FINANCE—PUBLIC AND PRIVATE.

CONDITIONS ON THE STOCK EXCHANGE—THE ARGENTINE RAILWAY YEAR.

[To raj EDITOR Op TIM " &WM.:M.")

S1R,—To judge from the course of events during the past week, it would almost seem as though the City had thriven on the coal strike. Not only have most of the Foreign Exchanges rallied from the fall which accompanied the commencement of the strike, but many of them stand at a higher level than before the strike commenced. Moreover, the Stock Exchange has displayed remarkable optimism throughout, refusing to believe that the strike would be of long duration, and during the whole of the past week markets have been almost buoyant. The reason for this optimism and buoyancy may therefore well be sought, for at first sight it is a little perplexing.

The first explanation is to be found in the fact that inasmuch as speculative selling for the fall—bear opera- tions, in other words—is prohibited nowadays, one of the forces accentuating the fall in prices before an apprehended event like the coal strike is lacking. Another reason for the resistance of the markets to recent events is that there is still a considerable volume of money seeking investment, and it is noticeable that in almost all cases where an attractive fresh issue of capital makes its appear- ance, its ready absorption by the investor soon follows, even though the actual initial response to the prospectus may not be equal to expectations. The third and more important explanation, however, of the cheerfulness of the markets is to be found in the fact that the check to industrial activities, occasioned by the strike, involved the release of large amounts of funds employed in trade. As a result first of lower prices of commodities and later of the strike, bankers' loans have probably diminished greatly during recent weeks and the volume of credits in the Money Market has been superabundant. To some extent, no doubt, part of the money released from trade has gone to support securities, while expectations of a further diversion of cash resources from trade to securities have had something to do with the firmness of markets. But, while far from minimizing the importance of these influences, I suggest that they may prove less powerful

than the Stock Exchange anticipates. If the coal strike should not be settled quickly, the result will be utterly dissimilar to any ordinary trade reaction, when money flows readily into stooks ; for impaired confidence, not to say chaotic conditions, would be so pronounced as to render investment activities unlikely, save in gilt-edged and short-dated securities. If, on the other hand, as seems to be more likely, the strike is settled before this letter appears in print, and if, moreover, it is settled on lines promising an increase in output, those banking quarters in the City most capable of forming an opinion look for an immediate resumption in industrial activities on a scale likely to revive quickly the demands for financial accommodation. This in its turn would quickly curtail the volume of capital seeking investment in existing securities, especially as following the settlement of the strike a recommencement of public issues of fresh capital on a large scale may be looked for. In fact, while steadi- ness of markets may be justified by an improvement in the industrial position, it may be doubted whether the moment has arrived for any pronounced rise in securities as a whole.

It seems the more desirable to dwell on this point because there have not been wanting indications of a revival in speculative as distinct from investment activi- ties. It is true that the process of contangoing on the Stock markets has not yet been resumed, but, nevertheless, there is reason to believe that the hidden speculative position in many directions is greater than is generally supposed, and we know from the experience of the past twelve months that speculation at this juncture, whether in commodities or securities, is to be deprecated for many reasons, one of them being that, owing to the abnormal requirements for capital all over the world, there are— or ought to be—no spare credits for financing speculation. Six months ago, the rise in the Bank Rate was largely due to the necessity for checking speculative operations ; and inasmuch as we do not wish to see an 8 per cent. rate, it must be hoped that banks will do their utmost to check the recurrence of mere speculative operations. Nor is it merely on the Stock Exchange itself—where there are indications of revival of speculation and the " introduc- tion " of shares to public dealings as distinct from the ordinary offering of them by the prospectus method— that signs are evident of the revival of speculation. In the householder's letter-box share-pushing circulars are once again noticeable, the twopenny post being evidently quite insufficient to check the exuberance of those philan- thropists who are so desirous that the public should par- ticipatein their money-making schemes. In the Oil Market in particular there are abundant possibilities of a genuine character to fire the imagination, and that great oppor- tunities for the speculative investor in this direction still exist is probable enough. Nevertheless, when the public is told, as it is in one circular recently received, that the individual can buy a block of a certain share mentioned, and " can rest in his easy chair for ever," the necessity

for caution, not to say suspicion, becomes apparent. Moreover, it must not be forgotten that it is now, when the high cost of living and the claims of the tax-gatherer press hardly upon limited incomes, that there is the greater danger of the public being tempted to embark on risky speculations in the hope of obtaining the much-needed expansion of income. There should be the less need for the public to indulge in imprudent speculation, because the opportunities offered for investment in stocks giving both a high yield and a fair prospect of increasing capital value are numerous. Thus with the 3 per cent. Local Loans stock offered at 50,

and quoted in the market at nearly kper cent. discount,

an investment with a 6 per cent. yield and a chance si ultimate rise in value is ready to hand, while only during the past week we have had an issue of fairly attractive 8

per cent. seven-year notes at 96i per cent. in an important industrial concern. Moreover, unless I am much mistaken,

there will be in the immediate future a continuance of flota- tions of capital along lines which will offer to the investor high interest rates combined with very fair security.

The reports of three of the leading Argentine railway companies for the financial year which ended on June 31.4.b

show that for that period at least something like their old-time prosperity has returned to these favourites of the British investor. The total tonnage carried was on some of the lines a record in their history ; in others it did not surpass the remarkable figures of 1912-13 ; but in spite of this the gross receipts in all cases created new records, thanks to the increase in rates which came into effect in September, 1919. The huge traffics were due largely to the release of shipping which followed the signing of peace. The harvest of 1918-19 was mainly carried to the ports in the latter half of 1919, while that of 1919-20 was hurried forward to take advantage of the high prices ruling in Europe, and was chiefly carried in the second half of 1919. Thus the railways really crowded the greater part of two years' normal traffic into one financial year, snd the weekly traffic returns now being shown are poor partly because comparison is made with an exceptionally good period, though the restrictions placed by the Argentine Government on free exports of wheat and sugar are a contributory cause. Even if the results of the current year fall considerably short of those of 1919-20 as regards traffic, however, the companies have a useful nest-egg in reserve in the shape of exchange profits. Until last year differences in exchange did not amount to very large sums, and they were taken into the ordinary revenue accounts. Last year, however, exchange profits were excluded altogether from the net revenue figures. From this source the Great Southern realized a profit of £1,230,733, the B.A. Western a profit of £698,943, and the Central Argentine apparently about £1,000,000, the directors refraining in this case from stating a definite figure. These profits are equivalent to an additional 4 per cent. dividend on Great Southern Ordinary stock, an additional 51. per cent. on Western Ordinary stock, and of a trifle over 3 per cent. on Central Ordinary and Deferred stocks. These sums have been added to renewals and reserve funds, in addition to liberal allowances from revenue. The yields on the leading Argentine railway stocks at present prices are shown below :-

Div.

Price. Yield % a d.

B.A. & Pacific Ord. .. 5 .. 54 .. 9 16 0 B.A. Great Southern Ord. 7 .. 71i .. 10 7 4 B.A. Western Ord. .. 7 ..

'71i ..

10 7 4 Central Argentine Ord. .. 6 .. 641 .. 9 18 4 „ Def. .. 6 .. 60 .. 10 14 4

At the moment of writing the Buenos Ayres and Pacific report has not been issued, but indications suggest that the dividend policy has been even more conservative than in the case of the others.-1 am, Sir, yours faithf ally,