The Press WEDNESDAY, JUNE 6, 1962. Wall Street Warning

Press, Volume CI, Issue 29841, 6 June 1962, Page 12

The Press WEDNESDAY, JUNE 6, 1962. Wall Street Warning

If the alarming events on Wall street were the forerunners of an American recession they would worry all Western countries. Fortunately, though Wall street’s nervousness does have something to do with American economic prospects, all other indicators suggest that any marked dip in the economy is unlikely. Orders for durable goods are rising, retail trade is brisk, house-build-ing is at the highest level for nearly three years, and employment, production, and personal incomes have all gone up. President- Kennedy's advisers believe that this progress will be continued well into next year, at least.

What, then, was the cause of the break in the stock market, which at one stage began to resemble the beginning of the 1929 disaster? Probably there were several related causes which combined to produce nervousness among investors. One was the declining profit margin of business generally, and of steel particularly. Ten years ago shareholders’ funds were earning 15 per cent., providing much of the capital needed for re-equipment and expansion. Last year they were earning only 8.7 per cent., leaving too small a margin for ploughing back and offering less attraction to new capital. This trend was dramatised by the argument over steel prices. The buyers of shares

began to look more closely at the return on their investment in high-priced; stocks—3 per cent., com-1 pared with a return of 4 per cent, on Government: bonds. Equities as a hedge against inflation did not appear so promising when the prospects of growth were in the distant future., Business uncertainty added to the hesitancy, which I then fed on itself. At the same time an investigation; of the stock market by the Securities and Exchange' Commission induced caution among the speculators; who might have supported* the market. Pessimism; seems to have stopped far short of panic and to have* had the effect only of; drawing stock prices down to nearer their productive I value. However, the heavy loss; in share values is a warn-; ing that the Kennedy Ad-j ministration cannot ignore.; Business confidence must be restored, and capital must be attracted to the huge investment programme necessary to keep American industry competitive with booming Western Europe. This is well understood by the Administration, which plans to encourage investment by fiscal concessions, while the President is doing his best to remove the impression that he is unsympathetic to business. But business confidence is a tender plant that will require careful nurture.