The Wanganui Chronicle THURSDAY, OCTOBER 14, 1937. THE MARKET COLLAPSE IN LONDON

Wanganui Chronicle, Volume 80, Issue 244, 14 October 1937, Page 6

The Wanganui Chronicle THURSDAY, OCTOBER 14, 1937. THE MARKET COLLAPSE IN LONDON

THE uneasiness which has been in evidence in London for some weeks past has not been understandable because general conditions, company earnings and dividend distributions are all evidence of a healthy state of affairs.

There have been two assumptions ruling: One, that British investors have been anxious to liquidate their English equities in order to invest in the American market; two, that the break in Wall Street has infected London. These two assumed factors no doubt have been operating, and insofar as they have done so they have tended to pull down prices on the Loudon Stock Exchange. There has, nevertheless, been another factor operating underneath the two mentioned, and that is the fall in the price of metals. This price fall appears to have gone below the level which demand -would justify, and it has been difficult to read the situation on the metal exchanges. There was some forward buying at the beginning of the year, but in the ease of lead, for instance, expert appraisal of the market some months ago led to the belief that this metal would range around £3O a ton for some time in the future. The price was not expected to stabilise itself at that level, and some recession was expected, but was not considered to be anything more than a temporary lull in demand. The expected mid-summer lull, however, did not take place, nor did the autumn rise. The price of lead has actually receded by nearly £l2 a ton from the peak.

Obviously enough, sueh a price recession could not have taken place without buyers holding off. But why did buyers hold off? The answer is not easily discernible, particularly in view of the purchase of the twelve months’ output of the Electrolytic Zinz Company’s lead concentrates by the American Smelting- Company. The visible stocks of lead in America a month or so ago was only equal to five days’ consumption, so it was understandable that the American company should be anxious to secure even the relatively small output of the Electrolytic Zine Company. But sueh conditions should have constituted a sellers’ market, and it is puzzling indeed that the sellers should not have been in a favourable position. The only rational explanation available is that the market psychology is disturbed. There have apparently been rumours current of the presence of many weak holders in the metal market, and this condition has induced buyers to reduce to a minimum the size of their orders for current supplies. This buying policy has forced weak holders to liquidate their holdings, and in the process revealed that one important Dutch metal house was over-involved in the market. This house has now ceased to operate, and its business will presumably soon be finalised.

The uncertainty and instability in the metal markets has spread to the Stock Exchange, and from metal shares to other stocks and shares. The reason for this is that those who operate on the Stock Exchange usually place with the banks securities and shares in all sections of the market; consequently, when the banks consider that the position has become unhealthy, and either refuse to extend more credit accommodation, or even ask their operator clients to reduce their overdrafts, it becomes necessary for some at least of the scrip placed with the banks as security against overdraft, to be sold. It not infrequently happens that the stock sold is that which has hitherto suffered the least reverse insofar as the price-fall has been concerned. It follows, then, that when the price-fall becomes eventually well spread over the market, that it can be assumed the liquidation process has reached its final stage. In the absence of serious international complications developing, therefore, the metal markets should soon recover, and with them other commodities are likely to move upwards.