FINANCE

THE FALL IN AMERICAN SECURITIES

Tie slump which has occurred in American railroad and industrial securities may well serve as a striking example of the uncertainty of market fluctuations and of the impossibility of making any reliable estimates in these modern times of the course of price movements. The one market which it might have been thought would have been least vulnerable to international political disturbance's has .proved to be the most vulnerable, and the extent of the fall in Transatlantic shares has come as a surprise to both the London Stock Exchange and to Continental markets.

Throughout this year markets here have had to stand up against the depressing influences of international develop- ments, but, apart from Japanese and Chinese stocks, which naturally have slumped heavily on developments in ihe Far East, the Stock Exchange has withstood the effect of these influences fairly well, but the unexpected fall in United States securities evidently hit markets very hardly last week.

REASONS FOR THE FALL.

And the reason for this surprise, amounting to shock, is not very far to seek. Early in the present year a number of influences combined to bring American securities into special favour. The enormous majority obtained by Mr. Roosevelt in the last Presidential Election was felt to indicate that for a long time, at all events, freedom from domestic political controversies would aid a further recovery in American industry, a recovery likely to be reflected in railroad and industrial securities. To these inducements to invest in American securities were added others. There were not wanting signs of a reaction in some of our own Home securi- ties, and that circumstance, coupled with the constant nervous strain imposed by the European political situation, aggravated later in the year by the developments in the Far East, occasioned considerable transfers of British capital to the United States, both for safe custody in liquid form and for investment in American securities. Part passu with this movement of British money there was a renewed flight from the Franc, while other Continental countries, prompted either by political or currency apprehensions, were remitting largely to New York. As a result, prices of American securities during the early months of the year soared considerably, as will be seen from a table given later showing in a few repre- sentative stocks the highest quotations touched during the present year.

REACTION BEGINS.

Before long, however, it became evident that all was not going as well for holders of American securities as had been anticipated. In the first place, the very fact of the rush of capital to the United States occasioned anxiety to the authori- ties at Washington, and, without any actual fresh legislation, there were constant threats from the Executive with regard to possible penalising taxation of foreign capital, accompanied by frequent expressions of disapproval of the rise in prices of commodities. In addition, there were also signs as the year proceeded of the rising costs of production affecting the trade situation, and while expansion in industrial activity continued, there were signs of forward orders for the autumn being smaller than had been anticipated. Added to these influences were the many indications of Labour unrest, even to the point of threatened strikes. Moreover, underlying these develop- ments was the constant uneasiness to which I have so fre- quently referred in these columns due to a feeling that artificial means and inflationary Measures were largely responsible for the past two years' recovery in American financial and indus- trial activities, apprehensions increased by the unbalanced Budget and the knowledge of the great growth which had taken place in the National Debt. So pronounced, indeed, was the feeling of disquietude with' regard to the abnormal monetary ease organised by Washington that when quite recently that ease was further emphasised by the release of some 3oo,000,000 dollars of hoarded gold and by a reduction in the New York Bank Rate to the record low level of I per cent., the effect was to increase rather than diminish the general feeling of disquietude.

EFFECT OF WASHINGTON RESTRICTIONS. •

In recent months Wall Street has shown increasing sensitiveness to European political developments and to the situation in the Far East. At first sight it might be supposed that these developments, however unwelcome and however disturbing to this country, would have been regarded by the Stock Markets in America as increasing the likelihood of still further transfers of European capital to America. I think, however, that one explanation of this sensitiveness of Wall Street to the European situation is to be found in the numerous and heavy restrictions placed by Washington upon dealers in Wall Street. Quite apart from the ner- vousness I have mentioned arising out of uncertainty as to what might be the next move on the part of Washington calculated to affect the situation, the insistence by tl° authorities on enormous margins in all transactions on the Stock Markets had the effect of occasioning enormous transfers of Stock Exchange business from New York to London and other Continental centres, and to that extent American securities became sensitive to European political developments in a way which would have been unlikely if dealings had centred in Wall Street. This, I think, largely explains why the slump in American securities had such far-reaching effects on the London markets and also upon Amsterdam and some other Continental centres. How considerable was the fall in American securities during the worst day of the slump may be gathered from the following table :

Price

Highest on Monday Present Fall from this year. Night. Price. Highest.

Atchison 871 .. 61..6r .. 261 Baltimore & 0. .. 271 .. 181 .. 81

International Nickel.. 751 .. 521 .. 54 . : 211

Illinois Central . . 291 .. 17 .. 17 .. 121 N.Y. Central.. .. 5of .. 27 .. 3o .. 201

Northern Pacific .. 37 .. 21 .. 21 .. 16

Pennsylvania.. .. 461 • • 31 • • 32 • • 141 Southern Pacific .. 481 .. 3i .. 32 .1 161

Southern .. 261 .. 19 .. 20 .. 6}

Union Pacific .. 149 .. 105 .. 106 • • 43 U.S. Steel .. 1291 .. 861 .. 91 .. 381

From the foregoing it will be seen that the worst of the slump was reached about last Monday night, and indeed on the following day there was a sharp rally in Wall Street, while prices at the time of writing, although still revealing a heavy fall from the highest of the year, show a re- covery from the lowest. To appreciate the effect which the slump had upon the Stock Markets as a whole it would, however, be necessary to add a lengthy list of home Induttiial and Mining shares, which were -materially affected, thus demonstrating- pretty _clearly that the London market had been hit quite badly and to the point of occasioning forced liquidation in many other securities than th-Ose Comprised