FINANCE-PUBLIC & PRIVATE.

[By OUR CITY EDITOR.]

A HEALTHIER POSITION.

[To the Editor of the SPECTATOR.] SIR,—At the moment of writing there is a welcome if moderate rally in Stock Exchange securities. It has, however, been a rather sick week, a rise in the Bank Rate which was not expected immediately by the Stock Exchange having revealed some weak speculative positions. A fortnight ago I indicated the likelihood of a change in money rates, and its effect now that it has occurred upon high-class investment stocks may be gathered from the following table showing prices of a fortnight ago compared with this morning's quota- tions :—

Fall from Highest — 21 .... 41

- 41

... bf

2

.., 11

bf

.. 51 Moreover, it must be noted that " present " prices do not mark the lowest touched during the past week. Consols, for example, on Monday touched 56i, the 5 per cent. War Loan 99i, and the Conversion Loan It will be seen that the quotations of a fortnight ago were not so very far from the highest points touched this year. As might have been anticipated when a rise in the Bank Rate not only comes unexpectedly but, as a result of an over-bought speculative position, causes a sharp reaction in market values of securities, we have had the usual criticisms of the Bank's policy. With a knowledge of, and a solicitude for the interests of trade (which, however welcome, is perhaps a little surprising), the Stock Exchange houses are talking about the possible bad effects on Trade—not, of course, upon stocks 1— of a 4 per cent. Bank Rate, and I observe that one of your contemporaries gives great prominence to the perils alleged to threaten the country if any kind of deflationary policy is pursued. Without entering at this time into any lengthy dissertation upon the• effects of inflation or deflation I would like to suggest one or two points, which I will -place in interrogatory form :- Is it, or is it not, a good thing for the trade of the country generally in the long run that the banking resources of the country admittedly required to finance trade should be too freely used for financing share .speculation in securities ? Is it, or is it not, a fact that in this kind of speculation,

Consols ..

Conversion 31% 5% War Loan ..

4% Funding

Treasury 51%, 19P9 5% War Bonds, 1927 ..

Victory Bonds .. India 3% ..

Highest for Year.

.. 60

.. 811 .... 10* 941 105} 107

95f ..

621 ..

Price June 29th. 69 801

— 101e — 92f

— 1041

— 1061 931 601

Price July 11th.

.. 57f .. 771 ... 991 — 88f

.. 1001 — 1

... 89 .. 57 Fall for 2 Weeks.

— 11 —SI .... 11

4

– 11

11

... 31

31

where huge sums are borrowed from the banks to run speculative accounts in Consols and kindred stocks, it is not the general public but an inner ring of financiers and speculators who make fortunes out of the transaction, the ordinary man-in-the-street being usually privileged to purchase the stocks later at the higher level to which they have been hoisted ?

Is it not tolerably clear from the sheapness of the fall in stocks following a 4 per cent. Rate that the unwieldy' speculative position existed ? Neither from banking nor commercial circles has then been any serious criticism of the higher Bank Rate, and is it not an acknowledged fact that a 4 per cent. Bank Rate can never be regarded as injurious to track, although a lower minimum can undoubtedly (as it actually HAS done) encourage undue speculative activities in stocks when trade itself is dull ? It is, of course, true that as a result of the higher Bank Rate the Government will have to pay a little more on Treasury Bills, but already the American Exchange has gone distinctly in our favour since the Bank Rate was moved, and that is a circumstance which has a material bearing on the total which we have to pay each year to meet our dollar obligations to the United States.

The depression in markets during the early part of this week must not, of course, be entirely attributed to the higher Bank Rate. Apprehensions with regard to the European political situation, combined with the demoralization of the Foreign Exchanges, have un- doubtedly aggravated the situation, and at the moment of writing the rally in prices is partly due to the rumours current that the Prime Minister's statement concerning our European policy may be of a more reassuring character than been anticipated. At the moment gilt-edged securities are showing a distinct upward tendency, but I am inclined to think that when markets have once settled down again, the tendency may be for investment stocks to become steady rather than buoyant, while, should the European situation improve, and trade show greater signs of life, other sections of the Stock Exchange may come into greater prominence. Meanwhile, I regard the developments of the past fortnight as favourable rather than otherwise, because the liquidation, prompted by the English Bank Rate, has eliminated a good deal that was unsound in the technical position of markets. —I am, Sir, yours faithfully, The City, July 11th. ARTHUR W. KIDDY.