NEW YORK GAMBLES

Hawke's Bay Tribune, Volume XVIII, Issue 203, 10 August 1928, Page 4

NEW YORK GAMBLES

XJ’EW YORK FINANCIERS with an immense accumulation of war-time and post-war profits to place remuneratively, are evidently disturbed by the criticisms that have been passed upon the way in which the Commonwealth loan stock in w’hich some small part of it is invested is being bandied about on the New York and London exchanges. Some reference to this was made here, a few weeks back, when adverse comment was quoted from Australian financial writers, who realised that the American operations could scarcely but have not only a depreciatory effect on outstanding Australian stocks but also prejudice future loan negotiations. New York is particularly anxious to spread its financial tentacles over the British Empire, in which it sees not only perfectly safe channels for investment money, but also highly profitable prospects for speculative funds. It is for this reason, no doubt, that New York to-day sends out a lengthy cable message designed to allay the very justifiable misgivings that have been aroused both in Australia and in the Old Country.

To understand the figures that are quoted in to-day’s cable we must remember that the Commonwealth loan to which reference is made was floated in New York only some three or four months back on the face basis of per cent., the nominal issue price per £lOO bond being £92 10/-, and this just about the time when a similar New Zealand loan was being easily placed in London at £94 10/-. , Even on New York’s own admission it will be seen that, within a few weeks of the flotation there, the Commonwealth stock was being unloaded at as low a price as £B6 15/-, a drop of £6 6/- per cent, on the issue price. Not only this, and much more important, the London market was also exploited, and big parcels of the Australian stock were thrown in there at an even bigger capital discount. It can be readily understood how such movements as these weie calculated to shake the confidence of sensitively cautious British investors, and particularly those charged with the investment of the big mass of trust funds from which subscriptions to Government loans are largely drawn. When they saw the selling value of Australian stock tumbling in this impressive way they very naturally began to suspect the soundness of the security, and it may be not unreasonably assumed that the almost complete failure of last month’s Commonwealth loan in London to secure public subscription was in great measure due to the distrust that had been thus excited.

By way of explanation and excuse, the only thing New York can put forward is a sudden craze of speculation in home stocks that took possession of the country. There is no doubt about the truth of this, for from other sources we learn that American bank rates for short-term advances, required for the creation of “margins” on speculative buying, quickly went up from 5 to 10 per cent, without appreciably checking the Wild gamble that was going on. But this is an explanation that does not appeal to the steady-going Briton with money that he wants to place safely in securities that he may reasonably expect to be readily realised upon at something measurably near the price paid for them. There are, of course, fluctuations in selling values even of gilt-edged securities on the London Stock Exchange, and sometimes, too, resulting from speculative “booms,” but they arc

in no way so frequent or so violent as those that are more or less deliberately incited and stimulateu not only in New York, but also in other big financial centres of the United States. It is in the so often recurrent “bull” and “bear” operations dear to flush American gamblers that lies the danger for unsophisticated outsiders dealing with them. The lesson we have to learn and take to heart is that, both in public am private borrowing from abroad, the less we have to do with American capitalists the better for us. Even were we asked a little more by London than by New York—hitherto the reverse has been the case —it would serve us better to pay it and keep experienced and wise old London as a buffer between our youthful ignorance and, to adapt Brett Harte, “the ways that are dark and tricks that are vain for which New York is peculiar.”