ARGUMENT WITH A BEAR

By NICHOLAS DAVENPORT WHEN I was trying to analyse the bear market in Wall Street over two months ago I attached some importance to the current malaise of American public life —the universal cynicism and the air of disillusionment which were then fashionable. The lack of faith in the leadership of the nation must have been really shattering a fortnight ago when the President, as Mr. Adlai Stevenson put it, ineptly handed a crowbar to Mr. Khrushchev for the wrecking of the Summit conference. However, it would not be surprising now to see a change in the American public mood. A crisis always brings the best out of a virile country. The approach of the presidential election is bound to cause a searching of the public heart and a fresh determination to put things right by spending more of the public money. Wall Street usually reacts bullishly to such a stimulating economic prospect.

1 am not suggesting that Wall Street 'bulls' are `warmongers' getting rich on bigger and better defence expenditures. There is no reason why American defence expenditure should be in- creased because of the Paris debacle. What if no American President is likely to go again to another Summit conference? Peace might be in safer keeping if the national leaders never met. I am merely suggesting that as the election draws

near Wall Street will take more note of the ever- increasing outlets for the spending of public money. Take, for example, housing, which is still 25 per cent. or more below its peak. Or take the distressed areas. There are at least thirty major districts and more than a hundred smaller areas where unemployment is far in excess of the national average. The President has before him a modest Bill to provide $250 million of Federal loans and grants for getting factories back into these distressed areas. This programme could be greatly extended by a new President determined to run the economy with less unemployment than 5 per cent. In the face of Russian economic com- petition it is surely absurd for the United States to keep such a large proportion of slack in its economic system.

The businessman seems to have come to the conclusion that the economic malaise is not going to last much longer, for he is planning to increase his capital expenditure on plant and equipment by 14 per cent. this year--according to a govern- ment survey made some months ago. This will bring the capital outlays of American private enterprise back to their peak levels of 1957, namely $37,000 million a year. Meanwhile the consumer is spending more than he has ever done before. Every branch of retail trade reported better sales in April. Consumer spending (at $291,000 million a year) accounts for 68 per cent. of the national product. This upturn in con- sumer demand—not uncommon in an election year—could stop the current fall in steel output and give the lie to those bearish forecasts of a recession in 1961.

This idea, of course, will shock Mr. Eliot Janeway, who publishes the Janeway investment service. Mr. Janeway is a confirmed, old- fashioned bear and he has already written to me to say in positive fashion that 'the bull market is not about to recover the momentum which it has lost irretrievably.' The market, he says, is always supposed to rally in the spring and no one can say that it is not trying, but the trouble is that the good stocks are no longer able to lead the market while the market as a whole is no longer able to follow the 'wonder junk.' Now Mr. Janeway may be right, but the movement of the Dow Jones index does suggest that the

market is trying to get out of its bear rut From its high of 685 it fell 13 per cent. to 596 on March 9, recovered to 637 on April 18, fell to 596 again on May 2 and has since recovered to 623. The index masks, of course, the real activity of professional investors. It seems that they have been selling the 'cyclical' shares of companies vulnerable to a trade recession and buying the more 'defensive' shares in the utility, food and tobacco industries—and also bonds. At the same time they have been buying some of

the 'wonder' stocks which have shown a much

greater than average growth in earnings. All this has caused the market to move narrowly on a small volume of business. It could be a prelim- inary to a new upward trend. All I can say from an economic point of view is that if the American

Government is bound to go. on spending heavily on defence and space programmes, if business-

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men expand their capital expenditure by cent. and if the consumer at the same time more on himself, the United States canr into a recession.

`But what if I am right,' asks Mr. Ja `and our market does go down. What doe market do?' He put this question to `th distinguished' of his British subscribers promptly answered: 'Ours will crack like shell.' I have never heard such nonsense. morton Street is no longer so vulnerable t Street blues. The only British investo interested in Wall Street are the profe managers of the investment trusts who ca look after themselves. Private investors involved in Wall Street. They were caug badly in the Canadian slump in oil and gas and are not anxious to hold a dollar stock If the climate of the world economy still del on America a recession in the US wouli bear pointer for British equities but the world has shown that it can still expand America recedes. Certainly we have e which are sensitive to the American scene are our motor shares, whose dividends expanded with the foreign car boom United States. The prudent investor is no heavily committed to British motor sh unless he thinks that the American Ford wl over the British Ford.

We are perhaps in the last stages of a bear market—waiting to see if sterling. has felt the strain of the recent intern crisis, is going to be weak this autumn an the support of a 6 per cent. Bank rate. B caution need not prevent an intermedi covery. Recent rallies have suggested, as York. that the market is anxious to get its 'bear' habit, even if Mr. Janeway is nt nelVa)'' s yon(

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