Canada’s Chances in the Money Market
This department of MacLean ;s is handled monthly by the associate editor of The Financial Post of Canada, the leading financial newspaper of the Dominion. The articles which Mr. Appleton will contribute will deal with the business and financial situation, and will be of particular interest to business and professional men who desire to keep closely in touch with conditions and developments throughout the country. In this article the money situation is considered. While there may be some stringency this year the writer, on the whole, takes an optimistic outlook.
AN EMINENT Toronto banker on several occasions recently stated to the writer that during the present year money would be tight. He did not mean that the present acute stringency would be of long duration, but that money would be much harder to get during the whole of the ensuing ten months than it has been during the past year or so. This view is held also by leading bankers in Montreal. There is, of course, some difference of opinion amongst bankers as to the exact nature of the causes which affect conditions in Canada. Some of them take an optimistic view. In making enquiries with a view to eliciting the opinion of the men who have charge of the purse strings, the writer remarked to one manager that his colleague took an optimistic view of the immediate future. “Yes,” he said, “he has a little money to lend at call to-day and that is making him feel better.” The banker, optimistic in his views, has good authorities from which he can quote in support of his way of looking on business and money conditions. To some of these authorities reference will be made later.
It speaks well for the Canadian banking system, and for the credit of Canada as a whole, that so critical a period has practically passed without serious disturbance. When cities like Toronto
have to sell securities on a basis that permits of their being retailed to investors so as to yield 5 per cent., it indicates that a very severe stringency exists. “Present tightness of money is quite as pronounced as it was in 1907 with the difference that the stringency at that time was accompanied by a somewhat dramatic situation in New York,” is a statement made to the writer by one of the leading bankers of the continent.
To realize how stringent is the money market it is only necessary to examine the rates in force by the leading state banks of Europe, and the average rate in New York. London’s bank rate is the one of most concern to Canada. Averaging the February rate there for ten years, it is found to be 3.56 as compared with one at the present time oí 5.00. From November to the following July the tendency is downward and from July onward to December the trend is upward. A ten-year period is in review. Exceptional conditions have arisen occasionally which interrupted this normal trend.
In Germany the easy money period of the year, as determined by a ten-year average, is in April and in New York in May. The German rate is at present six per cent, and in New York the rate is high compared with the average of a few months ago. At these higher rates
the supply of money is not plentiful. In the New York clearing house bank deposists are over $100,000,000 less than they were a year ago and the surplus reserve on February 21 was $7,747,000 as compared with $28,700,000 a year' ago, and $40,359,000 two years ago. The Bank of Eng-' land’s proportion of reserve to liabilities during February averaged 46 per cent, as compared with an average during the past five years of approximately 52. General decreases in cash reserve, when they should be increases, is a condition properly giving rise to some uneasiness.
Canadians, realizing that so much capital is drawn from abroad to develop their country, have cause to keep their eye on these fundamental considerations in determining the trend of the local money market. Their bankers have a good grip of the situation and are carrying out a policy that as far as possible eliminates speculation. Call loans show but slight change from month to month and at present and during the closing months of 1912 were gradually reduced. At most they are not considerable in Canada. Those abroad are not held for speculation as is popularly, but erroneously supposed. What money is out on call in Canada at the present moment is not more than the legitimate requirements of brokers. “My instructions to branches,” said one superintendent, “is not to lend to other borrowers than producers.”
This is the policy being generally followed at the beginning of March and undoubtedly will be adhered to until such time as more cash flows into the banks. In pursuing this policy the country will not suffer. Wealth is not created by speculation. To keep moving the forces that produce wealth is the greatest service the banks can do for the country. Though from all financial centres there come many reports as to severe stringency there are no loud complaints from the producers. Local troubles are to be found due to special causes and these are not essentially dissimilar to those prevalent when money conditions are normal. Speculative business, however, is depressed—in fact
reduced to a minimum. To Canada this is a great change. For some years the public mind has been obsessed with a moving panorama of development which afforded ample scope for the speculator. To be dropped from this exciting plane down to the humdrum daily grind of production is decidedly depressing. Tight money means fewer real estate transactions out of which huge profits are netted; it means a limited market for the disposal of unexploited mining claims ; it means a public disposition to ignore all offerings of a speculative character. But a few months ago doubtful real estate offerings were readily absorbed in Canada as well as in the United Kingdom. All kinds of wild-cat stock offerings were imposed upon the public. To such an extent did this kind of thing obtain as to cause the enactment in Manitoba of a “blue sky” law. This kind of speculation was fostered successfully by the wonderful array of progress figures manipulators were able to place before the public. Statistical presentation of Canada’s progress during the present decade appeals very strongly to the imagination. Enthusiasm as to the country’s future waxes warmer as accurate knowledge of its growth, as shown by actual and unquestioned figures, enlarges. Canadians have every right to be proud of this progress, but to overspeculate with it as a basis is dangerous. It is exciting to do so and has been exciting. But the limit for the time being has been reached. Though the tendency to speculate may be as great as ever the means, or credit, wherewith to do so are not available. On the other hand for the purposes of production, of business not regarded as speculative, the supply of credit is not limited to the extent of provoking serious complaint.
Reference has been made to local complaints and of these perhaps the majority emanate from the West. That can be readily understood. That vast new territory has been the seat of much speculation and exploitation and to a greater extent than the eastern portion of the Dominion, depends upon a supply of credit. Take away the real estate business, the excitement incident to the
fortunes made and those anxiously expected, there is still left the great asset— perhaps the greatest the Dominion has —the productive capacity of the West. But to produce—grow grain or fell the tree—is mundane and dull compared with the excitement of laying out a paltry first payment to-day and to-morrow selling at a huge profit as by gambling in real estate. But it is the mundane and the dull, so-called, that tells in the upbuilding of the country. If the banks take care of the producers, those who hew and till, the country will continue to progress as substantially as ever.
If there is trouble in Canada at the present time it is largely psychological. The public is conscious of the absence of the excitement of speculation of which there has been too much. To settle down to normal is depressing and too often the discomfort of having to do so is credited to “tight” money. The reality is that the unproductive effervescence of speculation has been dissipated but the substantial _ agencies of production are strengthening and expanding. Clear heads and discrimination is all that is needed to keep Canada moving forward during the present and immediately succeeding years. Cessation of speculation will help in a large measure and the abundance of production will stimulate exploration for which the field is greater than ever.
In March it was pointed out that the great railroad undertakings had their operations for the present year financed. Their operations on a larger scale than last will continue throughout the present year. That part, and it is an important part, of Canada’s needs are provided for in so far as new capital is concerned. There are however other needs. Building operations cannot continue on as large a scale in the West as they have been doing. Last year’s record was exceptional. But money is needed for a very large amount of necessary building. This has not reference only to cities but to the farmstead as well. It is more necessary to the growth of the country as a whole that the farm home should be made desirable than that the cities should be provided with magnificent buildings, spacious boulevards and
monuments. Money is needed also to build up our industries and to develop our mines. These are reproductive undertakings. Take for instance the mining industry of British Columbia, which during 1912 turned out $9,106,928 in value more than in the preceding year. In 1890 the output was only $2,608,808. Compare this with the record of the last two years :
Gold ......... 5,461,000 5,151,513
Silver ........ 1,676,000 958,293
Copper ....... 8,339,000 4,571,644
Lead......... 1,520,000 1,069,521
Zinc ......... 501,000 129,092
Coal .......... 9,275,000 7,675,717
Coke ......... 1,584,000 396,030
Miscellaneous .. 4,250,000 3,547,262
Total .. 32,606,000 23,499,072
In 1912 the mineral output of Ontario was $47,471,990 an increase over 1911 of $5,495,193.
From other provinces similar figures indicating expansion of productive resources could be quoted but the foregoing are sufficient Quite recently the census figures showed to what a large extent our industrial products had increased, as well as those from agricultural industry. It is superfluous to enlarge upon this point. Capital being invested in Canada is augmenting her productive capacity, which is not being handicapped at the present time by the lack of bank credit. Canadians have nothing to fear in regard to the money outlook in the immediate future so long as the banks take care of the productive agencies of the Dominion and this they are doing at the present time.
Already it has been indicated that reserves of banks are very low. Those of Canada abroad are unusually light. This is not a condition that augurs well, the cause of the lower balances of Canadian banks in London and elsewhere is the reticence of Canadians to sell securities at the prices offered. Market conditions were certainly not favorable nor have they up to the time of writing changed. But now through the pressure of Canadian banks there has been selling in London on terms
demanded there. Interest rates are higher, no doubt, but even at the present level, Canadians are in a more fortunate position than countries not blessed by being included in the empire. Proceeds from the sale of these securities will strengthen the position of the Canadian banks and enable them to cope with the commercial demands that will be made upon them during the spring months. Wholesalers are already negotiating for accommodation during the shipping season of 1913 and drafts are coming to hand from exporters to Canada. This class of business is not in much danger of being exposed to lack of credit. But as to the supply of money for the loan company, for the extensive building operations in the Canadian West and for the farm loans the outlook at the present time is not so hopeful. This class of money is now obtained from the continent of Europe to a very large extent. Last year a million or two was invested in cities of the Canadian West by the larger of the life insurance companies of New York but those organizations have not as yet been convinced of the soundness of the western farm mortgage. It may be that higher rates may attract money from across Canada’s southern border for farm loans as higher rates for municipal loans have attracted United States buyers. But for some years yet the farm loan money supply will have to be drawn from across the Atlantic and from the European mainland at that. Britishers have been making money out of their own industries and they find that they can get higher rates from borrowers abroad by holding out for them. Either the supply of money for the farm loan wili be less or the rate will be higher . It is not likely that the companies operating will pay more to the lenders from abroad unless they can get more from the borrower. The present margin for operating expenses is none too large. It is possible, however, that the atmosphere in Europe may clear.
Already we have referred to authorities that take a very hopeful view of the future. Some of the best of the Canadian bankers are in this category. It will not be necessary here to refer to
more than one or two, and these from the larger centres of capital supply.
In the middle of February, Sir George Paish, writing from Paris, stated that conditions there were in a state of “masterly inactivity.” But he added: “Everything is in shape for an active year, but the public and bankers are just waiting on events. They are not pessimistic. They are, indeed, of good courage, but they think the time to make a movement will come when peace is restored in the Balkans. They believe peace to be near, and that it will bring renewed peace confidence and activity. No great importance is now attached to the hoarding of cash which has been going on in France as well as in Germany and Austria since the war began.
It is recognized that hoarding has been fairly general, and that a good deal of cash has been put into safe deposits, strong boxes, and even into stockings as a precaution against possible developments in the Balkans. Nevertheless, the very fact that a large amount of cash is hoarded is now one of the causes of optimism, bankers anticipating that the conclusion of peace will bring all this cash back to the banks in subscriptions to new loans, and that money-market money will thus become abundant and relatively cheap.”
More cheerful still is the assurance of Sir George Paish that France and Britain will still have each year £200,000,000 for investment and as soon as these countries are satisfied that peace is established on a secure basis the inducements to lend their money will be better than they have hitherto been. Canada can offer the best of inducements to lenders and a year’s, or two or three years’ freedom from excessive speculation, will give the productive resources of the country more opportunity to impress themselves upon the investing public of the world.
Lord Fabre, another Englishman, referred to by one of London’s leading journals as the greatest provincial banker, stated that the profits from manufacturing industry in Britain were of an exceedingly satisfactory character. This means an accumulation of savings that
will in due course be available for investment. If Canada maintains her credit in England’s market, these profits will, in a measure, be available. But Lord Fabre points to one cloud on the industrial horizon of Britain that may present its silver lining to Canada. His Lordship, while fully realizing the temporary advantage that will occur to the factories of Bradford by a reduction in the tariff on textiles imported into the United States, says that if a radical reduction is made the result will be an industrial development in the States that will make the British manufacturers “look about.” An industrial development in the United States would create a demand for the raw materials of the Dominion. Canada stands to profit no matter which way the pendulum swings in the United States. When England’s industries flourish we are assured of a supply of new capital and if those of the United States by tariff re-adjustment are placed on a basis that enables them
to enter the world’s markets, the exploitation of the resources of Canada will follow. Meanwhile England’s thriftiness is such as to afford the Dominion every hope that our new capital needs will be met. There is an additional assurance in the fact that the higher interest rates have widened our market. We can with confidence, look to the United States for more money than hitherto has been received from that source. Big purses on that side of the line are far more accessible to us as the owners realize that our annual production is reaching such a volume as to affect prices of the leading commodities on which the great wealth of the United States rests. With an acute stringency passing away, war clouds disappearing and the assurances of the highest authorities as to the soundness of fundamentalconditions, there does not appear to be any reason for over-anxiety for the business health of the Dominion.