WHY INDUSTRIALS RISE.
To fully appreciate the forces operating against gilt. edged securities and in favour of the Ordinary shares of industrial and other concerns, it is necessary, however, to recall what has already been said with regard to the effect of a depreciated exchange upon the price of commodities or upon the cost of living. If the pound depreciates in terms of the currencies of the countries from which we obtain large quantities of foodstuffs, commodities and raw materials, it is probable that internal prices of the things affected will rise both by reason of their increased cost to the original buyer and probably because of their being imported in somewhat reduced quantities. The wholesale buyer and the-retailer, however, will probably more than make up this loss by raising the price to the consumer and by the automatic reduction in his own working costs in wages through a decline in the value of the pound. Moreover, those engaged in export trade hope to receive a stimulus in buying orders from abroad because those countries still on the gold standard will be able to obtain our manufactured goods cheaper because of their making payment for them through the purchase of our own depreciated currency. Therefore, the investor argues that the very factor which threatens to make his income from low interest- yielding securities diminish in purchasing power constitutes a reason for his acquiring an interest in the Ordinary shares of concerns which he considers will very probably benefit from the altered condition of things.
Broadly speaking, these are some of the motives which have inspired the selling of high-class investment securities during the past ten days and have also been responsible for the rush to buy certain shares of industrial concerns. Even Home Railway Ordinary stocks, it will be noted, which have been falling for years past have rallied little during the past week on the hopes of a depreciated sterling exchange giving a stimulus to our trade activities. In addition, however, there is no doubt that the purchase of industrials has also been stimulated by expectations of an immediate imposition of tariffs and by the idea that such imposition would give a great impetus to trade and prosperity. It must be noted that I -am not concerned in this article with the soundness or otherwise of the motives affecting the movements in seeurities since our departure from the gold standard. - I am only endeavouring to explain the movements themselves.
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