FINANCE—PITBLIC AND PRIVATE.

BETTER MARKETS—A RALLY IN RAILWAYS. [To THZ EDITOR or THZ " SPECrATOR."] SIR,—If from time to time I should turn aside from fundamental matters affecting the financial and economic conditions of the country, such, for example, as the extrava-. fiance in national expenditure and the uneconomic wage as affecting our industrial activities, to the more immediate developments of the hour affecting Stock Exchange and other .financial affairs, you will not imagine that I do not consider these fundamentals as bound ultimately to prove the prime factor in the situation. It has to be recognized, however, that in between the sure, if slow, working of the chief 'factors come others which undoubtedly for a time sway the course of markets. Thus, in my letter of a month ago, I 'stated that while taking a cautious and even serious view of the outlook over a prolonged period, I considered that there were factors likely to operate in the near future calculated to cause an improvement in the better-class securities. That was on July 20th, and a comparison of present prices of British Funds and Home Corporation stocks with that date will show a general, if slight, improvement, while the outstanding feature of the last few days has been a sharp rally in English Railway Ordinary stocks.

The firmness of markets as a whole during the past month has been the.more noteworthy in view of the holiday season and the profound anxiety with regard to Ireland. For the steadiness of British Funds and other gilt-edged stocks the lower Bank Rate is no doubt partly responsible, while the rally in Home Rails is directly traceable to Government decontrol. This proved a signal for an immediate revival of speculative buying, the market being favoured by three main considerations,. In the first place, prices previous to the date of decontrol (August 15th) had fallen almost to a record low level. In the second place, the supply of stock is short. In the third place, although it is true that decontrol will bring to the Railroad managements difficult problems owing to high prices of coal and labour, the very uncertainties of the future increase for the moment the speculative possi- bilities. Moreover, decontrol has been immediately followed by a display of activity in the direction of improved train service and the revival of week-end fares and excursion trips, True that the facilities are by no means up to the pre-war standard, but the spirit displayed tends to increase the feeling that perhaps Home Rails offer at least a sporting chance to the speculative investor. In view, therefore, of this revived interest in a market so long neglected, and, indeed, so long associated with invest- ment losses, it may be of interest to record in the following table the highest and lowest prices of some of the leading stocks during the past ten years, the remarkable rally of the past week, and the yield to the investor at present prices in the case of a few of the leading stocks :-

ORDINARY STOCKS.

Aug. 16, 1921. 54 .. 264 ..

234 ..

64 ..

45 ..

37 66 25 41 91 ..

69 ..

204 Present Price. 61 284 26 71 48 404 72 254 44} 104 71 234 ..

• • • • • • .. .. ..

• • . • . • .. Rise on Week.

I 14 24 7 3 34 6 34 11 2 3

00 •• •• •• •• on die ap OP

1911-21.

24i 224 574 44 354 65 194 354 91 634 164

Highest. Lowest. 284 794

591-g-

136 1044 1134 151 751; 794 36 ..

139 . • 734 Gt. Eastern

Gt. Northern Defd... Gt. Western

Lanes. & Yorks. ..

L. Brighton Defd.

L. & S.W. Defd. London & N.W. Midland Defd. N. Brit. Defd. N. Eastern S. Eastern Defd. Last two 4-yearly Price. Divtiends.

284 .. 4

26 24 71 ..71 48 4 404 .. 44 20 2

72 .. 7 441 ..4i 104 .. If 71 ..

234 .. 24

Yield. s.

8 19 10 11 10 4 9 2

11 2

10 0 9 14 9 11 11 18 10 4 10 12 9

00 00

d. 3 6 3 3 3 0 6 0 0 3

Caledonian Defd.

G. Eastern Or. .. G. North. Defd.

Great Western .. Lanes. & Yorks. .. L. Brighton Defd. North-West'n. Metropolitan Midland Defd. N. Brit. Defd. N. Eastern S. East. Defd. prom the foregoing it will be seen that although there has been a sharp rally in prices, present quotations show a terrible fall from the highest points of the past decade, while I do not doubt many of your older readers know from painful experience that if the review extended over twenty instead of ten years the clibdele revealed would be even greater. Interesting,. however, as may be the survey of past events, you will no doubt be more con- cerned that I should give my view as to the likelihood of the recovery so far established going further—as to whether, in fact, the Home Railway Market offers at the present moment a suitable channel for safe investment.

As I have already explained, it is the very uncertainty with regard to the future of the Ordinary stocks which is helping to stimulate a revival in speculative activity, and that is only another way of affirming the necessity for caution so far as the ordinary investor is concerned.

We know that for the past two years railway stocks in many instances would have gone dividendless but for the millions in Government subsidies, and while it is true the companies have to receive some further large sums from the Government in the shape of compensations, it must be assumed that the money will be used for better- ments rather than for dividends. Decontrol will not at once, if ever, bring down railway expenses to the pre-war level, though some moderate reduction in wages and materials may be possible in the future, while it is con- ceivable that freed from Government control the railways may find an ultimate return to prosperity along the lines of a successful repopularizing of railway travel with the community. Meanwhile, however, the intending investor will be very much in the dark as to the progress of events, for he will not for some time to come have even the weekly traffics to guide him, for, if they were furnished, they would be comparatively valueless because of the impossibility of making comparison with a year ago. Nor, of course, can it be forgotten that labour has been the bogy in the railway industry for years past, and while the outlook in that respect is undoubtedly brighter, it is to be feared that it will be a long time before the spectre will cease to haunt the holders of Railway Ordinary stocks. Another factor which must be borne in mind is that for some time to come demands for capital in every form of industry will be great, and this, in its turn, means that the interest yield offered to investors in many directions will be high, so that it is not to the railway section alone that the investor will have to turn for good yields. Nevertheless, it can be admitted that in the very high yields offered on some of the stocks shown in the foregoing table there is what might be termed a good margin for speculative risks, and that I think should be the main point affecting individual decision with regard to purchases at the present time. In other words, should the present speculative activity—for at present the dealings are almost entirely professional—result in an immediate further substantial advance beyond the level shown in the fore- going tables, the investor might well hesitate, because most of these professional operators are likely to take quick profits, and should the public buying be small prices may prove as sensitive to realizing sales as they have been to speculative purchases. On the other hand, should the immediate rise not be excessive, there is the cardinal fact that prices are not far from the lowest points on record.

It is not only in the English Railway stocks that there have been signs of revival of speculative activity, for a marked feature has been the activity and strength of what has been a dormant market for a long time past, namely, South African mining shares. Here, of course, even more than in English Rails, it is a case of speculative rather than investment activities. What has happened is that some of the leading companies have recently shown such results and have declared such dividends as have revealed unproved conditions both as regards the Labour position on the Rand and the higher profits resulting from the abnormally high price obtained for gold. This high price cannot be expected to continue indefinitely, but, unfortunately, the present state of the exchanges suggests that there may be no great change in the immediate future, and the present price specially affects some °I the lower-grade mines. At all events, the rally during the past week in South African mines has been second in importance only to that in the English Railway Market, and the animation of these two old-established departments of the House has been quite reminiscent of the pre-war days. It may be that the movement in both markets will make further progress, but, on the other hand, it may bo well to remember that before now we have seen towards the close of August professional operators endeavouring to give a lead to speculation with the hope that rising prices may have the effect of attracting the attention of the investing com- munity returning after the annual holiday. Sometimes the movement catches on, very often it does not !—I am, Sir, yours faithfully,