FRENZIED FINANCE.

Auckland Star, Volume LIX, Issue 124, 28 May 1928, Page 17

FRENZIED FINANCE.

MANIA FOR SPECULATION.

REACTIOX TEASED.

LURE OF THE SHILLING SHARE.

The whole world seems to be caught up Jn the present fever for speculation. It began in earnest in America rather more 'than two months ago, and with Bteadily rising temperature it continued until the prospect of the Easter holiday caused a temporary lull. Eighty-five million shares changed hands 011 the New York Exchange in March, and on the pavements outside another five million shares were bought and sold. London reacted quickly to the movement, ana frenzied dealings have kept the brokers of Throgmorton Street abnormally busy during the past few weeks. From London it swept on across the Continent like an epidemic of Spanish influenza. Belgium, and to a less extent Germany, France and Italy, each in turn sucqtimbed, and before many days had passed news was reaching England that

countries as distant as Japan had not

escaped, and that in Hongkong there was much activity on the Stock Exchange, "many industrial shares having advanced amazingly."

In a country so incredibly wealthy as America it is not perhaps surprising to find optimism regarding the future expressing itself in. keen competition for shares ill industrial undertakings thjt

have done well in the past few years. There is, 011 the face of it. less rcasoji for Englishmen's faith in the future of its industries, writes the London correspondent of the "Melbourne Age." With a million unemployed and a long•iontinued slump in the great industries there might appear to lie every reasoii for supposing that people with money to lend would be looking for safe investments and assured dividends rather than quick appreciations. But the contrary is the case. Those who preach the doctrine of investment in railway debentures and consols were never less popular. The heavy industries are by no means neglected on the Stock Exchange because there is no immediate prospect of thumping dividends. But it is not dealinffu in such shares that has resulted in tiie present boom. Activity has for the most part centred round small groups of shares. Large profits earned by one company have led to wild speculation in the shares of others dealing in the same commodity. Courtaulds and Celanese having made sensational advances, the shares of other artificial silk companies have been sought after with the wildest enthusiasm. In some cases there is little to justify the prices paid for such shares. Some of the companies have never yet paid a dividend, and some have; hardly yet got their plant together, and their prospects, •Soberly considered, are far from rosy. But the speculators always hope that they will be clever enough to get out before the inevitable reaction comes. It is the same with the gramophone companies. So far from killing the gramophone industry, wireless seems to have given it, a decided fillip. The demand for records is greater to-day than erei it was in the past. New companies have promptly sprung up to meet the

safety glass, Alms and motor cars. Altogether fictitious values have been set upon the shares of new concerns—sympathetic values which they owe solely to the fact that established conceriio dealing in these commodities have made good, and that there is a demand "for shares which must be met. Shilling Share Issues. One factor that has done much to increase the volume of business in shares is the now common practice of floating new companies, inviting applications for a certain number of £1 preference shares and an equal number of 1/ deferred shares, applications for the latter alone not being entertained. Almost invariably these issues are heavily oversubscribed. The pound shares go on the market at a discount. The shilling shares start at a heavy premium. Many well-supported companies with good prospects have of late adopted this practice, and have enabled the small investor to have a "flutter." There is nothing particularly vicious about the shilling share, but, judging by the prices at "vhich business in some of them is done, it would appear that purchasers at times forget their nominal value, for the shilling shares are often bought within a few days ot issue at from 10/ to 15/. Sooner or later disaster is lying in wait for holders of such shares in companies that have scarcely yet acquired any existence except on paper.

Stockbrokers warn their clients in vain in times such as these. Reluctantly they execute orders to buy "at best" parcels of shares that are being dribbled on to the market by shrewd manipulators. Prices fluctuate violently, and the position of a purchaser in a queue at ail issuing office may make a difference of several shillings in the price paid for shares. It is quite useless for the brokers to oirer advice. The speculators, many of whom are women, know perfectly well that they are indulging in a gamble, in which they might have their lingers badly burnt. They prefer to back their fancy on a rapidly-changing market, always hoping it will be someone else who will fail to get out in time. They lightheartedly disregard alike the past record, present position, or future prospects of the companies whose shares they buy.

It is idje to pretend that much of this speculating in shares, good, bad and indifferent, is not thoroughly unhealthy. Specious efforts are made in some quarters to justify it. The argument used" is that the great adventure of business could not be carried on were it not for those who are willing to take a risk with their capital. It is, they say, all moonshine to compare the existing boom to the South Sea bubble and other famous Stock Exchange gambles of the past. These latter cases were swindles founded on nothing. Did not the South Sea company and its subsidiaries with nothing behind them undertake to manage the National Debt and other absurdities? To-day we are told we live in very different times. There is now more intelligence and less credulity, but most of the speculation now going on is sheer gambling, of the type which, after the war, sent £3 shares in Lancashire cotton mills up to £22 15/, with the inevitable result that overcapitalisation added seriously to the economic difficulties of the cotton industry. In many otner trades and industries reckless over-capitalisation led to disaster, even in the case of well-found, healthy businesf. It is obvious that immature companies with little behind them will not be able to hold tlwir own •gben rea^tionfrona