FINANCE—PUBLIC AND PRIVATE.
MARKETS FACTORS.
CONFLICTING INFLUENCES--MONETARY CONDITIONS FAVOURABLE—BETTER NEWS FROM FRANCE- . REPARATION LOAN RUMOURS—IRELAND THE DARK SPOT—OUR DEBT TO AMERICA.
(To rzi Ersrros of rn " Elmorrroa."1 Sia,—The influences operating upon markets are of a mixed and opposing character, and it is difficult to determine which are likely to prevail. On the one hand monetary conditions remain easy, and while there are not wanting indications of some alight improvement in trade it seems unlikely that for some months to come any "trade revival can become sufficiently pronounced to affect adversely the stock markets through any really important rise in money rates. Moreover, at the moment, the effect of easy monetary conditions on the stock markets is emphasized by the concrete fact that to-morrow (June 1st) there will bo released about £52,000,000 in dividends on the 5 per cent. War Loan. It usually takes a few days for this money to come freely upon the market, and inasmuch as the Whitsuntide holiday almost immedi- ately follows the disbursement it is probable that its effect upon the Investment Market will not be clearly revealed until Whitsuntide is over. The first post-War fortnightly settlement has revealed but a small speculative position, and prices, especially in the English Railway Section, have been maintained. In fact, both as regards the technical position of markets and the monetary outlook, there would seem to be little reason for apprehending an immediate break in gilt-edged securities, though the failure which has attended the attempts of the New South Wales Government and the Straits Settlements to obtain a response from the investor to 4} per cent. loans at 95 suggests that the public is still inclined to look for a return of not far from 5 per cent. on a British Government stock and for a larger return on Colonial Loans.
* * * That is a point which should not be lost sight of in measuring the chances of a further rise in gilt-edged securi- ties. Moreover, although as I have stated the fortnightly settlement showed no important open speculative positions, there is reason to believe that some largo blocks of high- class investment stocks are carried on borrowed money, and therefore if any turn in the tide were to come the selling in investment stocks might be rather extensive. Nor, of course, should the possible effect of the further stream of new capital issues during June be left out of consideration, while even as regards the loans already floated instalments amounting to about £20,000,000 have to be paid during the coming month, and while investment resources are large there have not been wanting signs of late that many of the applications for new loans have been on the part of premium hunters rather than the genuine investor. * * * * It is when external influences in the shape of politics are considered that the mixed character of the influences operating becomes more apparent. For some time past the Stock Exchange has affected to believe that all these external matters might be disregarded as market factors so long as monetary conditions remained easy, but that feeling has been rather less confident during the past week or two. As regards one of the most important matters however, namely, the state of international politics in Europe, and in particular the relations between France and Great Britain, the latest developments are by no means unfavourably regarded in the City. May 31st has come and the German reply to the demands of the Allies is considered as conciliatory, while the important banking conference in Paris, to which I referred last week, seems to be making progress. Whether as a result of that conference we shall ultimately see a large German loan floated at the various international centres, including New York, I should not like to say, but from all the information which reaches me I am inclined to think that the project may materialize. Up to - a point, and subject to certain limitations, it has the sympathy of business men, while the stock markets are glad to. note that the American bankers seem to be laying it down as essential that any German international loan would have no chance of success unless the pact between France and England were made a very strong and definite one. * * * To appreciate the City's view of the German Reparation problem it is necessary to remember that that problem has at least two main aspects, namely, the actual amount to be paid by Germany and the method of its payment. It is with this latter aspect that the question of an inter- national loan is connected, and it is the aspect with which the City is chiefly concerned. Business men are prepared to leave it to statesmen to determine what should be the amount of Reparation payments, but once given sufficient evidence of sincerity on the part of the German Government and People it is felt that there is much to be said in favour of the actual payments for the first year or two being made out of the proceeds of a loan raised outside Germany. * * * * In the first place, there is the obvious relief which must come to the German Exchange as a result of Germany being able to make its Reparation payments for the next year or two without resorting to Exchange remittances, with the mark already demoralized. That " relief," however, is not entirely restricted to Germany, because a recovery in the mark means less fierce competition on the part of Germany with the exporters in other countries. In the second place, it may be recalled that, properly enough, the Allies are now demanding that Germany should immediately commence serious reforms, both in her Budgets and her currency arrangements, otherwise it is perceived that bankruptcy is only a question of time. If, however, Germany is to- have what might almost be described as a " dog's chance " to effect these reforms without an actual internal financial and social breakdown it is necessary that something else should be done to improve the value of the mark, and that can only be accomplished by her Reparation payments for the next year or two being made out of foreign loans rather than through the continued process of Exchange remittances. It must not be supposed that in saying this I am necessarily commending a. German loan to the investor, for on that point judgment must be reserved until the schemes now under discussion at Paris materialize. I am merely emphasizing the fact that even those who are the most determined that Germany shall fulfil her Reparation obligations are, none the less, mindful of the necessity which may arise for aiding her in the matter. At the same time, should a German loan be issued it ought to be the task of those who arrange the details to ensure that a portion of the fortunes of German millionaires known to be in other countries than Germany should be applied to the absorption of a large part of the loan. * * * * In contrast to the better feeling with regard to European affairs is the situation in Ireland. Unfortunately, in many respects the serious character of the Irish develop- ments has for so long past been kept from the public by a large section of the Press that the grave events of the past week or two have come with something like a shock. Even those in the City (and there were many) who disliked the method by which the Irish settlement had been reached nevertheless hoped that it might mark the dawn of more peaceful times in Ireland. Those, however, who had given the closest attention to the problem were of a different opinion and, unfortunately, it is shown that those opinions were justified. The Stock Exchange throughout has, I think, been inclined to treat the Irish situation too lightly, but during the past two days dealers have been disposed to revise their view, and while the less active conditions of markets during the past week have been largely due to the approaching holiday and the attractions of Epsom the news from Ireland has undoubtedly been a factor restraining operations. * * * Is it not time that we began to give more serious attention to the settlement of our debt to the United States Govern- ment ? It must be remembered that short of an official intimation from America of the desirability of such a settlement a sufficiently broad hint has been given in the actual appointment by Congress of a small Committee with special powers to carry through a Funding Scheme for funding our obligations at the first convenient moment. It is true that our Debt to America is but part of the whole question of Inter-Allied indebtedness, but if only on the principle that the country which commences first to face its obligations in earnest will, in reality, be doing a service to itself, I suggest that we should lose no time in giving a lead in this matter. After all, the factor of easy money should have its place in determining the basis of any international roan, while forwardness on our part to attend to our obligations should in itself have a favourable effect upon the American Exchange. Not only so, but with an extravagant Government in office I believe that it would be much better that this great external liability should be faced at once both as an incentive to greater economy in the national expenditure and as a stimulus also to greater economy and industry on the part of each individual inn the community.—I am, Sir, yours faithfully,
Previous page
