Finance.- —Public and Private

The Rise in Investment Stocks

A FORTNIGHT ago in these columns I felt justified in taking a favourable view of . the outlook . for gilt-edged securities. I did not expect, however, that the rise was likely to be so immediate and so extensive. Indeed, it is generally admitted that the occasions have been few when there has been so remarkable a change in sentiment and so pronounced a rise in investment stocks within a brief period as that which has occurred within the last fortnight. The greatest movement has, perhaps, been within the still briefer period of ten days, and the following short table records the movements which have taken place in just a few leading British Funds and kindred stocks between March 14th and 24th :- Price Price

Mar. 14th. Mar. 24th. Rise.

Consols 4% .. .. 861 891 +31

do. 21% .. .. 554 571 +2 Conversion 5% " A" .. 1011 1041 +21 do. 5% " B " .. 1021 1051 +21 do. 41% " B " .. 961 1001 4-31

do. 31% • ... 771 791 +11

92/ +21 661 +21 .. 1021 1031 +1

100 +31

2521 ±11

CHEAPER MONEY.

Cheaper money not only here but at various monetary centres has been the prime factor responsible for this great advance in stocks, which usually Move in small fractions within so brief a period. During the last few weeks the Bank of England rate of discount was twice reduced, the fall being successively from 44 to 4 and from 4 to 34 per cent. Indeed, at the time of writing there is some talk as to the possibility of a further reduction to 3 per cent., the talk being based, in the main, upon the fact that even the 34 per cent. rate has proved to be out of touch with the open market quotation which at one time during this week fell to .211 per cent. CAUSE OF LOWER MONEY RATES.

The investor, however, will naturally put- two very pertinent questions. The first is, What is the cause of this fall in money rates ? " and the other is, " Is the fall likely to be of king duration ? " It is easier, perhaps, to answer the first question than the second one. The change in the monetary situation commenced in the autumn of last year at the very moment when our Bank Rate here was raised to 64 per cent. At that time I endeavoured to explain in these columns to investors that such apparently uninteresting matters as the state of the Money Market and the decline in Bank Rates were, after all, matters likely to vitally affect the outlook . for investment securities. Our Bank Rate, it will be remembered, was raised to 64 per cent. last September because of the high money rates in New York consequent upon the boom in Wall Street, those high money rates having had the effect of attracting capital from abroad to an extent affecting the American exchange and causing gold to flow to the United States.

NEW YORK INFLUENCES.

Almost immediately following the imposition of the fik per cent. Rate here, however, the boom in Wall Street broke, and at that time I emphasized the event as one likely to affect the whole monetary outlook. Such has proved to be the case. Money rates in New York have fallen away, and large credits which had accu- mulated for the financing of speculative operations have been set free for use in other directions. Had trade been in a condition to respond to this change in the monetary situation it is possible that the collapse in money rates might not have been so pronounced. With trade dull at nearly all centres, however, the Money Markets, in the first place, and now the Stock Exchange have felt the full effect of this change in monetary conditioni. It is possible, too, that the downward movement may have been accentuated by a United policy on the part of the leading Central -Banks of the world to work for monetary ease. In the first place, all the Funding 4% .. 90 Locals 3% .. 64 War Loan ..

do. 41% .. .. 961 Bank of England .. 251 Central Banks have a common object in seeking for a revival of trade through the influence of cheap money, while it is possible, too, that the Central Banks are anxious to prepare the way for favourable conditions on the international Stock Exchanges for the flotation of international Loans, including German Reparation Bonds. However that may be, there can be no question as to the great extent of the fall in money rates and its effect upon high-class investment securities.

WILL THE FALL CONTINUE ?

To attempt to answer the second and more practical question as to the probable duration of the fall in money rates would be to attempt the impossible, and I can only say in a sentence or two what is the general opinion of the City at the moment with regard to the matter. So far as the next few months are concerned, the feeling is generally in favour of a continuance of fairly cheap money, though whether the effect upon gilt-edged securities will now be restrained by such factors as Budget apprehensions or an increase in the supply of new issues of capital remains to be seen. With regard to any longer view of the monetary situation, it may be said that the main key to the position still lies in the United States. If cheaper money at that centre should lead to quiet investment business in high-class Bonds, including the Bonds of other countries, it is quite probable that monetary ease may have come to stay. If, on the other hand, the effect of cheap money should be to stimulate a fresh boom in Wall Street, then I think there is little doubt that an easy summer might be followed by autumn stringency. ARTHUR W. KIDDY.