Finance & Industry: Advice for Speculators

Economic Forecasting

In this and other countries the collection and analysis of industrial, trading and financial information has greatly increased since the war, and goes on increasing. Governments and private organisations are alike involved, but there is no likelihood at all that they are ever going to reach a degree of accuracy comparable with forecasts of tides, sunrise and eclipses.

The Observer (5-6-60) had a telling example of inability to agree, in Mr. Shonfield’s column. He reported that two organisations of economists had analysed the present economic situation and made a forecast for the rest of the year. The two organisations are the National Institute of Economic and Social Research and the London and Cambridge Economic Service. Mr. Shonfield writes:—

“The whole National Institute argument turns out . . . . to be a statement of the reasons why the last six months or so have been a period of exceptional strain on the balance of payments, add why this is unlikely to continue. The other report, the London & Cambridge Economic Bulletin takes just the opposite point of view—that the strains are all to come.”

Much of the difference in the conclusions arose from the two widely different estimates of the extent to which production this year will exceed last year’s level, Mr. Shonfield, who leans to the first report thinks it may be about double the estimate made in the second report, of under 4 per cent. If estimating production levels is difficult, financial forecasting is doubly so, as can be seen from the day by day variations of city column opinions. The City Editor of the Evening Standard (23-4-60) opened his column with the following:—

“’Business’ Calvin Coolidge once said, ‘will be either better or worse.’ That’s the kind of helpful advice you could have collected by the bagful in the City this week.”

But as a stock exchange operator once remarked, the secret of success for speculators does not consist in knowing what investors ought to do tomorrow if they were wise, but in knowing what foolish things they are likely to do.

World Wheat Surplus

In an article “Problem of World Wheat Surplus Still Unsolved” The Times (25-5-60) summarises the first annual review by the International Wheat Council of the world wheat situation. It confirms the Socialist argument that capitalist and political interests which determine the policies of producers and governments make it impossible to achieve a world policy based on human need. Capitalism requires that products must be sold and can normally be sold only to those who can afford to pay. Even when governments, for internal reasons, would like to give away surpluses, this is strenuously opposed by other exporting countries which see their markets endangered and price levels forced down.

In brief, many governments after the war stimulated wheat production because of the then food shortage, with the result that “in North and Central America average yields per acre have more than doubled since before the war, in South America they have increased by over 70 per cent, and in Oceania by almost one-half.” The governments continued the policy after the commercial need had disappeared, because, for political reasons, they wanted to help the farmers, but in the meantime consumption of wheat has been declining in the advanced countries.

The comment is that is is “impossible to avoid the conclusion that the situation giving rise to the accumulation of heavy surplus must now be accepted as a ‘deep-seated and persistent problem ‘.” Yet all the time there are millions of people who desperately need more food but cannot afford to pay for it. The Financial Times (25-5-60) discussing the problem concludes that there is no solution except that of restricting output, if and when the governments can bring themselves to that politically unwelcome course.

Russian Oil

Along with the enormous over-development of oil production and refining and the laying up of large numbers of tankers, the oil firms now face the problem of a Russian drive to sell their surplus oil—at prices well below world levels. The Financial Times (30-4-60):

“Last year Russia accounted for one-third of the total increase in world oil production, with output of crude, according to the latest issue of Petroleum Press Service, rising by 45m. tons to 129m. tons. Efforts have been made to increase exports, and last year about three-quarters of the 17m. tons exported outside the Soviet bloc went to Europe. Since then the sales drive has been extended, and some successes have been achieved in Japan and in Egypt. So far imports of Russian oil into the U.K. have been small being virtually confined to lubricating oil, but her salesmen are active and it is likely that further contracts may be announced before the end of the year.”

Discussions have been in progress for expanding trade between Britain and Russia and the Russians are reported to have made this dependent on the admission of large quantities of Russian oil into the British market.

H.