June 1 1922


June 1 1922



THE business situation has not reflected very vividly the hopes and fears begotten of the Conference at Genoa. Never—except perhaps in Washington last fall—have so many distinguished pressmen been crowded in one place: and never have they worked under more difficult conditions. Editors-inchief of newspapers which have made and unmade governments have sometimes been compelled to write their despatches in hallbedrooms. But whether they have described the Conference as if it were a council of archangels, or whether they have described it as a witches’ cauldron (and both descriptions make interesting reading) the reactions of the Genoa development on business have been comparatively small.

Three years of sad experience have taught us that the reconstruction of Europe is not to be achieved in a hurry. The stabilisation of the foreign exchanges— perhaps the alleged chief economic object of the Conference—depends on a general balancing of budgets in the forty-two countries concerned; for until its budget is successfully balanced, no government can be sure of paying its way without the help of the printing press. International resolutions in favour of sound finance are cheering but not practically helpful. Each country faces a problem different in its details from that of other countries, when it begins to set its house in order, and must solve that problem in its own way. At either end of Europe—in the west by the British, in the east by the Czecho-Slovaks—the main difficulties seem to have been overcome. They have succeeded at length in balancing their budgets. But there are other countries, wounded, perhaps, more deeply by the war, certainly less ably governed, whose position grows worse instead of better.

A Strong Bull Market

NEVERTHELESS, there is a persistent growth in confidence among investors. The movement which started with a steady rise in bond prices has spread till it covers almost every class of security. The present is a bull market on both sides of the Atlantic, and the recovery in Canadian investments, instead of lagging months behind the general recovery, as wás its j habit after previous depressions, has close, ly followed it.

Conservative opinion does not consider j that any general prospect of increased j dividends in the near future would war! rant a further rise; both in London and New York the opinion is nevertheless expressed freely that it may continue at least until it is stayed by the need for funds to move the crops. The fall in 1 money rates continues, and the reduction of the Bank of England rate to 4 percent, which took the City rather by surprise, has brought it, for the time being, below that of the Federal Reserve Board. Brokers' loans in New York have increased by $500,000,000 since the middle of March and are still expanding, though somewhat less rapidly.

Financiers in close touch with the situation are by no means agreed in their explanations of it. The belief is widespread, almost a superstition with some, that the stock market has an almost uncanny prescience of changes in business activity, favourable and otherwise; and there are many who regard the present condition of the stock market as the fore-

taste of a fairly rapid industrial recovery that may not be far distant. This is a simple and straightforward attitude, to which the record of former fluctuations gives a certain measure of support. On the other hand it is pointed out that since securities have generally been in strong hands up to the present, there has been a shortage of them on the market; and a relatively striking rise in prices may result from a small increase in the demand for them. In other words, we run the risk of overemphasizing the importance of the present changes. Again (although this consideration applies only to holders on our side of the Atlantic) it is said that the market is sustained partly by the reluctance of many holders of securities to take profits at the moment, with the immediate prospect of handing over a large part of their gains to the tax-collector.

In any case, the fact that at this stage in the process of readjustment money is cheap and getting cheaper, is a familiar and natural development. As each industrial depression runs its course, there is inevitably a gradual accumulation of funds looking for investment. No less inevitably, they find their way to the security markets; and, though the rise in bonds and stocks may be followed by general industrial revival, in itself it is not so much an accurate discounting of future increased earnings, as a necessary consequence of the previous depression.

Builders' Materials Drop

VXTITH the coming of the warm weather, there has naturally been some revival of industrial activity in Canada. So far this .year it has been fitful, and subject to temporary setbacks. But if the Maritime Provinces and the Prairie Provinces have both of them been comparatively stagnant during the spring, there is no doubt of the general upward tendency. In particular, the building trades show signs of an activity which was sadly to seek last summer, when money, materials and wages were all of them still very dear. The reduction in the rate of interest on mortgages has been accompanied by a fail in the cost of builders’ materials, which at last is fairly general; and though there has been no great reduction in wages in this industry, it appears that output per worker is increasing. In certain sections of the country, notably one or two western cities, little improvement or none has so far been recorded; but there are signs that the forward movement in industry may have become fairly general, by the time these lines are printed.

An element of uncertainty, which is due to the coal strike, does not admit of very profitable speculation. While it may conclude at any moment, it may, like other coal strikes elsewhere, drag on for a long while. Unless the strike has settled by that time, the shortage of coal is likely to be felt seriously by about the middle of June; and if it lasts longer, its influence is reasonably sure to spread far beyond those industries which directly depend for their power on coal from the mines that have been closed. For as one firm after another is forced to shut down, and their workers are left idle, the consequent loss of purchasing capacity must be felt by other industries which cater to them. Indeed, a condition may conceivably develop, though it is to be hoped on a very much smaller scale, similar to that of England at this time last year; when, as readers of MacLean’s will remember, what promised to be a fairly manageable trade depression, as a result of the miners’ lockout, was turned into a serious and most expensive crisis.

In any case, if we are accurately to assess the situation in Canada, we must bear in mind always that despite the seasonal recovery that is occurring, there is at present not more but rather less industrial activity than there was at this time last year. We have not yet completely made up the ground that We lost in the closing months of 1921; and there is no comparison whatever between the present, and conditions of two years ago. A great deal has happened since the summer of 1920, when the depression may be said to have begun; but in almost two years there has been no sustained recovery.

What History Indicates

TV/fERCHANTS and manufacturers may well ask how much longer they must wait, before the wheels of industry begin to turn again with something like their former speed: and thëre is no lack of prophets — false prophets for the most part. It is a fascinating exercise to turn to the history of previous depressions, and enquire how far their course is now being. repeated. Basing themselves on such enquiries, many writers, and among them the financial editor of the London Times, have wondered whether or no we are justified in concluding that an industrial revival is now due: and if we are merely repeating the cycle of 1893, 1907 and 1914, there is obviously something to be said for this suggestion. On the other hand, the depressions of the last generation have not been of equal length; and they have developed very different'degrees of intensity in different countries. The depression of 1914, which affected (.añada severely, was hardly felt by British industry; but it is probable that Britain felt the result of the crisis of 1907 far more acutely than Canada. The most severe of these industrial disturbances, that of 1893, lasted for at least four years, and is by no means a comforting analogy for us to dwell on at the, present moment.

Mr. Reginald McKenna has analyzed conditions in the world at large, for the benefit of the British worsted manufacturers. Except in his address at the annual meeting of the London Joint City and Midland Bank, in which he sustains the fine tradition of the late Sir Edward Holden, he rarely speaks at length for publication. Nevertheless, with his unique experience, first ás Chancellor of the Exchequer in a time of rapid change, and then as chairman of one of the greatest banks in the world, when he does break silence, the opinions of this ex-Rowing Blue repay the closest study. Mr. McKenna believes that there are signs of real improvement, both in England and in her markets overseas. But he utters an emphatic warning against over-optimism in industrial commitments. Even in the cabled accounts of his speech—at the time of writing the British reports are not available—it is clear that he has no belief in the rapid return of prosperity, which has been bailed with enthusiasm by some who are inclined to generalize too freely

from current events in the stock market.

Back to the Farmer

rPHE bearing of the present situation on the future of Canada is a good deal easier to analyze than its bearing on the future of British industry, simply because the markets for Canadian produce are so much less complex than the markets for British goods. This does not mean that we can make any confident prediction; but it does lessen the number of factors of first-rate importance for Canadian industry, which call for really close study. The great bulk of the produce of our urban industries is sold within this country; and as every child knows, the principal limiting factor here is the purchasing power of the Canadian farmer, who must sell his goods in the world market. Canadian industry has been working at low pressure and fitfully for so long, mainly because, since he sold his crops in the summer of 1920, the Canadian farmer has been a poor man. While the chance of his recovery depends on many things—among these, the reduction of railway freight charges, which are still a heavy burden— no change that we can bring about in Canada matters quite so much to him, as the prospect of a world-wide increase in the price of.iarm products.

Now it is true that there has been a considerable rise in the prices of farm products since the beginning of this year. The change is clearly reflected in the monthly chart published by the Canadian Bank of Commerce, which shows a steady rise in the prices of the goods that Canada sells to other countries—and these are mainly products of the farm — combined with a continued fall in price, among the goods that other countries sell to her—mainly minerals and manufactures. In other words, at the moment we are purchasing the goo# that we need from abroad with a steadily diminishing expenditure of effort. On the other hand, the direct benefit to the farmer has been comparatively small, since he had already parted with the great bulk of his produce—-it is said that the farmers retained only about 10,000,000 bushels of wheat at the New Year—before the rise in the prices of farm products really began to be felt.

Thus, even if the present tendency continues through the summer, it will do comparatively little to restore equilibrium in our home market. Real equilibrium will only be restored if the crops of the coming season are at least as good as those in a nonnal year, and if they can be disposed of at a further advance on present prices. For it must be remembered that the thousand and one necessities of the farmer, clothes and utensils and implements, fencing and lumber and harness and wagons and trucks and gasoline, are still selling on an average at not much less than twice their pre-war prices; whereas farm produce, though well above the pre-war level in most cases, is by no means as high in proportion.

Facing the Alternatives

TN SPITE of the tremendous all-round * reduction in manufacturing costs which has occurred, the farmer cannot yet buy the same quantity of factory goods with a steer, a can of milk, or a bushel of grain, as he could have bought before the war—or even at this time three years ago, when he was still comparatively prosperous.

It seems, therefore, that the main possibilities reduce themselves to three:—

1. Bumper crops, even if they are sold at no more than present prices, may do much to restore the situation in the Fall.

2. If there should be a sufficient further increase in the prices of farm produce, before the crops are sold, even an average harvest may lead to sustained industrial recovery.

3. Unless one or both of these possibilities is realized, the manufacturer may be faced with a choice between continued industrial stagnation and a further reduction of producing costs; and it is difficult to be cheerful over either of these alternatives.

Whatever our business in life, we have all of us at present a vital interterest in the produce markets; and as the harvest approaches, and a more accurate forecast of crop yields can be made, our interest will increase steadily. But at best, if there are heavy foreign sales at rising prices, we shall be well-advised if we make our preparations in expectatiçn of a fairly slow revival of prosperity. The farmer’s first task, when his produce is sold, will be to reduce his obligations to his creditors. When that has been done, he may still find himself unable to purchase very largely. His power of consumption will be strictly limited. He will nevertheless have relieved the tension which is inevitable, so long as a large part of the loans made to farmers must be regarded as “frozen credits.” The liquidation of these debts will set funds free for the finance of industry, making it possible to carry out plans for future development which have long been in abeyance. We may look for a movement in the construction industries, parallel with that which is occurring in the stock market already.

Among the most encouraging signs that liquidation is already well advanced, is the fact that the metal industries, always a barometer of changing industrial conditions, have revised their price lists very thoroughly. Except for the makers of implements, they have fully kept pace with the heavy fall in farm produce, which is responsible for so much of our troubles.


Question—I would like to know the status of the General Accident Assurance Company of Canada from a policy holder's point of view. R. 0., Adelphi, B.C.

Answer—The General Accident Insurance Company is a strong company and is safe to insure with.

Question—Is the Western Assurance Co. a safe company to insure wühl—Subscriber, Durham Bridge.

Answer—The Western Assurance Co. is a sound company and safe to insure with.

Question—What do you think of Kirk Gold Mines as an investment} Subscriber, Brampton, Ont.

Answer—Kirk Gold Mines is one of the more attractive newer mining stocks. The company contemplates serious production, and we understand that its ores are promising. This stock, as all securities of mining companies, is highly speculative, and you should not consider it unless you are in a position to take a loss. If you are thus fortunately situated we would not advise against a small purchase as a speculation.

Subscribers to MACLEAN’S MAGAZINE desiring advice in regard to Canadian industrial investments, or life insurance problems, will be answered freely (if a stamped addressed envelope is enclosed), by addressing Financial Editor o f MACLEAN’S MAGAZINE.

If you are asking in regard to insurance, please give full details of your own financial and family position, so that definite and individual suggestions can be given.