SLUMP OR BOOM?

Grey River Argus, 30 April 1938, Page 4

SLUMP OR BOOM?

BIG BANKERS GUESS. Investors are learning the necessity for looking beyond the coniines of Australia and New Zealand for factors influencing both the commodity and the money markets, and therefore affecting their own financial interests. It is being more and more clearly recognised that although this country is seperated from the main world centres by thousands of miles, the delicate filaments of finance stretch over all the world, so that not only actual activities, but psychological reactions may bring about repercussions in all advanced countries almost simultaneously with their incidence in the country of origin, states the latest Official Gazette of the Sydney Stock Exchange.

Two countries in particular, at the oresent time, exert a profound influence .upon Australian conditions, the United States and Great Britain. Conditions here may be satisfactory, the economic structure sound, and the financial position -stable, and yet disturbances may very easily be created by movements in either of the two countries mentioned. The difficulty that emerges in the case of the ordinary inquirer, however, is that of obtaining reliable information concerning actual developments and keeping in touch with reliable interpretations of the movements that occur.

Economists, like doctors, disagree. Political leaders may deem it necessary to issue “reassuring statements.” Business men are apt 1o see only a part, or if they do see some state of affairs as a whole, they view it from their own particular angle There is, however, a group of men in England whose considered statements, based on a close knowledge of the facts and issued with a full sense of responsibility, have a ■ wide and strong influence. This group comprises the chairmen of the five leading banks in Great Britain — Barclays, Westminster, Midland, Lloyds, and National Provincial — “The Big Five," as they are familiarly called. Their views are usually cautiously expressed; they furnish investors with a very valuable guide.

bankers optimistic. One of the outstanding and clearly ■recognised facts in Great Britain has been the break in the recovery programme. The volume of employment has for some months been growing smaller. Industrial production, despite the impetus given by the re-armament programme, has not been maintained at the level reached earlier in 1937. Export trade has fallen off to what is considered in well-informed circles a rather alarming degree. A proper conclusion based upon these racts, however, is much more difficult to state. The pessimistic view is that prosperity has just about run its course.for the. lime being, whereas rne more optimisticc opinion is that the break represented merely a minor move-

ment downward in a general upward trend. The five big bankers appear to lean rather towards the optimistic than to the pessimistic view. Mr Reginald . McKenna, for example, stated clearly that he could see no ground for pessimism. Strong influences could be exerted by American conditions, and Britain's export trade would need to be expanded, but industry was financially and technically stronger than before the last depression; world markets were not overburdened by vast stocks of materials, and producers were better organised to adjust their output to demand. He considered that it would be wrong to deduce from the recent, commodity and stock exchange movements that conditions were necessarily on a lasting downward curve. In the last analysis America held the key to the whole situation, whether it applied to commodity prices, stock markets, or overseas trade. BIG DEBIT IN 1937. A further factor which must have an outstanding influence upon the maintenance of prosperity conditions is that, in respect of international trade, the United Kingdom showed for 1937 a very substantial debit balance of international payments. The total debit, after full allowances had been made for invisible exports (net income from in vestments, shipping and commission services), was approximately £52000,000, compared with £18,000.000 for the previous year, and sufficiently high to create considerable anxiety. Four out of the five bankers considered that it indicated a dangerous tendency which ought to be checked. It was pointed out that if it continued the ability of British investors to loan money a’oroaa would be seriously curtailed, resulting in the contraction of the value of the invisible exports represented by net income from that source. Three of the bankers stressed the view that under such conditions Great Britain was living on capital from abroad, and that if the position was not corrected it would have an unfavourable influence on the general exchange position . Mr McKenna . found some consolation in the fact that, although during the six years ended December 31, 1937, the debit balance of international payments aggregated over £loo,Obu--000, approximately £600,000,000 had been spent on the purchase or gold held in the Bank of England, and the Exchange Equalisation Account. Had the United Kingdom been living upon capital there should be evidence of extensive sales of securities or a»f a vast increase in their shortterm liabilities, and such evidence had not been adduced. He considered it very doubtful whether the capital position had moved against the country in any degree comparable with the addition to gold reGerves. ~

He was in agreement with the other bankers, however, on the fundamental point that it was absolutely essential, if the exchange position was to be adequately safeguarded, and the country protected against a slump, that a determined

drive would need to be made for the purpose of expanding the volume and value of British exports. The cautious investor, therefore, will look far beyond the merits of the particular company in which he intends to secure an interest, beyond oven the general economic position in Australia, and watch carefully the trend of events in both the United States and Great Britain, in the former case as to whether the recovery programme is being eftic-' ently maintained, and in the latter as to whether export trade is being built up to such a level that the debit on international payments will be eliminated.