WELLINGTON NEWS

Hokitika Guardian, 13 January 1930, Page 6

WELLINGTON NEWS

DEALER MONEY

(Special Correspondent.)

WELLINGTON, January 9

Not many days of the new year have passed before we get an indication that money rates are higher. Ever since February 1929 the Government has been offering fot sale debentures bearing interest at £5 2s % and with a restricted currency. Now it is announced that this issue is withdrawn and is substituted by debentures bearing interest at £5 10s % with a currency of 7 years. When the State is obliged to pay more for 'money than was the case a year ago iet is evidence that loanable funds are' decreasing and borrowers must pay higher rates. The movement is in keeping with the trend in other parts of the world and particularly in Australia.

The Commonwealth Government recently offered in Australia a loan of £10,000,000 at £5 5 per cent with the issue price at £9B, and the yield to the investor at this price in £5 14s 4d per cent. If the N. Z. Government can get money at 5-J- per cent it will do very well, but there is little prospect olf that for there is an increasing shortage of funds. Now a very interesting position arises in respect to the Stock Exchange value of Government securities. When the Stock Exchanges closed on December 21 the market price of tlie per cent 1936 was £lOl 10s, that is a premium of 30s per cent, and when the buyer had paid charges the cost would probably be about £lO2.

Now the ;3i- per cent can be obtained over the Treasury counter at par, and in the face of this those who bought the o’ per cent last month at a premium must expect to lose this premium The effect of the new gesture on the part of the Government in issuing gi % stock at par is to cause a drop in the value of the stocks of that denominations to par, and the stocks of a lower denomination will be at a discount. Another effect will be that local bodies which are restricted by the Treasury as to the omount of interest they can offer on loans will find it ’sfficult if hot impossible, to raise money. Thus the difficulties are multiplied making a difficult position worse.

The Sijock Exchanges are likely to be very dull for some considerable time. Gilt-edged securities and bank shares which investors have bought at absurly high prices have dropped and will continue to drop, because confidence in such' securities' has been shaken. Futhermore there is less money available for investment. At the same time tlia't it was announced that the Government had raised' the interest fate oh debentures to 5# per cent., it was repotted that advance prices for London consignments of butter had been reduced to' Is 2d and cheese to 7d per lb. Thus tlie dairymen of the Dominion will have less to spend and the whole ocnimunity will feel the position The wool market shows' a further decline of Id per lb compared with last month and our other products have fallen also. ’

In the face of this it is useless expecting Stock Exchange securities to do other than fall. if sharebrokers have to face a dull market with scant business they 1 will have themselves to blame. They allow their clients to pay fancy prices for shares without giving attention to the yield and all investors who bought shares prior to August or September last will lose money. Some holders will be forced to realise and such will lose rather more heavily. There is never much business done on a falling market, and as the share market is falling now business will be slow and uncertain. The state of mind resulting from falling markets is to cause pessimism or the inclination to look on the dark side of things.

It would be very foolish to allow any tendency to pessimism to develop. There is always a silver lining to every cloud and if that is looked for and found, the most should 1)6 made of it. The present position in which N. Z. and Australia find themselves is the result of past error of omission and commission, and we must be careful not to repeat those errors. If we allow pessimism to take hold of us we will fail to do many things that we ought to do. This is a time for reasonable caution tinged with optimism. The position is certainly adverse and tlie outlook uncertain still at, base there is some hope.

It depends upon how we handle the situation during the next few months. Readjustments have to be made, cost of production must be reduced, land values must be readjusted, extravagance both public and private must cease and we must all work harder in the interest of the common weal. There is nothing difficult in this, nothing to warrant the least bit of pessimism. Australia and N.Z. have experienced bad times in pa'fct years arid recovery, came when the people showf the %vill and the determination to recover, and history will repeat itself.