FINANCE—PUBLIC AND PRIVATE.

THE INVESTOR'S OPPORTUNITY (I). (To THE EDITOR Or THE " $PECTrrOR "3 Sic,—Despite the present severe depression in gilt-edged securities, he would be a bold man who dared to predict that the depth of the depression had been reached and that the tide was about to turn. I for one certainly do not propose to attempt any such prophetic. role. It may be that the forces- so' largely responsible for the prolonged depression in stocks have nearly spent themselves, but at a time when Labour is once again threatening the industrial life of the country, it is small wonder that first- class home securities, including English railways, should stand at an unpreoedentedly low level.

At the present moment any' attempt to gauge the poSsi- bilities. of the investment markets is hampered by two main difficulties. In the first place, it is impossible to tell whether the worst of the after-effects of the war on the economic situation as a whole have still to be felt, while it is still more impossible to foresee whether worse ills are to befall us as the result either of international political developments or of industrial outbreaks at home. These are considerations which may well deter the investor, even in the face of the present low level of prices.

While, however, the situation is one which abundantly justifies caution on the part of the investor, the possibility of improved conditions should not be entirely ignored. Just as in times of exceptional prosperity a prevailing atmosphere of over-optimism is apt to warp the judgment and lead to financial losses by the sanguine investor, so perhaps the possibility should not be overlooked of such con- ditions as those through which we have been passing for some years having induced a chronic pessimism of a some- what paralysing character. For so many years the in- vestor has purchased high'-class securities only to see them descend to yet lower depths, that he may be excused for sometimes feeling that the pit is a bottomless one. Ten years ago many of our leading prior charge stocks of Eng- lish railways looked marvellously cheap when compared with the prices of ten years before, but purchasers know from painful experience how great has been the fall since then.

In the three tables' overleaf will be found the highest and lowest quotations of some of our leading English railway stocks during the past twenty years, together with the quotations ruling at the beginning of this week, and the yield to the investor based on the market price. The first two tables deal with the debenture and preference stocks, and in the case of the third table, giving the ordinary stocks, the dividend yield is based upon the dividends declared over the whole of last year. Nor has the fall been confined to railway stocks, for if Home Corporation or Colonial Stocks were examined almost as severe a depreciation would be revealed. In drawing attention to these movements in prices and present yields to the investor, I must again emphasize the fact that I am not' suggesting that the moment is one for immediate purchase. Nevertheless, I believe that the movements are worth recording and carefully noting. Not only do they represent a depreciation in capital values unparalleled, I think, in our financial history, but a i con- sideration of the cause of the decline should furnish, in its turn, some guide as to whether purchases at the present level are or are not desirable.

Of course the recent war, with its destruction of real capital, has played a tremendous part in accentuating the downward course of securities, especially as it has auto- matically raised the prices of commodities and the general

ORDINARY STOCKS.

20-year range *Present of prices. price. Highest. Lowest.

1 37

1274 271 2911

5911 27 28 1884 71 73 147 53 t 58 1981 73/ 78 .. 1834 48 51

.. 89 49 50

.. 177 771 771 1394 41 42 • Tuesday last. RAILWAY Name of Stock.

Caledonian Ord. .. Gt. Eastern Ord. Gt. Northern Defd. Cony. Ord... Gt. Western Cons. Ord.

Lancs. & Yorks. Cons. Ord. .. London & North-Western Cons. L.B. & S.C. Ord. Midland Defd. Cony. Oa North-Eastern " Consols " South-Eastern Ord.

1 cost of living. Nevertheless, it is impossible to forget that even before the war a very great fall had occurred in the

RAILWAY DEBENTURE STOCKS.

20-year range Name of Stook. - of prices.

Highest Lowest.

Gt. Eastern 4% Deb. .. .. .. 140 C04 Gt. Northern 8°' Deb. .. .. 1064 47 lit. Vi estern 5% Deb. .. .. .. 176 791 Lancs. & Yorks. 3% Deb. .. .. 1 47 London & N.-Western 3% Perp. Deb. 1084 484 London & 5.-Western 3% Cons. Deb. .. 108 47

L.B. & S.C. Perp. 4% Deb. - .. . .. 141 61/

Midland 21% Deb. .. .. .. 891 401

North-Eastern 30,E Deb. .. .. 107 461

RAILWAY PREFERENCE STOCKS. Name of Stock.

61 Central 5% Perp. Pref. .. 1454

Gt. Eastern 4% Cons. Pref. .. Gt. Northern ow. 4% Perp. Pref. .. Gt. Western 5% Cons. Pref. .. Lanes. & Yorks. 8% Cons. Pref. London & N.-Western Cons. 4% Pref. . L.B. & S.C. 5% Cons. Pref. .. Midland Cons. 21% Perp. Pref. W orth-Eastern 4% Pre . South-Eastern 5% Cons. Pref.

1394 1754 105 143 1714 871 1414 1701 531 69 40 57 67 341 551 67 20-year range *Present of prices. price. Highest. Lowest.

824 631 51 544 701 41

68 671 354 56 674

Yield. • s.

6 10 6 5 6 4 6 5 61 6 5 6 10 6 2 6 5

Yield.

£ s. d.

7 17 6 7 15 6 7 6 6 7 1 6 7 6 6 6 18 0 7 8 0 7 0 6 7 2 6 7 8 0 *Present price.

611 48 804 48 494

48

611 41 48 Yield.

▪ d.

O 0 5 0 16 6 18 6 O 6 17 4 6 0 10 0 13 0 2 6

value of investment stocks. Equally striking and sug- gestive, too, is the fact that for a good many years before 1914 the value of commodities had tended in the upward direction, while securities were falling. No doubt the fall in the latter was aggravated by the rise in Government expenditure at home, and the commencement of serious industrial unrest, but for such wholesale movements as those which occurred both in securities and commodities even before the war it seems necessary to discover a deeper and more general cause.

I think that the cause will be found in some of the effects of the years of excessive prosperity which preceded the war. It is impossible in this brief letter to recall the many land- marks demonstrating this fact, but I will recall one or two. In this country we had come so to rely upon our wealth bringing us from other nations the necessaries of life that our own productive output of such necessaries had seriously declined. Not only so, but even in countries responsible for supplying those necessaries, such, for example, as the United. States, there had been a tendency for the manu- facturing industry and for purely financial activities to expand at the expense of the agricultural developments—a circumstance which undoubtedly played a great part in raising the price of commodities. Concurrently with that development the volume of consumption steadily advanced as a consequence of the upward movement in wages ; and while in the years preceding the war there was a great deal of industrial activity and even an increase in real wealth, two circumstances militated against the effect of this new wealth being felt on investment stocks. In the first place, the industrial activity itself tended, as it always does, to divert money from the Stock Exchange to Trade, and in the second place the apprehensions occasioned here by the growth in Government expenditure and the display of semi-socialistic finance drove surplus capital into Foreign -Securities. Had the war not occurred, it is quite possible that with the occurrence of a periodical reaction in trade some recovery might have taken place in investment stocks, though it may be doubted whether it would have been very great, for the upward movement in wages would probably have gone far even without the war, and its consequent effect upon increased consumption, and therefore upon prices of commodities, would also have been marked.

That these forces, and others which might be enumerated, have been among the main features of the past twenty years, and that their effect has been adverse to investment securities, few will doubt, but whether they have reached their height or not is most difficult to determine. Person- ally—possibly because I am afflicted with this taint of pessimism I have already condemned—I should be afraid they have not, for Labour itself is not only still clamouring for higher wages, with their consequent effect in increasing consumption, but seems even unable to grasp the fact that at least the compensating influence of increased production is necessary. It is to be feared, therefore, that some hard lessons will yet have to be learned before the real turn of the tide comes, through Labour—using that term in the largest sense of the word—realizing that the wealth of the world needs replenishing and that it can only be replenished by the industry and labour of every individual. But, in spite of pleading guilty to pessimism with regard to immediate developments, I am still inclined to suggest that the possibilities of an ultimate change in the adverse forces I have referred to should not be ignored. Moreover, when the change comes, it seems probable that the new forces, like those which they will displace, may operate over a very considerable period. There is one other possibility, too, which must not be entirely left out of con- sideration, and it is this. Should developments in the near future lead to a severe check to industrial activities, the diversion of capital from trade to securities may occasion an early rally in the latter. It would not be a real and permanent rise, for we cannot rebuild our prosperity on a mere expansion in Stock market values, in exchange for real industrial activity and progress. Nevertheless, that movement might mark the turn of the tide in security prices, especially if as a result of drastic economies in public expenditure we get a real improvement in the national finances. I append a short table, showing that for those who may be distrustful of long-dated securi- ties, even at their present low level, some of the short-term British Government stocks are at a level offering an extra- ordinarily high yield :- SHORT-TERM GOVERNMENT SECURITIES.

*Present including Name of Stock. Yield. price. Redeemable at s. d.

War Loan 31% 1925-28 82 .. 100 .. 6 7 6 National War Bonds 5% Oct. 1924.. 95 .. 103 .. 7 2 6 National War Bonds 5% Oct.. 1927.. 95 .. 105 6 9 0 National War Bonds 5% Sept.. 1928 95 .. 105 6 7 0 Exchequer 5% 1919-22 96 100 .. 7 15 0 • Tuesday last.

Thus it will be seen that it is possible, or it was a few days ago, to acquire a short-term Government loan which, allowing for redemption eighteen months hence, gives a yield of nearly 8 per cent.—I am, Sir, yours faithfully,