FINANCE AND INVESTMENT
THESE are brave markets. Indeed, their behaviour in the opening days of 1940 must seem little short of reckless to those who regard the present quietude as a mere lull before the storm. Gilt-edged have led the way with a spectacular rise which would have aroused enthusiasm even in the piping days of peace. War Loan is nearly 3 points up, as are most of the long-dated and irredeemable stocks, and the optimists are forecasting loo for War Loan as likely to be reached within the next few weeks. They may well be right, although I expect some fairly sharp fluctuations. Already the gilt-edged rise has attracted a good deal of speculative buying, only part of which has solid finance behind it. Some of the weaker speculative positions are bound to be eliminated, and that process may bring sharp reactions in prices.
As for the real basis of the rise, it is sound enough if you are prepared to accept the proposition that interest rates are what the Treasury chooses to fix as reasonable and is subsequently able to impose on the market. Money, in the City sense, is abundant, many of the normal outlets are dammed up by Government control, so that once the money is induced to get on the move the result is a demand for a limited supply of investments and a rise in prices. What induces the money to move? The answer is not simple. In present conditions, when the use of money is still voluntary, the usual requisites are a reasonably favourable political background and mysterious hints from high quarters that the market is bound for higher levels. A buying move- ment is thus set in motion which is quickly reinforced by short-term speculators. That is what is happening now. There is a widespread conviction that the Treasury is manoeuvring for higher prices for the purposes of its coming loan operations, and conditions have been favourable enough to bring in strong support for official policy. As usual, Whitehall's intentions in the matter of loaning are a well- guarded secret. All one does feel certain about is that the secret will be out before very long.
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