The Industrial Unrest and Its Effect on Investments
H. B. BLACK, Montreal Editor "The Financial Post."May151920
THE spontaneous “overall” movement is a hopeful sign for the investor. Not that, in one sense, it matters a row of pins whether the average man dons a garb, rough-cut out of denim; or insists on an all-wool serge; or the “rich purple” of the olden ages. Nor does it matter much whether, as is likely, the “overall” principle fails to win out, and, as is more probable, is superseded by what has been forced on most of us, old clothes turned inside out. After all it has succeeded insofar as to send forth warning signals to whatever class, manufacturer (including the spinners), jobber or retailer, is deemed most responsible for the present excessive cost of clothing. It becomes one of those small but gusty clouds in the sky to indicate that all will not be clear sailing for those who are forcing up, unduly, the cost of maintaining existence.
When a certain group of milk consumers in Quebec Province demanded 14-cent milk, and got it, they served another warning, and probably performed a public service by so doing.
The enlistment of organized labor as well as the general public against the “outlaw” railway strike, was a movement not only against a callous disregard of contracts, but also a serious attempt against needlessly or unfairly stimulating that vicious spiral curve of ever-higher prices. There is thus a hopeful tendency among the public to say, “Thus far and no farther” in the matter of prices; to enforce a real reconstructive basis to our economic system; to discourage the extravaganza of loading up on luxuries; to concentrate, and therefore increase production of essentials, and lower the cost in proportion.
A well-known writer in condemning the expansion of credit, declared that this was directly related to industrial costs and to the endless cycle of wage and price advances. The cycle calls continually for more credit, and if the supply is to be provided indefinitely the “dollar” in which wages are paid will continue to depreciate in purchasing power, and the whole industrial and financial situation will become more and more hopelessly confused.
There is no advantage to the wage-earner in reducing the currency to mere stage money, which has no definite command over the goods he wants to buy, or in having the industrial structure lifted up in a vast pyramid of credit, which will, sooner or later, collapse as all like pyramids have in the past.
And the wage-earner no more deserves the reproof than anyone else. As a recent cartoon pictured it: “Everyone” is chasing himself—the profiteer—around the tree and never catching him (self). “Everybody’s doing it”—if he has the chance—and the overall warning to the profiteer in clothing distribution is neither more nor less warranted than a similar warning to the worker who employs the force of a majority strike to establish an increase in wages unduly.
Like the salary man, the holder of investments is the sufferer; the dividend or interest payment has seldom increased, and his return consequently is diminished in proportion. But the nearer we are to the peak of the price-load, the better the bargains for the new purchaser. Some alarm has been felt among security holders at the announcement that the New York Central and Pennsylvania railroads had been forced to pay 7 per cent for money for needed equipment, and that Ontario bonds had been sold in New York to yield 7.20 per cent.
If so, how far below par would 6 per cent bonds go? And where would 5 per cent bonds rest in their decline? What further reduction would have to be made in 5 1/2 per cent. Victory bonds? And how far down would 7 per cent preferred stocks go? And what higher dividend than is now paid would be needed to keep common stocks around par?
Fortunately this high interest movement has not seriously affected the price of the tried and stable securities, but commodity prices must soon start on the decline or securities will weaken under the strain.
Those interested in the Stock Market would note a compression in activity in the Canadian Exchanges through the banks’ refusal to increase call loans. And in many cases to a reduction in call money on the Street. This was a necessary step in view of the tremendous increase in the demand for loans for commercial purposes, induced by the heavy upward swing of merchandise prices. The statement of the chartered banks of Canada for the month of March shows that commercial loans have reached the highest point on record, $1,322,367,030, an increase of over $205,000,000 during; the year. Indeed these now exceed savings deposits by $125,000,000. This is taxing banking resources severely. On the other hand it is announced that there will not be another big loan this Fall, and a start has been made at Ottawa in reducing expenditures from $900,000,000 for the fiscal year ending March 31st last, to $537,000,000 for the current year, although this still leaves $82,000,000 to be provided for outside of the usual revenues.
For all present conditions, there is an underlying strength, to the market, and with cautious buying excellent investments are fairly plentiful.
One of the signs of the times is the oil proposition. Some would condemn one and all as “fakes,” drawing their conclusions from sundry that measured up to such a description. They forget, however, that the oil well is a vital form of industry, and it is surprising the number of investors standing well up in the upper ranks among financial men, and investors generally, who hold oil stocks. Perhaps two points of warning are in order. One subscriber wrote in regard to some “oil lands” down South that he was urged to buy, in the hope that some oil producing concern would come along and pick these lands up.
This looked rather “thin,” one degree at least removed from a “legitimate” oil producing proposition. For the latter care should be taken to see that the directors and active management are reliable men, whose presence will be a guarantee that the money from the sale of stock will be expended intelligently in development work, and secondly, that there is a fair production already assured. For there are oil lands and oil lands. But given the two conditions the speculator at least gets a fair “run for his money”.
Business and Investments
Lion Tire and Rubber Co. Ltd.
Hanover, Ont.—Have some stock in Lion Tire and Rubber Co., Limited. How long wil it take before any dividends are realized, and what rate of dividend should the company pay after they are started? Do you advise me to hold on to all the slock I have purchased and buy more?
ANSWER—Cannot advise you to buy more stock. Would have looked more favorably on proposition had the list of directors contained some practical and successful tire men. But president is set down as a “student-at-law”; another, a railway man; a third, an official of the Flax Growers’ Association; a fourth, a hardware merchant; and a fifth, a lawyer. It is quite true that tire companies in the past have made money, but think the prospectus emphasizes too much this fact, for this, in itself, is no guarantee as to what profits this company will make,
As to when dividends will be paid, and what they will be, not even the directors themselves could answer. The result of future operations alone can determine this. Would suggest you write Company, Personally, as to the relation of the board of directors to the manufacturing process.
From a Banker.—Would you be in favor of selling my Brompton stock and investing CR Riordon first preferred 8 per cent stock?
ANSWER.—Your Brompton stock—now split into two with a 6 per cent dividend on each—would seem at present market price, 136-140, to have discounted immediate future. Hence it might be advisable for you to sell and get a higher security in a preferred stock, such as you mention. This is a reasonably safe investment, pays 8 per cent and is cumulative, and the bonus of 20 per cent, of common stock gives you a yield of close to 9 per cent.
Dominion Bridge as Speculation
Winnipeg, Man.—What do you think if Dominion Bridge stock as a speculative investment?
ANSWER.—Could hardly recommend it as an investment even at present low price, at which, if dividend rate of 8 per cent is maintained, yield would be well over 8 per cent. The company has found the period since the war ended rather hard travelling. Personally, have never been satisfied with comparatively small profits that came to parent company from munitions operations of subsidiaries. Recently a new subsidiary was formed. Indeed the endless formation of subsidiaries by companies might well be the subject of restrictive legislation.
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