MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 106, 3 April 1940, Page 14

MONEY AND BUSINESS AFFAIRS.

BANK FUNDS. (By According to the return of the trading banks to .February 2b, demand deposits were as follow: November, 1939, £40,176.000; December, £41,340,000; January, 1940, £44,300,000; February, £47,148,000. It will be noted that in the twelve weeks to February 26 these deposits increased by nearly £7,000,000. They constitute the working capital of the business community and have .been piling up. This movement is, of course, due to import- restrictions becoming cllective. But this increase would not be of much consequence if the banks were able to make use of the money, and that is what they arc unable to do, as shown by the advances, as under: November, 19119. £52,361,000; December, £51.137.000; January, 1040, £49,952,000; February, £47,095,000. It will be seen that tiic advances contracted in each of the last three months, the drop in the period being over £5,000 000, in face of an increase in demand deposits of nearly £7,000,000. The position on February 26, taking both classes of_ deposits, was as under: Deposits, £78.669.000; advances. £47,095,000; difference, £31,574 000. It will he scon from this that the trading banks hold over £31,000,000, for which an investmentis not being found, hut it may easily change for the bettor, and it would do so if import restrictions were greatly modified—and they can he modified, for they have largely filled the object, for which they were imposed—that is, to increase the volume of London funds. These funds have now increased and stand at about £25.000.000, as against about £lO 000 000 when the restrictions were imposed. If there is some casement in the situation there will bo some change in the economic conditions and the banking figures. The difficulty is lo know what the authorities regard as a safe margin to maintain in London funds. Rome people consider that, from £l2 000,000 to £15.000.000 would he ample just now. and if that view is accepted then the Dominion could easily use up about £lO 000 000 of London funds in paying for imports. THE DOW SYSTEM. The Dow averages arc now cabled to the Dominion and appear in the daily papers. Few people understand tins table of averages, and not many bother to study it; but in the United State such figures are closely analysed. in America there arc quite a number ol what are known as advisory houses, and which thrive, but they all base their advices and operations on ttie Dow-Jones theory of investment ana speculation. They are governed more by this theory than by economic conditions and prospects. What has come to l>c spoken ol as the Dow theory is in effect the combined market observations and conclusions of the late Charles H. Dow and William Peter Hamilton. Dow was one ot the founders of Dow, Jones and Co. who, besides conducting a nation-wide financial service, published the 'VaH Street Journal of which he was the first editor. Hamilton for twenty years until his death in 1929 edited this newspaper. Hamilton, m Ins eaily vears as a reporter, was closely associated with Dow whose only expression of his theory of the market was in a number of editorials written in the period 3900-1902. There arc three movements ol the averages, all of which may lie in progress at one time, lhe first and most important is the primary trend, and the broad upward or downward movements known as bull or bear markets which may be of several years duration. The second and most deceptive movement is the secondary reaction ; an important decline in a primary bull market or a rally in a primary bear market. These reactions usually last from three weeks to as many months. The third and usual y unimportant movement is the daily fluctuation. . ... The advisory houses arc run in a big way and for their services charge anythino - from 7.50 dollars to 3 000 dollars, dependent on the degree of supervision and service required. These advisory services are largely responsible for the violent movements on the New fork Stock Exchange. These forecasters seldom predict correctly, but they pretend to do so. Their indices record what has happened and they cannot really forecast what is likely to happen for it is so difficult to deal with the human factors The reactions of man arc never the same, because the conditions are never the same. Very few, if anj of the forecasters were able to predict the great crash of 1929. But m the Unite States the Dow theory is accepted and the advisory houses do an immense business. . ... , Sterling exchange in relation to ti e dollar has fallen heavily, due to the lack of dollar funds by the commeitnil classes. Ample provision has been made for Government purchases of aeroplanes and munitions, but the business section is suffering. Britain needs to export more goods to the United State, but the question is as to the willingness of American houses to purchase these goods. And yet the low exchange value of the pound sterling in relation to the dollar should l>e <in inducement to Americans to purchase for they now have the opportunity of buying' British goods at cheap rates. Britain could also obtain dollar seicurities by selling to that do an export trade to the United States. The American authorities foresee that the Allies will need financial

aid, but this is not likely to take the form of loans, these being prohibited under the Neutrality Act; trade credits such as Britain 3ias granted to other countries would bo quite in order. But the Allies will exhaust their resources before they resort lo help from the United States. THE UNITED STATES.

Outstanding features of the end of the year balance-sheets of United States banks are a marked expansion in deposits, due chiefly to the gold inflow and a further decline in the proportion of resources employed in ordinary bank channels. These conflicting trends are well illustrated in the accounts of the National City Bank of New York, wliose deposits increased in 1939 by 496 million dollars to 2331 million dollars, the highest figure in the history of the institution; while loans and discounts rose by only nine million dollars to 53L million dollars. Owing partly to the continued lack of demand for loans on a scale commensurate with the hank’s resources and partly to a deliberate policy of holding more uninvested cash than hitherto, the growth of the deposit funds finds its main counterpart in flic addition lo cash balances. Since the growth of the deposits is due mainly to the inflow of gold, it is obvious that no small amount of the deposits are on foreign account, and as they may he withdrawn at any lime large cash balances must l>e held. The Bank of England is issuing new £1 and 10s notes to replace the “Bradbury” issue. These nolcs were not originally issued by the bank but by the Treasury, and their management was handed over to the bank when the fiduciary issue was increased to £260.000,000. Prior to that the lowest denomination of the naper currency of the hank was £5. The bank observes certain rules with regard to its note issue. Once a note is returned to the bank it is never re-issued, no matter whether it lias been in circulation for even less than a day. The now notes are so made as to he proof against fraud by splitting. There are quite a number of people who have acquired (he art of splitting a note and making two notes.