FINANCE AND INVESTMENT
By NICHOLAS DAVENPORT THE Information Office of the OEEC sends Pe from Paris a report of the economic experts' working party which met during the week of April 26th under the chairmanship of Sir Robert Hall. As we all know, Sir Robert is economic adviser to the Chan- cellor of the Exchequer and we may fairly assume that any report he signs will represent Pore or less the views of his employers. It IS therefore . worth mentioning that this report is extremely bullish. Industrial Production in Western Europe in the first Quarter of this year was about 7 per cent. higher than a year ago and the experts expect this rate of expansion to be con- tinued. The international consequences of the American recession have not been serious and it is thought that production in the United States will begin to pick up before the end of this year. "There should be no pressing anxieties," they add, "regard- ing the dollar position in the next year or IwO." The supply of dollars has been maintained by "massive extraordinary, ex- penditures in Western Europe (on defence) by the US Government." These amounted to 32,250 millions in 1953 and are expected 4o be even higher in 1954. There remained difficult problems in such areas as Italy, Greece and Turkey but there was gendal agreement among these experts on how to meet adverse developments, that is, by easier money or lower taxes or higher Government expenditures. This is their cheerful con- clusion: "Our general assessment for the future is that we are entering a period offer- ing new opportunities. We may haNte reached a period of relative stability and freedom from balance of payment difficulties and these conditions should allow former 'tens towards continued economic expan- sion.,, before now. The second adverse pos- sibility is a collapse in wheat prices. The glut of wheat in North America is staggering —it is worse even than that of the early 'forties. Stocks in the United States are the highest ever recorded and in Canada they have only been exceeded once before. At the beginning of March no wheat from Canada's bumper 1953 harvest had been sold. To make matters worse, Great Britain, having broken away from the International Wheat Agreement, has been buying wheat cheaply from European producers who have been increasing their output. Australia, gathering a new season's crop, is now faced with a heavy surplus and a declining export market: she is estimating a decline of at least £25 millions in wheat exports this year. Governments will soften the decline in farm purchasing power by guaranteed prices and further stock-pilihg (if possible) —though America is insisting on some restriction of acreage—but it seems that a serious collapse in wheat prices will only be averted by nature returning bad crops in North America this season to offset the bounty of the last two years.
It is a characteristic of bull markets in securities that they ignore extraneous bad news. The present one in British industrial equities is being kept on the boil by the stream of good company reports, higher earnings and dividends and bonus share issues. On the test of comparative yields it is not yet vulnerable for, according to the Financial Times indices, the average yield on industrial equities is 5.13 per cent. against 3.68 per cent. on Consols. There are, how- ever, many "blue chips" now yielding around 4 per cent. on the higher dividends just declared, which suggests that investment fashion may be changing. Unless Bank rate is lowered or the gilt-edged market rises further and forces Mr. Butler's hand, equity shares generally are not likely to break into new high ground.
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