"POLITICAL ALARMS"

Evening Post, Volume CXXIV, Issue 126, 24 November 1937, Page 12

"POLITICAL ALARMS"

BRITAIN'S SOLIDITY

MARKETS DISTURBED

STOCK EXCHANGE REACTIONS

Mr. Henry Kitson, president of the Stock Exchange Association of New Zealand, .in his annual address delivered in Wellington today, took occasion to refer first to the trade revival and the need of taking stock of the position today. He remarked that on looking back one was impressed by the fact that capital had taken too large a share in the form of interest. The determination of Governments to curtail this advantage and to keep interest at comparatively low rates had done much towards the revival. "Individuals and companies," he said, "have not forgotten the effect of having liabilities covered by assets that quickly freeze on falling markets. Probably company and private finance are in a far sounder condition than has been the case for many years, in spite of the expansion of trade, and the necessity for finance to meet competition and conditions." ' The Dominion's external trade returns for the year ended June 30 last were reviewed and reference made to taxes for the third quarter of the current year. In dealing with the overseas funds of the Reserve and trading banks as for June, 1937, Mr. Kitson noted that they had been contracting, totalling £36,900,000 in New Zealand currency at June last, against £43,900,000 at June, 1936. On September 27 last, Mr. Kitson pointed out, the net oversea funds had been, further depleted and stood at £29,900,000 (New Zealand currency), as against £34,000,000 for twelve months prevoiusly. "Should there be a marked fall in the prices of overseas primary products," said Mr. Kitson, "some form of rationing of imports may have to be exercised to conserve overseas funds." WANT OF CONFIDENCE. "The year 1937 has been a year of recurring political alarms and excursions," Mr. Ritson continued. "In the earlier months of the year recovery of trade and the rising values continued, at least in the major portion of the world where ideological and economic lunacy does not hamstring enterprise and place a premium upon national and individual poverty. Great Britain once/again demonstrated the inherent solidity of her constitution and the strength of her national good sense. In the'middle months of the year rising prices were checked, and after a brief period of hesitation slipping back began. The rise in base metals was a little breath-taking in its rapidity, and we experienced the usual exaggerated pendulum swing. Merchants and manufacturers having been accustomed to low prices and plentiful supplies waited until prices began to rise and supplies became short, to replenish stocks. Once such a movement is started it is apt to be exaggerated by the buying of a host of more or less well-informed speculators. SCARE LEFT ITS MARK. "In April the National Defence Contribution proposals were outlined in the presentation of the Budget in England. Share values declined by £400,----000,000 in a few days. Hojtoever, the proposals were greatly modified, and most of the objectionable features which provoked criticism were removed before the Finance Bill became law. But the scare left its mark. "In May the uncertainty of the future of gold again seriously disturbed markets. The uncertainty arose because of the apparent difficulty of answering^ two questions: 01) Can America and England afford to keep on buying gold indefinitely? and (2) If the supply of gold increases so much, owing to its high price, will it not fall in price like any other commodity in obedience to the laws of supply and demand? The sudden and large shipments of gold by Russia to America no doubt -were largely responsible for this short-lived crisis. "In July, after months of lethargic markets and falling prices, there was a slight feeling of reviving prices and improving business, but markets were in a condition to react more readily to bad news than to good. "Companies produced balance-sheets showing big increases in earnings which would have, in normal times, sent their' shares through the roof; in the most part it failed to have any beneficial effect upon share prices. In August, security markets remained in a state of suspended animation between the conflicting forces of economic expansion and international disruption. Financial enterprise is checked not so much by the tragic reality of simultaneous war in the East and "West, but by the possibilities of wider strife inherent in such a situation. CONFIDENCE UNDERMINED. "The succession of shocks had deeply undermined confidence, but up till then there was no great selling pressure; merely an absence of buying. However, the stage was set. After a series of small selling waves in New York the selling pressure developed on Wall Street and repercussions were quickly felt throughout the world. September was a bad month both for investors and speculators. American stocks fell 20.5 per cent, and British industrials 14.8 per cent, from their recent high levels. This movement, accompanied by a steady decline in. commodity prices, has taken place in the face, of such continued evidences of industrial well-being that the phrase, 'panic amidst prosperity' is not entirely unjustified. All sorts of reasons are advanced to explain this apparently paradoxical behaviour of markets. Two factors are mainly responsible—overspeculation and the defeat of inflation psychology. INFLATIONARY THEORIES. "At the same time it becomes increasingly'clear* that a great deal of speculation both 'in shares and. actual commodities has been based on inflationary theories. Currency devaluations, the rise in gold and the increased supplies of gold, the American continued deficits, the international arms race, and the almost universal practice of increasing debt for unproductive purposes, have, in relation to the magnitude of world debts, created a situation in which an inflationary rise in prices is eventually inevitable. "Profits and savings are increasing rapidly, the selling of recent months and the abstention of many potential investors from the market, have created a large reserve of buyihg power which will operate once confidence returns. "After a period of hesitation prices should establish themselves upon a moderately higher basis in an atmosphere of comparative stability unhindered by forced selling. It is possible to be reasonably confident, and to believe that an investment policy based on economic probabilities, rather than political fears, has the best chances of success."' Mr. Kitson also made special reference to New Zealand conditions. His remarks.are reported elsewhere. ___