FINANCE—PUBLIC AND PRIVATE.
STOCK EXCHANGE ACTIVITY. CONFLICTING INFLUENCES — OPTIMISM PREVAILS - RISE IN INVESTMENT STOCKS — TREASURY BONDS WITHDRAWN — DEMAND FOR NEW CAPI- TAL ISSUES—THE ECONOMY REPORT — CITY EQUITABLE AFFAIRS—THE SUN LIFE REPORT.
[To THE EDITOR. of THE " SPRCTATOR-"] SIR,—Semi-civil war in Ireland, a continuance of profound trade stagnation, unsatisfactory conditions in the National accounts, and a compulsory winding up order for one of the large reinsurance companies—the City Equitable Fire Insurance Company—these are among the outstanding features of the past week. To say that their effect upon the Stock Exchange has been nil is to describe the situation feebly. Throughout the week high-class investment securities have been booming, Home Rails have been buoyant, fresh capital issues have been active, and the response from the investor to the latter seems to• grew in keenness. Those who have been taught to believe that conditions such as those I have described- are very quickly . reflected in depression in the City might well be excused for demanding an explanation of the phenomena.
* * * * As I have stated, however, in previous letters, trade depression, up to a point, is indirectly the cause of the rise in securities ; in other words, whereas two years ago trade offered far more lucrative opportunities for the em- ployment of money in securities, not only is the reverse of those conditions true to-day, but trade is so slack that many millions of money are literally thrust back on the investor and the banker. Thus we have both investor& resources and banking loanable capital pressing upon the investment markets, with the result that prices continue to soar. Moreover, during the past week a further fillip has been given to the investment markets by the sudden withdrawal of the 5 per cent. Treasury Bonds. As to the cause of this sudden suspension of the issue I am inclined to discredit the market's idea that it necessarily pre-sup- poses preparations for a Funding Loan in the near future. There is a simpler explanation to be found in the fact that with the Revenue coming in the Government's require- ments of money on loan are, or ought to be, a negligible quantity, at all events until the beginning of the new fiscal year. Nor amongst the influences favourably affecting the investment markets must the cheapness, as well as the abundance, of money be forgotten, and I am now inclined to think that the prolonged expectations of a reduction in the Bank Rate below 5 per cent. may be fulfilled either before this letter appears in print, or in the near future.
* * * * If further evidence were required of the great abundance of capital seeking investment, it is to be found in the continued success which is attending all capital flotations. A few days ago the issue of £5,000,000 in Preference.shares by the Shell Transport and Trading Company was covered some half a dozen times, and immediately afterwards there was a rush for the Swansea Corporation loan for nearly £1,000,000. Nor is the public appetite confined to Home securities, for the eagerness with which the 'Siamese Loan for £2,000,000, offered on Wednesday, was applied for shows that the public is by no means averse to placing a certain proportion of its resources in Foreign securities provided they are of a sufficiently satisfactory and attractive character. Further large loans, including a Victoria issue, and I believe a loan for Newfoundland, are expected very shortly, and while, of course, these capital creations cannot proceed indefinitely, there are no signs at the moment of their coming to an end.
* * * * But while I have given reasons for the demand for invest- ment securities, I feel that I have hardly explained suffici- ently why the unfavourable conditions to which I have referred should have produced so little effect. I believe the explanation to be largely of a psychological character. Not merely do events like anarchy in Ireland, and unrest in Egypt and India, produce no effect upon the Stock Markets, but your readers, I think, will agree that apathy, amounting to indifference, seems to characterize the public as a whole with regard to these developments. To some extent, no doubt, this is due to the effect produced upon the mind and temperament by the Great War. Compared with that great and terrible event everything else seems to be small. Nevertheless I venture to auggest that a real danger lurks in this kind of mental apathy. And further, at the risk of introducing controversial matters into a financial letter, I also suggest that under the present Prime Minister we have become so accustomed to solve all our difficulties, whether concerned with Ireland, the Empire or with trade troubles at home, along the lines of expediency and compromise rather than by facing facts and defending principles, that the public has come to assume that somehow or other all crises can be solved by these means. Again I suggest that danger lurks in this attitude of mind. Nevertheless, if I am even approxi. mately correct in this diagnosis it does; I' think, explain to some extent the apathy of markets towards unfavourable elements in the situation. - It is needless to say that nowhere has the Report of the Geddes Economy Committee been received with greater interest than in the City. I do not doubt, however, that the Spectator will be dealing fully with it, and I will state in the fewest words how the Report is viewed in banking and business circles. Without regarding the Report as in any way infallible, the City is prepared to stand by its findings as a whole. The men on the Committee are trusted alike for their records and capabilities. The Government, on the other hand, by its records in every- thing pertaining to finance is utterly distrusted, and unless the Geddes Report is now strongly backed by public opinion business men will have no faith whatever in the intention of either Government or Parliament to put a professed zeal for economy into effect. There is one point in particular in this economy campaign, more- over, to which I specially invite the attention of your readers. It is this. We are all eager for a reduction in the burden of taxation, but there is great danger lest that desire should supersede a recognition of the need for a- strong balance-sheet and thorough-going economy. It is a far more popular " stunt " to " go " for a reduction in the Income Tax than to insist upon such drastic economy in expenditure as shall enable the reduction to be made consistently and safely. Before to-day we have seen the Government court Election popularity through the grant- ing of Old Age Pensions and great social outlays, only to find that the cost to the nation had been hopelessly under- estimated; and it is quite conceivable that if the public shouts loud enough for a shilling off the Income Tax it might be granted—for the present Government's tenure of office draws near to its close—without that wholesale cutting down of expenditure and curtailment of bureau- cratic activities which are essential if real national pros- perity is to be restored.
* * * * It is some time since the City has experienced so unpleasant •and disturbing an event as that disclosed in the affairs of the City Equitable Fire Insurance Company. Without reflecting upon such matters as the hasty departure of the Chairman at a moment when his presence would seem to be most required, it may be recalled that within a very short period of the collapse, the £1 shares with four shillings paid (now quoted at about 9s. discount) were being dealt in at £3 per share, while dividends were being paid at the rate of over 200 per cent. As recently as the last annual meeting, the Chairman dwelt upon the exalted position of the company and stated that " it would be their fixed and constant endeavour to play their part, relatively small though it might be, in a manner not unworthy of the traditions of this great City."
When " insurance without medical examination " was first employed as an allurement to the prospective insurer there were many who were inclined to criticize the idea, but the accounts of the Sun Life Assurance Society, one of the oldest of British Life offices, prove that not only is the principle successful in attracting business, but that it is not accompanied by any notable increase in the claims in the early years, after which there is practically no difference between the mortality of those selected by examination and that of the general population. The latest accounts of the " Sun " show that it has excelled all previous records as regards new business, the net total of 0,345,455 of new sums assured actually being higher than in the previous year, though most companies show a reduction in new business in 1921 on account of the general depression of trade. The end of the year marked the conclusion of the Sun's quinquennial valuation period, and thanks to the adoption of sound principles with regard to the investments the Sun comes back to the list of bonus paying offices with a larger distribution of bonus than that made on the last occasion, namely, in 1912. In the Actuary's report it was mentioned that " the character of the investments and other assets would appear to preclude the risk of material loss or depreciation for some years to come."—I am, Sir, yours faithfully, The City, February 15th. ARTHUR W. KIDDY.
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