FINANCE-PUBLIC & PRIVATE.
[BY OUR CITY EDITOR.]
NEW YEAR PROSPECTS.
[To the Editor of the SPECTATOR.] SIR,—What are the prospects for the New Year as regards the Money Market, Trade and the Stock Exchange ? It would be easy to draw a gloomy picture concerning the outlook, and certainly, if the City were to take its views from the Rothermere Press, it would conclude that the advent of a Labour Government must make for nothing short of red revolution, and that we can only be saved from such terrible consequences by Mr. Asquith graciously consenting to enter some kind of coalition with the Conservatives.
The City, however, refuses to allow its flesh to creep as a consequence of the lugubrious utterances of the Daily Mail, and prefers the less exciting but perhaps truer analysis of the situation given by the Times and the Morning Post, in which the situation, while regarded as difficult and, indeed, in some respects critical, does not justify any counsels of despair. Not only so, but in this very difficult domestic political situation in which we find ourselves to-day the City (the reported action of the City Conservative Association notwithstanding) takes the long view, and while clearly recognizing the grave risks attendant upon the formation of a Labour Government, it believes that any conspiracy to keep it out of office would only react disadvantageously at a later date. The safety of the country, both financially and socially, rests, after all, upon constitutional methods being pursued, and, therefore, so long as Labour acts constitutionally, so long has Labour the same right to govern as that attaching to any party in the State.
It is necessary to make these detailed references to the domestic political 'situation as a preface to any speculations as to financial developments in the near future, because it is a factor which will, undoubtedly, operate from the very beginning of the year. During the next few.days,. and as a result of the recent.enormous borroWing at the Bank of England, we are alinost batind to witness conditions of extreme ease in the Money Market, and it is possible that those conditions may tend to maintain high-class _ securities, especially as the public has shown no great disposition to sell during the last week or two. Nevertheless the City, rightly or wrongly, is disposed to look for any pronounced activity in the current year in securities in the speculative and semi- speculative descriptions rather than in the gilt-edged group, and the reasoning is somewhat as follows. Quite apart from the possible vagaries of Labour legislation, there seems more likelihood of a slight increase than a decrease in direct taxation. In the second place, the omens at present are all in favour of a further improve- ment in trade, a development which might easily occasion slightly higher money rates. In the third place, these views are strengthened by a greater hopefulness with regard to the international outlook, and if the Reparations tangle should be straightened out, a considerable stimulus might be given to international trade. In the fourth place, should a Labour Government embark upon unsound financial methods occasioning any kind of alarms, it is thought the effect might be more pronounced upon British Government and kindred securities than upon other stocks. Add to these considerations the fact that during the last two years the rise in investment stocks has been very great, and I have recited some of the reasons why the City, while not necessarily anticipating a fall in the investment group, is inclined to think the chances for a further substantial rise are not great.
The closing weeks of the past year have afforded many indications of a real stirring of activity in the dry bones of trade. The Bankers' Clearings for the final quarter of the year show a huge increase over those of the corre- sponding period of 1922. Unemployment figures have shown a steady improvement during recent weeks, and both banking advances and banking deposits have tended to advance during the month of December. Foreign orders are larger than for some time past, and some of the discount houses tell the same story of a larger proportion of commercial bills in their portfolios than was the case a year or two ago. On the whole, therefore, there seems a fair reason to hope that if the situation is not disturbed by strikes or other forms of labour unrest, quite a fair revival in trade may be among the features of the year.
It may be doubted, however, whether the revival in trade will be sufficiently marked to occasion anything approaching to really dear money in the near future. It must be remembered that the present 4 per cent. Rank Rate is considerably above the level of rates in the open money market, and there is a margin for a considerable hardening of those rates before any con- sideration will arise as to the desirability or otherwise of a higher Bank Rate. So long as trade is on sound lines, and we do not get a renewal of the sheer speculation in commodities which was such a feature of the boom a few years ago, the monetary policy, of course, should be along lines calculated to encourage rather than check commercial activity, and in that respect a great responsi- bility will rest upon bankers to see to it that credit resources are not encroached upon for stimulating speculation, whether in commodities or in securities. But while there seems no reason to apprehend in the near future anything in the shape of very high money rates, even if trade should revive considerably, it must, of course, be admitted that the mere counter-attractions of trade activity and expectations of dearer money later on might have their effect upon the Stock Markets, and more especially on gilt-edged descriptions.
Apart, therefore, from any serious political develop- ments, either international or domestic, there seems no reason to take other than a moderately favourable view of the financial outlook for the New Year. It is, however, of course, impossible wholly to ignore the risks attendant upon a Labour Government, lacking in minis- terial experience, and the one word of friendly warning I would like to offer through your columns to the Leader of the Labour Party is that he should clearly recognize that these signs of improvement in the financial and commercial situation which I have mentioned must be regarded very much as one would regard the convalescence of a patient who has passed through a very severe strain. The condition of the patient is still delicate and sensitive, and a relapse, if not fatal, might at all events be attended with very serious consequences. If Mr. Ramsay MacDonald will remember that Capital, like every other section of the community, has suffered from the War strain and needs encouragement—if there is to be renewed prosperity—all may be well, but if the idea, so often voiced by the masses of Labour, to the effect that there is a superabundance of capital which can be distributed in various forms to the proletariat without the industry and prosperity of the nation suffering, should find vocal expression in a Labour Ministry, there would, of course, be very much in the situation to cause grave anxiety concerning Ncw Year prospects.—I am, Sir, yours
The City, January 2nd.
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