FALL IN SECURITIES AND COMMODITIES

FINANCE

FINANCIAL conditions in the City during the past week have been somewhat sadly in contrast with the gay appearance of the streets in connexion with preparations for the Coro- nation. However, it would not be at all surprising if before we reach Coronation Day we were to have seen the worst of liquidation in the Stock Markets with prices again taking an upward turn. For, in the main, it is forced liquidation of speculative positions which has caused a slump in markets during the past two or three weeks, and it is a slump which must have caused considerable anxiety to many genuine investors who had no reason to suppose that an early and drastic fall in prices was at hand. How extensive and, in places, how considerable has been the fall in prices during the past week may be gathered from the following table :

Price. Fall on the Stock.

April 20.

April 27. week.

Furness Withy

31 '3

27/6 3'9 P. and 0. Steam.. 36 - 32!6 3,6 Dorman Long ..

546 49-

5.6 U.S. Steel 214.- 107- 7'- Vickers 3116 28 6 3 - Bristol Aircraft .. 53/9 47 6 6, 3 Imperial Airways 53/9 5o - 3 '9 Leyland Motors .. roo/6

90:-

-io '6 Standard Motors 152/6 137/6 15 - Distillers .. I15/- 10819 6:3 British Oxygen .. 116/roi 205/- I1,101 International Nickel 651 6o 51 Chartered Company

37/6

34/3 3-'3 Roan Antelope .. 7o/6 61/3 9 3 West Witwatersrand 134 124 r k Goldfields 41 334

Ii

De Beers

201 I81

24

Rio Tinto Copper

24

19

5 REASONS FOR THE FALL.

What, then, have been the main causes responsible for this great change in market conditions compared with only a few weeks ago ? In the first place, it will be remembered that I recorded recently the very sharp fall in the shares of all Gold Mining companies owing to a report that the United States was about to reduce its buying price of gold. The report was promptly contradicted, but holders of Gold Mining shares have found it difficult to recover from the shock. The report was founded on the knowledge that the United States was being inconveniently inundated with gold arrivals, and consequently a feeling of uncertainty remained whether there might or might not be some ultimate change in American currency policy. In the second place, this rumour was accompanied by a general feeling that Washington was doing its utmost to check not only the inflow of gold, but also the inflow of foreign capital to America ; in other words, that the Authori- ties were against the activity and consequent rise in securities and commodities, and inasmuch as large sums of British capital have gone during recent months for investment in America, it is probable that the set-back in American shares also had an adverse effect upon the Stock Markets.

The final blow to markets already made sensitive by the influences I have mentioned was imparted by the Budget. In so far as the rise in the income tax to 5s. was concerned, the effect had been fully discounted. Moreover, what was perhaps more important was that there were practically no speculative positions open in British Funds and kindred securities, which would have been especially sensitive to the higher income tax, whereas on the other band, there were very large speculative positions in Home Industrial shares, due to anticipations of further large expansion in profits. Even if the buying of these shares of industrial companies had been entirely on the part of genuine investors, it is probable that there would have been a moderate decline in prices on the new profits tax proposals, but there would not have been anything in the nature of a slump. Events, however, have shown that there were extensive speculative positions open, positions which have been suprorted on borrowed money. Hence the proposals of the Chancellor of the Exchequer came as a real shock to the market. -

(Continued on page vii.)

FINANCE

(Continued from page 842.) THE CITY'S VIEW.

Now, concerning this proposed profits tax or contribution to the National Defence, as it has been euphemistically described, I am rather anxious to express the general feeling of the City quite clearly and fairly. In the first place, the general principle of the tax, that is to say, the idea of obtaining a contribution from the quarters most likely to benefit by rearmament expenditure commands general approval. In the second place, if this principle happens to clash with the interests of speculators who had acquired shares in the hope of securing full benefit of this special expenditure, no sympathy need be wasted with regard to losses sustained as a -result of the fall in prices. And the same remark applies to those who may have speculated in those commodities which they considered would be affected by the demands in connexion with the outlays on national defence.

So far, however, as Mr. Chamberlain's proposals are at present understood, it has seemed to the City that, in their present crude form, they contain much that is likely to occasion an inequitable application of the duty, and even in many instances, seriously to discourage commercial undertakings at a moment when they are only just turning the corner after a prolonged period of extreme depression.

FEARS OF EFFECT ON TRADE.

As recently as last October, when speaking at the Mansion House, the Chancellor of the Exchequer emphatically stated that he attributed comparatively little of the improvement in home trade to special Government expenditure on de- fence, which expenditure had scarcely begun. Bearing this point in mind, it has seemed to the City both inconsistent and undesirable that many undertakings, including shipping, which only quite recently have begun to earn profits at all, should have a heavy toll laid upon them through forthcoming profits being compared with years of exceptional depression and, rightly or wrongly, the City has feared that, through the infliction of any kind of injustice, general confidence might be impaired, and that business enterprise itself might be _seriously discouraged and a setback imparted to trade generally at a moment when such a setback would be disastrous, from the standpoint of the National Exchequer, and still more from the standpoint of wage-earners.

DESIRABLE CHECK TO SPECULATION.

It will therefore, I think, be seen that the slump in markets has been due, primarily, to the influences described having an immediate effect upon weak speculative positions forcing liquidation, and, indeed, in more than one direction financial embarrassments have been disclosed. This effect on prices, however, has been greatly intensified by the fact that, as distinct from the mere speculator mourning over his losses, gravely considered opinion in the City has inclined to the view that until the Chancellor of the Exchequer's proposals assume a form less threatening to industry as a whole, a gravely disturbing factor has been introduced into the general business outlook. It is, of course, recognised that the Chancellor would be the last person to desire to introduce any such disturbing influence, and it is quite probable that before this article appears in print Mr Chamberlain may have made such modifications in his proposals, or have foreshadowed such modifications, as will have removed these misgivings. If that is so, I think it should not be long before markets have seen the worst of the present slump, while it will certainly be no bad thing if, as a result of the disturbing influences. I have enumerated, the spirit of gambling in wheat and other commodities should have received a wholesome, if severe, check. ARTHUR W. KIDDY.