The Money Market

by F. Straker

First we have the paragraph dealing with the “gilt-edged market.” This market comprises securities of, or guaranteed by, the British Government (Consols, local loans, etc.), Bank stock, and colonial and municipal issues. The whole of this market is largely under the influence of the price of money, and, at present, of excess of supply over demand. The supply of Government stocks has, of course, been increased owing to the requirements of the late war, which led to a further issue of Consols, in addition to the creation of the War Loan and Transvaal Loan. In addition, a very large amount of colonial and municipal loans has been offered to the public during the course of the last few years. These issues have been far in excess of the demand, with a consequence that the market has been glutted with securities of this class, resulting in an all-round depression of prices. This depression has been deepened by the knowledge of the many new issues which are only awaiting a favourable opportunity to be launched on the public.

The next paragraph in most Money Articles deals with the “Foreign Market”—Spanish, Turks, Russians, Tintos, etc. In this section securities are dealt with which have a more or less international character, and in which dealings on foreign stock exchanges have often considerably more importance than the dealings on our own Exchange. Hence this section is not so much under the influence of the price of money as it is under the influence of the attitude and condition of foreign centres, especially those of Paris and Berlin.

Home railways are then dealt with, and then American rails, which latter are, of course, largely under the influence of New York and its magnates. Then comes a paragraph dealing with colonial and foreign rails, which are largely under harvest influences, and the internal condition of the country in which they do their business. Then follow paragraphs on the miscellaneous and industrial sections, and lastly a paragraph on the mining market.

The miscellaneous and industrial section is chiefly notable for the large number and different character of the securities there dealt in, comprising the shares of banks, breweries, insurance and finance companies, iron, coal, and steel concerns, waterworks, etc., besides the shares of numerous manufacturing and catering companies. Much speculation exists in certain classes of these shares, but it is a noticeable fact that the issues of many of the sound industrial concerns have withstood the recent severe wave of depression far better than have many securities which are supposed to be of a considerably higher status.

Following this there usually appear dividend announcements, reports of company meetings, and a number of miscellaneous notices. Although these notices mostly explain themselves, and are of interest only to persons connected with them, yet one or two items which appear from time to time are of somewhat more general interest. It is of frequent occurrence to find in this portion of the article a notice that “tenders for Treasury Bills will be received at the Bank of England on such a date.”

Treasury Bills constitute a Money Market and not a Stock Exchange security, and they belong to the unfunded debt of this country. They were first issued in 1877, and were promptly recognised, both in our own and foreign markets, as being bills of the highest possible class. These bills are issued from time to time to suit the necessities of the Government; they have a currency of three, six, nine, or twelve months, and are of great assistance to the Chancellor of the Exchequer in enabling him to regulate the finances of his department.

Treasury Bills are always issued by the tender system, and those persons who wish to acquire some of these bills must make their application through a London banker. The tender must state how much per cent. will be given for such an amount of bills, and those who tender at higher figures will, of course, obtain an allotment in preference to those tendering at lower ones.

Besides Treasury Bills, several other classes of security are, from time to time, issued by tender; for example: India bills, London County Council bills, Corporation and Colonial stock. This system of issue is not a popular method so far as the general public are concerned, as it is not properly understood; and when the public do endeavour to obtain investments in this manner, they often make ludicrous and expensive mistakes by tendering at a figure far above what would easily obtain an allotment.

Another item of interest which appears among these “notices” is the notice of issue of stock at fixed prices. Such notices appear plain on the face of them; but, on comparing the price of issue with the market price of similar stocks, care must be taken not to overlook the fact that very frequently certain allowances have to be taken off the nominal price of issue. These allowances are in respect of the stock being only paid up by instalments, while interest is often paid on the full nominal amount; and often, in addition, a full six months’ interest is paid only three or four months after the issue; besides which the stock can frequently be paid up in full at any time, under rebate. Such considerations as these should always be borne in mind, as they have a material bearing on the real price of issue.

The article concludes with a list of “closing prices,” and of “business done” on the Stock Exchange on the day in question. The closing prices are estimates only, supplied by certain members of the House, and though affording a very good guide to the course of prices, they cannot be relied upon for any out-of-the-way securities—actual dealings in which may be impossible at the prices quoted.