The Wanganui Chronicle THURSDAY, OCTOBER 21, 1937. THE BREAK IN WALL STREET

Wanganui Chronicle, Volume 80, Issue 250, 21 October 1937, Page 6

The Wanganui Chronicle THURSDAY, OCTOBER 21, 1937. THE BREAK IN WALL STREET

W/’ALIj STREET has experienced another signifie«m wreak, and falls in stock exchange quotations have been registered after the period of recovery which had. previously been witnessed. What has caused this new wave of selling? The general situation in the United States of America is satisfactory, and forecasters of business conditions are generally agreed that this satisfactory situation will at least continue until the end of the year. There is justification for this belief in that the period of recovery in the United States is considered to be about two years behind that of the United Kingdom, the renewing and restocking processes have yet to be completed. During the period of mid-summer business generally takes a seasonal down swing, and this down swing this year was not of exceptional severity, yet there has been growing up a fear psychosis which has affected the market severely. This fear psychosis must, of necessity, be based on something real, but what it is is definitely difficult to diagnose. There have been wars and rumours of wars aplenty in recent months to unsettle the timid investor or market operator, but even with wars of a general scale raging in Europe and Asia the United States of America stands to gain more than it loses, and this was so amply proved during the Great War that the international situation can be discounted in considerable measure as a factor in causing the break in the market.

If factors external to America be exeluded, attention must be concentrated upon the internal situation. The significant feature of the recent messages is the emphasis laid on the decline in steel stock prices. Steel used to be considered as the best market index of the economic condition of America, for when steel production -went up conditions improved, and when steel consumption went down conditions deteriorated. The reason for this was obvious enough, the United States was an expanding economy and in the course of such expansion steel was required for railway construction and building operations. A study of the indices of building operations to-day, however, reveals that the boom has not developed in the way that was expected. The reason for this is that there has been such a curtailment in the hours of labour in the building construction trades—in the State of New York building construction has now run down to a thirty-hour week—and wage rates have been raised 1o such heights that people are discouraged from building, fearing that a finished building which has been completed at present-day costs could not make a fair return on the investment of capital involved. The decline in the building operations of America, however, or perhaps it would be more correct to say the non-fulfilment of anticipations, has given a cheek to the market, but it does not justify the measure of the breaks which have been registered recently on the Stock Exchange. The power of the trades unions has of late been very considerably increased because, under the New Deal, collective bargaining has been encouraged by the Administration. The exercise of this power has not always been wisely employed, and this in itself is a disturbing factor, particularly in a country where collective bargaining has been in the main frowned upon. In the matter of industrial adjustment the United States is significantly deficient in experience. The continuance of strikes must have its effect upon the general mental condition of the people, and particularly upon investors. Another factor must be taken into consideration, and that is the rising costs which are facing American industry today. The market is registering a resistance to rising costs of materials because the outlook is not such that any price can be paid. Manufacturers’ orders generally are falling away—or were reported to be so eariy in September—and industry was being kept going at full speed by the generous supply of back orders. Such a situation would naturally engender uneasiness, and those who had entered the market, not for dividends but to secure capital appreciations, would be swift to cut their losses and quit the market. American investors usually instruct their brokers to sell when the stocks go to a certain low level, and when they reach a certain high point. The result is ’that the market, once it takes a down swing of any magnitude, finds itself moving with accelerated speed as it goes downhill.