watched the onset in North America
of the worst depression experienced since the war; we have seen a further shrinking in world trade with our own unemployment rising and the tonnage of our ships laid up doubled since the end of the year; and we have been threatened by the French with exclusion from the European Common Market. And yet the Chan- cellor of the Exchequer blithely goes down to Torrington and tells the bored and bewildered electors that the reduction in Bank rate to 6 per cent. implied 'no change' in Government policy, that its 'anti-inflation' policies (euphemism for de- flation policies) remained the same and would be prosecuted with the same vigour, that the change was not intended to be 'a green light for expan- sion' and so on. When I wrote an open letter to Mr. Amory on January 17 to welcome him into Mr. Thorneycroft's shoes, I did not expect him to put on his predecessor's austere black clothes. I assumed he would adopt a more flexible policy and do a little quiet thinking on his own. But, alas, he appears to have allowed the Council on Prices and Productivity to do his thinking for him. No one but Sir Dennis Robertson, being hand and glove, I suspect, with Sir Leslie Rowan, could have told the Chancellor to say that 'we intend to maintain a high long-term rate of interest.' Mr. Amory might just as well have stood in the market place at Torrington and proclaimed the Govern- ment's intention to stop this great trading nation from selling its goods profitably abroad. For what, in Heaven's name, does a high long-term rate of 87 2
Transfer your
go-slow cash eee
to this safe, shrewd, go-ahead investment . . .
This dear money policy is getting beyond a joke. Take the cost of the floating debt to begin with. Following the 1 per cent cut in Bank rate the Treasury bill rate last Friday came out at £5 1 ls. lid. per cent., which is certainly much better than the £6 Os. 61d. per cent. of the previous week or the 6+ per cent. of last autumn. But what an absurd financial system we have evolved to make the Government of this credit-worthy, prosperous and stable nation pay from 54' per cent. to 6+ per cent. per annum for its day-to-day finance just because there was a temporary flight from sterling last autumn, just because the time- honoured policy of the Overseas Finance Depart- ment of the Treasury demands a high Bank rate in a moment of crisis wherewith to impress the foreigner and attract 'arbitrage money' to Lon- don ! I do not believe the foreigner was impressed by a 7 per cent. Bank rate for a moment. The intelligent ones are much more likely to be impressed when the Treasury pursues a sane internal policy. And who wants 'hot money' to come to London and make a killing out of our financial folly? It brings no permanent gain to the reserves. When the American bank rate had fallen to 24 per cent. and the West German to 31 per cent, and even the Dutch to 4 per cent., the margin of profit on London financial opera- tions was so great that the warmest type of un- desirable 'hot money' was being attracted here to do the financing jobs which. Mr. Amory had forbidden to our own banks! Never before in history has a great country with an export trade of over £3,300 million a year, a surplus on its international account running at nearly £300 mil- lion a year and with its gold and dollar reserves rising for six months in succession, been forced to pay such penal rates for its money.
* * *
COMPANY NOTES
By CUSTOS THE reduction in Bank rate to 6 per cent. was followed immediately by
14L 4 only a moderate rise in the gilt-
15;'' edged market but by a smart re- covery in equity shares. This has surprised many people because the worsening of the American recession and the threat to world trade and our exports are not bullish factors for the industrial share market. The explanation is twofold. First, the 6 per cent. Bank rate had long been dis6minted in the gilt-edged market and the Chancellor was quick to damp down any optimism about lower long-term interest rates. Secondly, there were many bears of industrial equities who felt it wise to cover before the end of the Stock Exchange account on Tuesday. When this covering move- ment had ended, prices fell back. However, the 'bulls' are arguing that the average. yield on in- dustrial shares is relatively high. On the Financial Times index it has been nearly 7 per cent. and is now 6.8 per cent.; on the Actuaries index it has been 7+ per cent.-2 per cent. more than the yield on 21 per cent. Consols. It is very many years since the industrial equity yield has been so high or the differential between that and the yield on Consols so wide. Moreover, the 'bulls' say that there is just a chance that the American depression will not have such a bad effect on our exports as was feared. What is my own opinion? I would not deny that we may be near the bottom in the equity markets, but I would let the market decide it on the chart by tnaking two recoveries— the second would have to be stronger than the first. In the meantime I would begin very cautiously, avoiding those companies whose profit margins are still falling—electrical engineering, for example—or those industries which are still suffering from over-supply—oil, for example. Chemical shares seem to fit the bill as 'defensive' investments. The all-round dullness of the markets on Wednesday suggests that the majority of in- vestors still want to play for safety.
per cent. to the cost of his goods, and in some cases had lost him the trade. Does Mr. Amory seriously think that a trading nation like ours, living by its exports, can survive the increasingly fierce competition abroad if he maintains such high rates of interest as add 25 per cent. or more to the cost of our goods while our chief competitors —America and Germany—have low rates of interest? My business friend, in his innocence, asked why exporters could not get a special 'sub- sidised' rate of interest when and if it was neces- sary—'if' is the big word—to support the £ with 'a high rate. He did not realise that when the Treasury worships the golden calf of hard money and prescribes the ritual of dear money, every- one has to ,be offered on the sacrificial altar— exporter, trader and taxpayer alike.
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