-4-
 
      
 
 
Axis attack, the obvious thing to do would be to achieve an 
      immediate alliance with the Soviet Union.
 
      
 
 
The fact that the somewhat naively concealed representations 
      of German agents in the above-mentioned capitals have proved 
      to have so impressive effect upon Mr. Chamberlain, is taken in 
      Berlin -- rightly or wrongly -- as proof that the British Government 
      is after all not serious.
 
      
 
 
(b) This being so, or at least believed to be so in Berlin, 
      the German and Italian Governments are faced with the choice 
      between one of two almost equally attractive lines of policy: 
      That is to say, they can either, in the belief that in the long 
      run the British opposition -- meaning particularly the Conservative 
      Opposition --will force the Anglo-Russian alliance which spells 
      the end of the Hitler ambitions, attack now at Danzig or, in 
      the belief that another apparent "lull" will permit 
      the "appeasers" to find their feet again and come to 
      the top, allow things to slide a little further, running a continuous 
      terrorisation and victimisation campaign, in the hope that very 
      soon both in Britain and in France the anti-Municheers will get 
      tired, and the Municheers will begin to be able to say "after 
      all, these people have not invaded any independent state for 
      several weeks, what reason is there for not treating them as 
      in fact very decent chaps?
 
      
 
 
The market. :
 
      
 
 
In fact, putting the thing market-wise, it is one of those 
      situations in which a really strong-nerved bear will make more 
      money than anybody, but a nervous bull will make more money than 
      a nervous bear. And, as is notorious all over the world, the 
      London market is full of nervous bulls who read their newspapers 
      in the morning and get the pep-talk and start buying forward, 
      and then talk to their friends over lunch and telephone the continent, 
      and begin to get the facts, and start hedging before midday.
 
      
 
 
(c) There is being put about in London this week a heavy propagand %a 
      barrage to the effect that the Germans and Italians have been 
      "stopped anyway" and that therefore there are no further 
      unpleasant surprises to be expected. Investigation in Berlin 
      and Rome does not support this view, but rather suggests that 
      it is in fact being put out from precisely those two centres: 
      again with the central notion of delaying, or giving the impression 
      that there is no longer any necessity for, the Anglo-Soviet Pact.
 
      It has to be reported that so far as the German General Staff 
      --which is the same thing as the Italian General Staff -- is 
      concerned, the view is that everything stands or falls by the 
      success or failure of the Anglo-Soviet negotiations. Whatever 
      the views of Dr. Salazar