FINANCE—PUBLIC AND PRIVATE.
REPARATION PROBLEMS. - lux. PARIS CONFERENCE.--uaEERFUL MARKETS.— RISE IN RAILWAYS.—IMPENDING INVESTMENT STOCK PROSPECTS.
[To THE EDITOR OP THE SPZOTATOR.
Sin,—The City is disposed to attach more importance to the Financial Conference which is now taking place in. Paris than it was to the recent political assembly at Genoa. In Paris there is now assembled a gathering of leading financial experts, including Mr. J. Pierpont Morgan, of New York, to consider the question of whether it is possible to aid the process of German Repar- ation payments by the flotation of a big international German loan. By or before the 31st of this month a reply is due from Germany with regard to certain demands recently made by the Allies in return for the granting of a temporary moratorium in the matter of Reparation pay- ments themselves. I do not propose to go into the details of those demands, but it will readily be seen that if a large international German loan could be floated the situation would be eased at two different points—France and some of the other Allies would gain by immediate large cash payments resulting from the proceeds of loans issued to the public, while the German position would also be eased because the Berlin Exchange would be relieved from the severe pressure caused by the Reparation payments and the mark would tend to improve.
* * At the same time, I am bound to say that the City is not very hopeful with regard to the outcome of the Conference. As regards what may be termed the general acceptability of a German loan to the investors of the various countries, it has to be admitted that matters have not been improved by the Genoa Conference, for despite all attempts to prove the contrary, the feature of the Conference which has left the most abiding impression upon the world was the revelation of the secret treaty which had been arranged between Russia and Germany. Such being the case, it is clear that the only chance of floating a really large German loan lies in the character of the security offered, and it is just here that obligations in connexion with the Reparation Commission would seem to be involved. At present, Germany's principal assets are definitely hypo- thecated under the Versailles Treaty to the Reparations Commission, and it remains to be seen whether that Commission will, or even can, releve any portion of them so that they may form a first charge upon an inter- national loan. And if I desired further to emphasize the fact that the Loan must have good security and yield a high rate of interest, I should pohat out that the American investor will be even more exacting in this respect than the investor of any other country. Yet on every ground it is the Americah investor that it is essential should be brought into the scheme.
* * * But for the threatening situation in Ireland and the disturbing political conditions in Europe I should feel entitled to speak with considerable confidence concerning Stock Exchange conditions. During the past week general business has been far from active, a circumstance, however, undoubtedly due to the proximity of the Whitsun holidays, the holiday feeling having been emphasized by the sudden advent of tropical weather. In spite, however, of the comparative inactivity of business, prices have been remarkably well maintained in the gilt-edged section, while the buoyancy of Home Railways has been the out- standing feature. How great has been the rise in many of our leading Railways within a comparatively short period may be gathered from the following table, giving the lowest price touched by some of the principal stocks as recently as last year and the quotations at the time of writing :— Lowest Last Year.
Present Price. Rise.
Great Eastern Ord. 241 .. 39} .. 15 Great Northern Def. 201 .. 42 .. 211 Great Western Ord. 57 .. 103} .. 46} North-Western Ord. 63} .. 102 .. 38} South-Western Def. 16} .. 281 .. 12 Brighton Def. .. 34 .. 65 .. 31 Midland Def. .. 35} .. 67 .. 311 North British Def. .. 20 11} North-Eastern Consols 63} .. 112 .. 48} South-Eastern Def. .. 16} .. 38 .. 211
It has to be remembered that the English Railway Market was for many years affected not only by the considerations depressing all investment securities, but in particular by the constant Labour disturbances, while at the time of the release of the Railways from Government control the investor was seized with apprehensions as to how tha position would be affected by the great rise in wage► which had taken place in the poet-War period. Now, however, the recovery has actually been assisted by the various merger schemes which have fed the popular imagination as to the economies which will result from them. Whether these expectations have been too sanguine time will show, but probably those who have purchased for the rise are not over anxious, reckoning that so far as the next dividends are concerned matters will be aided by the receipt of the second half of the payments which have to be made by the Government to the Railways.
* * * * At the time of writing the impression prevails that we shall see considerable financial activity after the Whitsun holidays. Among other things, the market still holds to the opinion that a Funding Loan may be issued during June, while the fact that on the 1st of that month £50,000,000 in Government dividends will be released is also borne in mind. Quite apart, however, from the possibility of a British Funding Loan, great activity is expected in the matter of other capital issues, for it is evident that available resources are still large, though it may be doubted whether the investor will not demand rather better terms than those offered recently either by New South Wales or the Straits Settlements.
* * * Although I confess to an inveterate dislike of making financial prophecies, my objection does not extend to giving currency to the indiscretions (I) of those who are more ready to adopt, the prophetic role. On a previous occasion I have referred to the really remarkable forecast by Mr. A. H. Gibson, the well-known banker and statistician of Bradford, of the rise (which has since taken place) in gilt-edged securities. In the Monthly Journal of the Bradford Chamber of Commerce for February of last year, Mr. Gibson had an article entitled " The Coming Rise in High-class Investment Prices," and " come " it most certainly did. The main contention on which Mr. Gibson based his forecast was that inasmuch as commodity prices had fallen for a considerable period without a corresponding advance in investment securities, an upward movement in the latter was overdue. He therefore expressed tho opinion that Consols would rise to 60 'within a period of two years, within a period of three years to 65, and within a period of five years to 70, Consols, of course, being taken as a kind of key to investment securities generally. At the time the article appeared Consols stood at about 47, and within very little more than a twelvemonth the price has risen to nearly 58, while other gilt-edged securities, as we know, have advanced proportionately.
* * * * Mr. Gibson has now published another article in the same journal, and holders of investment stocks will no doubt be glad to learn that he entirely maintains his view, and expresses the opinion that " Consols may touch 65 during the coming year, though it is unlikely that the average price for the year will exceed 60." Without in any way contesting Mr. Gibson's views with regard to the course of investment securities, there are just two points with regard to his basis of reasoning on which I would like to comment. With one I am in accord. Mr. Gibson suggests that the view put forward in some quarters that a revival in trade would occasion an immediate sharp rise in money rates is unlikely to be verified because, as he puts it, a revival in trade would in itself liquidate a large amount of banking and commercial credit at present frozen in traders' book debts and stocks." The other point, however, made by Mr. Gibson with regard to the likelihood of a further material fall in commodity prices seems more open to question. Of course, as he says, any early attempt to return to a free gold market might affect the situation, but on the whole I find that City opinion favours a moderate rise rather than a further fall in commodity prices in the near future.
During the past week rumours have been circulated to the effect that the Conference of Central Banks to which I referred in my last letter bad been abandoned. This is not the case. and the report is probably due to the fact that owing to the impending Conference at the Hague the banking conference in London is more likely to be held In the early autumn.—I am, Sir, yours faithfully,
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