FINANCE -AND INVESTMENT
By CUSTOS
INVESTORS' first reactions to the news' of the dollar import cuts have been almost unbelievably mild. I think it would be wrong to infer that there is any confident feeling either that the cuts will in themselves make a really substantial contribution towards solving the dollar problem or that they will leave the British economy unscathed. So far as markets arc concerned, the stickiness of prices can be explained, at least in part, by the existence of a " bear account." In other words, the market was over-sold. Progressive operators had made " bear " sales in the expectation of being able to cover at the new prices and jobbers had kept as short of stock as conditions allowed. Now that the investor has refused to be frightened into a fresh round of selling, the " bears " have become nervous and their re-purchasing has kept prices up.
What explains "the new-found stolidity of the investor? Not, as I have said, any real confidence in the economic prospect. Rather a disposition, at this particular juncture—and at the current level of prices—to wait and see what happens next. And even with taxation -what it is high dividends have their attracticn as much as the prospect (visionary enough at the moment) of capital appreciation, and in- vestors drawing up to 8 per cent. for the second year running tend to be lulled into a fundamentally baseless optimism. After the heavy fall of the past three months prices in most groups, especially home industrials and commodity shares, have been brought down to levels which make allowance for a substantial fall in profits and dividends, at least in what are judged to be the most vulnerable sectors of the economy. The attractions of holding cash rather than shares are correspondingly reduced. There is also the feeling that the coming cuts in imports, unless accompanied by internal disinflationary measures, will give a new twist to the inflation spiral. So, once again, why hold cash?
a • • a There is some force in this contention—and it may still prove true that a generous America will continue to finance our present standard of living—but I fear that some fairly drastic adjust- ments of British costs and prices are going to be necessary before any lasting stability is assured. That is why I do not look for any sustained improvement just yet in equity share prices and am prepared for a further fall over the coming months. The case for gold shares—that a revision of the sterling-dollar exchange rate or an increase in the dollar price of gold will come to the rescue at a later stage—still holds good. Among South Africans I would include. West Driefontein, Crown Mines, Springs and Rose Deep. In the West African group my selection would be Ashanti Ariston and Gold Coast Selection Trust. It will be surprising if interest in the gold share market does not revive before the September meeting of the International Monetary Fund in Washington.
SILVER LINE PREFERENCE In the dull conditions which have recently prevailed in the shipping share market the 4f per cent. Li cumulative preference shares of the Silver Line have fallen back from 14s. 9d. to 13s. 6d. In my view the current price does less than justice to the company's position and prospects. At the annual meeting Iasi week the chairman disclosed another " bull point " in the shape of a revision of the company's agreement with the leading brokers in New York. Although details of the adjustments were not revealed, Mr. Barraclough made it plain that there would be material financial benefits. The position of Silver Line was set out in these notes three weeks ago, the main points being that losses had given place to modest profits and that ample liquid resources had been built up. It will be disappointing if preference dividend payments, which are in arrears from December 31st, 1948,-arc not resumed towards the end of the year. The shares, which stood over par before the company ran into bad times last year, have scope for recovery.
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