts and . insurance companies, are constant buyers of gilt-edged stocks, but, being experts in the matter, unless the terms . of issue are extraordinarily attractive, they prefer just . now to await the chance of purchasing at a discount, and it is in times like these when the public' demand is some- . what limited that the chances of absorption at a discount after the lists are closed are greatest. It is that fact rather than a reflection upon the National Credit which was • implied in the recent failure of the two Trades Facilities Loans guaranteed by the Government.
IMPORTANT ASPECT OF ECONOMY.
• It is only, however, because, in common with so many others who read with. appreciation Mr. Harold Cox's articles, I am completely in accord with all that has been written by him concerning the need for economy in the National Expenditure that, in my desire, to empha- size, however poorly, his strong words of warning with regard to the National Finances, I have thought it well .to deal with the one small point which those .in the City who have read his article Might be inelined to challenge. Last week I dealt with the disappointment felt by the City with regard to the economies so far effected by the Government because of the deferment of taxpayers' hopes of any early remission, but there is also another aspect of the question which I venture to think makes the need not only for economy, but for immediate economy, the more imperative.
PROSPECTS OF CONVERSIONS.
Among the many reasons which might be offered for the comparative steadiness of British Funds under somewhat adverse conditions there would undoubtedly have to be included the vague impression that the Govern- ment will endeavour to put forward favourable conversion schemes. Only during next year, for example, the Government has Debt maturing to the extent of con- siderably over 300 millions, and it is not usual to defer conversion schemes until the eve of maturity of the old loans. ,Moreover, it is further, recognized that one of the chief 'hives of the 'taxpayer in the future lieS in the prOSpect of the GOvernment being able to convert a large portion of its gigantic War debt into a security giving a lower rate of interest. Recognizing . that patent fact, the market is sometimes disposed to take the view that in some kind of undefined fashion the Government will " make " circumstances favourable to . such conversion. Sometimes this idea affects views about the future of money, and we are told that the Governinent is likely ,to make monetary conditions easy to aid a conversion scheme. Similarly, in considering the course of investment stocks, ' it is said that prices are not likely to be ". allowed 7 to slip . back or that.prices will: be raised because the Government will want to get, them up for conversion scheme. : I suggest, . however, that this view, :both as regards the course of money rates and of investment securities, 'leaves out one or two practical considerationS1 As regards the course of money rates, for example, no Government clan be master of the situation, which must be governed by the economic position of the country in relation to other countries, which, in turn, will produce favourable or unfavourable exchanges, with the inevitable influx or efflux of gold. Then, as regards the course of investment stocks, not only are they likely to be governed by monetary conditions, which, as I have said, are rather beyond the control—other than that of a most temporary character— of Governments, but not all the manipulations in the world will aid an upward movement in British Government stocks if the National Credit in the meantime is adversely affected by extravagance in the National Expenditure.
'FINANCE V. `,` POLITICS."
While, however, there can be no question that--the interests of the country demand lower taxation, and while it is clear that only by economies in expenditure will the Government obtain those conditions rendering possible conversion schemes for making further economies in the debt service, it apparently does not follow that the economies will necessarily be effected. Confronted on the one hand with the general demands for lower taxation and on the other hand by large and well-organized sections demanding an addition to rather than a subtraction from the amounts devoted annually to social outlays, the Government, so far, appears disposed to accede to the latter demand at the expense of the former. Now, if the question were purely a political one, that is to say, if it were a question of deciding between two rival sections of the community for the attention of the Exchequer, the matter would scarcely come within the purview of a financial writer. It would be a question, rather, for the politicians to determine. Unfortunately, however, in a sense, the problem is, I believe, financial and not political, although it is quite true that a reduction in outlays may cut right across political or even national _ policy. If the present total of National Expenditure is not only beyond the power of the taxpayer and industry to bear it, but if a large part of it is unproductive in character, and especially if a large part of it should be retarding rather than stimulating our energies in com- peting with other countries, it is clear that, by avoiding the real issues at stake, we are contending with forces which must inevitably assert themselves.
CONFLICTING INFLUENCES.
Although I have headed this article " The Invest- ment Outlook," I have dealt mainly with the effect of the condition of the national finances upon British Funds because those stocks give the lead to all kindred securities. Nevertheless, there are a host of influences operating, entirely beyond Government control, and there will. probably be readers of this column who, while more or less agreeing with what has been said about the necessity for economy in national expenditure, will also want to know what the City considers is the outlook for investment stocks apart from the influence of the state of the national finances. Let me add, therefore, that, roughly speaking, it is still considered that the influences making for lower or higher prices in the investment markets are regarded as evenly balanced, so that, on the whole, the disposition is to look for a more or less stationary level. On the one hand, heavy demands for capital all over the world, and the fact that we have a 5 per cent. Bank Rate even with depression in our key industries, suggests an upward rather than a doWnward movement in - the :Value of 'money, and a consequent sagging of investment -stocki. On the other hand, the downward tendency in commodity prices and the ever-increasing activities of insurance and financial interests are factors making for the increasing absorbing power of high-class investment stocks. Moreover, so long as there is a lack of complete political and financial confidence, the tendency to employ free resources in gilt-edged securities rather than in actual commercial operations must continue.
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