WISE INVESTMENT
Is there something wrong with trade, and, if not, what is wrong with the stock markets ? This question, directed by an indus- trialist to a stockbroker of my acquaintance this week, reveals the state of bewildered resentment into which most serious investors have been plunged by the behaviour of markets, and especially of Wall Street, in the past few days. Analysis of trade goes some way to supplying the answer, but still leaves some considerable blanks. Both in Great Britain and America it is now clear that recovery has reached a stage at which costs over a wide range of industry have begun to catch up with receipts. This is a normal phase in any business recovery and implies that investors must keep a watchful eye on their port- folios. Profits are likely to contract in those industries where increased costs of production cannot be passed on to the con- sumer, while other industries, such as oil, shipping and steel, may continue to do well.
Growing recognition of this basic change has, I think, been responsible for part of the decline in equity share values in London and in New York in recent months, but overshadowing it has been the continued threat of trouble from European politics, now reinforced by the Far Eastern conflict. With commendable courage the London investor has refused to be panicked by the political danger, although he has wisely decided that this is no time for letting out much speculative sail. Wall Street, on the other hand, has obliged with one of its periodic displays of hysteria in the course of which " good " stocks have fallen by as much as 4o per cent. in four days' trading.
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