WELLINGTON NEWS

Hokitika Guardian, 8 November 1929, Page 2

WELLINGTON NEWS

1 CASH ANfi

(Special Correspondent.)

WELLINGTON, November 6

Oil Thursday, October 31st, the Bank of England rate was reduced from 6J per cent and the same day the rediscount rate of the Federal Reserve Bank of New York was reduced from 6 per cent to 5 per cent. It will be noted that the Bank of England reduced its irate bjh'4 per cent: this is the custom observed by this bank for countless years. ' When the rate is advanced it is invariably, raised by 1 per cent. The New York institution has no such customs or tradition. It raised the rate 1 per cent at the same time as the Bank >of England did and reduced it by 1' per cent also. Both institutions were not actuated by the same motives in raising or lowering their rates. The Bank of England raised its rate to check the efflux or gold and the Federal Reserve Bank raised its rote to break the speculation on the New York Stock Exchange and it was the hardening effect of money rates in London and New York simultaneously that did the trick. While Wall Street was enjoying a “ bull ” market and paying fancy,’ prices for call money, funds were being rushed, across the At-* . lantic to take advantage of the high interest rate and tins, caused the exchanges $0 operate against London and gold had ; to' be shipped, The United States was not in need of the gold, and it was not to the .advantage ’of the Federal Reserve Board to facilitate

the import of, gold. . The high rate of the Federal Reserve Bank tightened up money all round,' and the high rate of the. Bank of England caused Europe to recall its money. Wall Street was thus between the hammer and the anvil. New;York.banks

were obliged to restrict loans to brok- . ers, and outside money was not ‘ only not available but was being called in and as the stream of credit became blocked the “ hull ” .or,; speculative market burst. It is reinafka'ble';th.f)t ; "he break was as in one, direci. tion as the rise'was in'the other find -et it is not a remarkable phenomencjn, "or movements innathre-are rhythmic,' 'ike the rise • and- fall- of the ..tides; br, the swing of the' peqdnliim'. * : hlf--%e*' could only bear This , iri'mind \ve would, not become wildly optimistic,whenj values are rising or .dismally (pessimis-; tic when values are falling.. »A rise is always followed by a :fal|i and soone,r or later the slump overtakes a boom. The recovery in New York appears to he somewhat sensational -hut; no':,'great:mpoi4anee’heed he attached to’ that, ■or Americans play big with big money.. The fact remains that confidence has been badly ! shattered, and the general oublic, who were the mainstay of the "bull ” market,.'have burned their fingers badly/and are certain to hold- off. stock speculation for some time, in London <the. reduction in. the -Bank rate "esulted'ith'tt rally in gilt-edged securities. Thehe stocks are very sensitive,

and it seems that a war or a rebellion or some similar happening in any part of the world depresses them, while any good news sends them up.'< ’ ' ■ It was reported from:Sydney that as a result -'.of the. reduction;, in the Bank rate stocks moved up. But this can, be taken, with the proverbial grain of salt. Stock Exchange securities in Australia and New Zealand are scarcely affected by -London money rates, except a few securities that-are traded m London and the Dominions.- What is affecting, share values here and in Australia is the economic outlook. '?lt is the actual and prospective drop in' wool, meat, wheat, sugar,-etc that is causing the share market to become soft. The position is very much worse in Australia than it is here, but that is poor consolation for' the investor, in

shares. . ’ <! ' jf • > • Australia is making the prices because many Australian holders of shares are being forced to sell to meet the changed conditions and they are pot haggling,about the price.. This may be'illustrated ,by what occurred on the Stock Exchanges, of the Dominion last week. Bank of New South Wales shares registered in New Zealand changed hands at' '£'47 10s to £47 15s per share, which was reasonable; under present conditions. At the

same tiinh a p'arcehof shares oh ' the Sydney register were sold at £47 2s 6d. It is obvious that the holder who must have been an Australian resident was hard pushed for funds and was ready to sell at the best price obtainable. ■',.

It is not unlikely - that New Zealand investors will have the opportunity of picking up many such bargains, or what look like bargains, but any heavy, •buying of. shares on the Sydney or Melbourne ~ registers or that can be transferred to the local register will mean what is' colloquially known as “ sending'tnoney out of the Dominion.” If there is very much of this kind of business the banks will probably stiffen the exchange rates. The position is so full of uncertainty that many shrewd investors are holding off until the market finds its level.