Persecution Complex

The stockmarket, as the sum total of many bets on the future, almost always anticipates (and frequently overanticipates) good or bad news. Last week, when Italy finally threw in the towel, the market took the good news in traditional style: it went down. But the drop, two-thirds of a point on the Dow-Jones industrial average, was picayune compared to the threeday, 6 1/2-point nose dive that followed the fall of Mussolini last July, and was more than made up in the next day's trading.

The drop, on receipt of good news, illustrated anew the dogged pessimism (or lack of imagination) with which U.S. investors view the approach of peace. But the quick comeback might mean that U.S. investors are coming around to the British attitude, which seems to be a more realistic appraisal of the fruits of victory. The London market last week, as it has been since Dunkirk, was on the upgrade. While British capital looks eagerly ahead to the war's end, U.S. investors still fear a vast collapse of production.

Four Years, Seven Points. Yet when the Dow-Jones industrial average last week closed at 138, it was less than 7 points above its August 1939 low. In short, four years of war had little permanent effect on the averages, although production is now running at almost double the 1939 rate.

Another fixed notion of marketwise-guys is that corporations with large war contracts are automatically bad bargains as peace becomes more certain, and vice versa. A few grossly inflated war producers (like aircraft and machine tools) do face vast uncertainties in reconversion to peace. But among the "war stocks" that sold off fractionally were auto shares, and the auto industry's postwar prospects are as bright as any other's. And among the "peace stocks" that boomed were utilities, which have really benefited from zooming war production.

Looking Abroad. A third fixed belief is that Allied victories, while supposedly bearish for U.S. securities, are bullish for foreign securities, particularly for those of countries where postwar fiscal problems will be most acute. Last week Italian Superpower common jumped 45%, closed at 14 times its 1943 low. Superpower's chief recommendation to investors is that it is now one of the two existing avenues for speculation in war-ravaged Italy. (It, like International Power Securities, is a U.S. company holding investments in Italy; trading in all direct Italian obligations was frozen by the U.S. Treasury.)

This reasoning, divorced from its lunatic-fringe manifestations, is sound enough: the U.S. investor has too long taken a jaundiced view of the rest of the world. But the new foreign speculation has been accompanied by persistent defeatism about the prospects of many much healthier domestic securities. So far as peace at home is concerned, the average U.S. investor is still suffering from a 1930-style persecution complex.

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