FINANCE AND INVESTMENT By NICHOLAS DAVENPORT THIS is a good
time of the year—the budget having come and gone without anyone noticing it—for investors to take stock of their market position. I have been looking back at my own articles to see where I stand myself. In my first review (October 9th, 1953) I reminded readers that the bull market started in July, 1952, and detailed the main factors that were sustaining it—the recovery in trade from the limited recession of 1952, the unfreezing of dividends and the increasing number of bonuses. I thought that extreme caution was then desirable, because, if the American recession to which I drew attention developed badly, we might be in the final stages of the bull market. On November 20th I returned to the raison d'être of the equity share boom and remarked that there would be enough good company reports to keep the market boiling until March of this year. I then stressed the point that the continuing favourable • trend in the terms of trade was improving the liquidity position of industrial companies and that this would naturally encourage directors to pay higher dividends in a year when no Excess Profits Levy was payable. The market, I said, would not be content to restore the old status of the equity share \vhich the Socialist Government had reduced; /. would begin to discount the further increase in dividends and the further bonus share issues which it expects to follow on the 1953 recovery in trade. On February 12th I made a further analysis of the causes of the boom in securities, ending with the follow- ing: "The bull market is still strong and Mr. Butler has helped it along by his cheaper money policy. I hope that the budget will allow it to be consolidated." Well, the budget did nothing to prevent it. Neither did Wall Street. On April 2nd I wrote: "On the whole I am quite prepared to believe that the American recession will begin to flatten out in a few months." So the lights In Throgmorton Street are still green.
The Bull Market Holds The bull market has now lasted tWenty-two months and the longer it goes on the more necessary it will be to exercise investment caution and selectivity. It is already some- what too undiscriminating for my taste. Prosperity is never evenly spread. Today competition is increasing both at.home and abroad and the weaker and less efficient companies will lose ground to the stronger and more efficient. This applies to the prosperous trades like petrol, motor-cars, furniture and sweets as well as to the more ' difficult engineering trades. In the heavy engineering industry there is a real danger of a set-back. The volume of exports of two two bad spots, but it will need careful watching and selection. Remember that most companies cannot go on bringing their share capital into line with the market value of their assets every year.
A Lower Bank Rate ?
In the meantime a strong gilt-edged market has been helping equity shares to recover from their temporary set-back. There is again talk of a lower Bank rate— messengers wait expectantly at the Bank's doors every Thursday, as in the bad old days—and some excitement was caused by the belated discovery that the Federal Reserve Banks of Chicago, San Francisco and New York had lowered their iv discount rates to 1/ per cent. before Easter. What is more to the point, I fancy, is that foreign money has been pouring into London to take advantage of the extra profit it can earn in our short-term money market where rates are higher than in other international centres. Through the medium of the gold bullion market and registered sterling (which is, in effect, sterling on a gold basis) foreign money can come and go now without exchange risk. So Mr. Butler may be forced to lower Bank rate if this invasion of forei80 money becomes too large to be comfortabla, If this should happen the equity market will receive quite a lift.
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