MINIMUM PRICES FOR STOCK

Press, Volume LXXVI, Issue 23130, 20 September 1940, Page 11

MINIMUM PRICES FOR STOCK

LONDON AND AUSTRALIAN EXPERIENCE

SYSTEM OF CONTROL

JUSTIFIED

Minimum prices for gilt-edged seS cur ities have been effective in London | since March 18 last, and in Australia | since June 15. in both cases with advantage to the market as well as to holders. The maintenance of bond prices has had a beneficial effect on other forms of investment, and played an important part in the implementing of the policy of low interest rates. In virtually all cases in London nrices have remained consistently higher than tho.se at which the stocks i were pegged, with a corresponding rci duction in yields. The 3 per cent. 1948-53 conversion loan bonds, for exampjei were fixed at a minimum price of £99, to give a redemption yield of i £3 Is lid per cent. On May 9 these bonds were quoted at £lOl 17s 6d, showing a redemption yield of £2 15s I 9d per cent. The 4 per cent. Funding I loan bonds, maturing 1960-90, which I were fixed at £IOB 10s, with a reI demption yield of £3 8s per cent., I moved up to £ll2 5s on May 9, showI ini a return of £3 3s 2d per cent.. I while 4 per cent. Consols. • redeeemable after 1957. pegged at £lO5 10s, with a redemption yield of £3 11s 2d per "cent., improved to £llO 12s 6d on May 9, giving a return of £3 4s 7d P On CG the Sydney exchange on May 9 I the 3 per cent. 1948 bonds were quoted J at £9B 7s 6d. showing a redemption vield of £3 4s 2d per cent., the. 4 per cent 1961 bonds stood at £IOB 12s fid yielding £3 8s lid per cent, and the 4 per cent. 1957 bonds were quoted at £IOB 16s 3d. to give a redemption return of £3 9s Id per cent. Comparative average redemption yields on Australian Consolidated Loan Bonds have been as follows: Aug. 14, 1939. £ s. d. To 1945 inclusive .. 3 18 5 After 1945 .. •• 319 2 All issues .. .. 319 p

“Economist’s” Comment

Commenting on the system of fixing minimum prices for gilt-edged secured, the “Economist” has pointed out that controlled prices always carry some disadvantages, and of minimum giltedged prices it may be paradoxically said that they are most useful -when they remain ineffective. Their part is to provide a defence against,severe but essentially temporary aberrations of prices in war time. As soon as they become operative, they must be rendered irrelevant as quickly as possible by a general recovery in prices. The existence of a minimum price schedule of -course, may itself play a part in recovery, if it prevents “snowball” selling and rallies support. To make it effective, gilt-edged must stand firm at some level above minimum prices, otherwise the attributes of minimum prices will be mere accounting make-believe. The Dominions have shown how appeals for loans free of interest can be successfully combined with openmarket issues at interest. The way to adequate war finance, however, lies not through patriotic benevolence, but through, a market marshalled and organised for the war effort. The same journal made some, very pertinent suggestions for the benefit of the ordinary shareholder. “There is no counsel for total war which can be usefully given to the equity shareholder, save that hd should hold his stock. That is the sober duty of citizenship. It is also an appeal to selfinterest, for on any rational weighing of the alternative possibilities of the war situation, this is the wrong time to sell. Even in the short run, any selling of industrials, caused by temporary immobilisation of gilt-edged stocks, should soon be arrested. In the longer run, when national resistance can be transformed into initiative, the position of equities may be much more favourable than it is to-, day. Two Tasks “Admittedly there are risks which cannot be minimised. The threat of air attack on specific industrial plants is responsible, for example, for yields of 15 per cent, on aircraft shares. And, in general, the equity interest in British industry is now vested in the nation as a, whole, and not in a group of shareholders. But, unless one outcome of the war is the supersession of equity capital, the ordinary shareholder must be content to await the outcome of the war with the same personal courage and spirit of sacrifice as other sections of the community. -'There are two paramount tasks. The first is production for war needs, without count of profits or dividends. The second is the fullest mobilisation of Savings and our financial resources Ao finance the productive machine. Under both beads, the role of equity investment is of minor importance. But Under the second task, the need for the continuous and efficient functioning of tbe gilt-edged market is inescapable.”

LONDON METALS MARKET

LONDON, September 18. Tin is quoted: Spot buyers £245; Sellers, £245 10s; forward, £249 and £249 10s. Silver: 23 7-16 d standard and '25 5-16 d fine.

Australian Gold Price.—A record Australian net price of gold, £lO 14s * fine ounce, is announced by the Commonwealth Bank.