Friday, February 6, 1931: Dow 169.38 -1.75 (1.0%)

Assorted historical stuff:

Editorial by T. Woodlock: A reader suggests that eventually the Russian people will realize the promise of Communism is false and overthrow it; might it be better for the industrial world not to ostracize Russia now, so that when Communism ends it will be a well-developed country ready for “decent and profitable intercourse with other nations?” In reply, we must consider Spengler's “morphological” concept of history, in which every “Kultur” passes through stages similar to a human life. The Western world, including Europe and the US, has reached “the evening of life”; Russia, by contrast, is only a child. It's therefore impossible to predict what form Russia will develop into after this stage, though Fascism seems a possibility; in any case, their trajectory seems completely different from that of Western civilization.

Washington report: Glass committee hearings appear headed toward unification of the country's banking systems, with general agreement that current competition between states to liberalize laws has led to trouble. What form unification will take isn't clear yet. Senate hearing on confirmation of E. Meyer to Fed. Reserve was one of most diverting for years, resembling “a cross between and old-fashioned debating society and a dog chasing his tail”; eventual confirmation seems certain. Compromise on veterans' bonus seen as dangerous; if it gets before Congress in any form, the most extreme version is likely to pass. Congressional committee members say no agreements have been reached yet.

German Chancellor Breuning tells Reichstag war reparations one of main causes for worldwide depression. However, must strive to fulfill obligations pending solution, unwilling to allow demagogues to dictate speed with which solution is sought. Reichstag thrown into uproar when J. Goebbels, chief Hitler lieutenant, charges officials with wholesale corruption and high treason; says govt. policy of fulfilling treaties has plunged Germany into disaster as they predicted; “National Socialists want to seize power legally, but once in power we will not conform to the present laws.”

Chile Senate grants practically dictatorial powers to Pres. Ibanez. The Min. of Finance assured Congress powers would not be used to change structure of central bank or to give govt. guarantees to private investment in new Cosach nitrate organization.

Editorial: A recent speech by G. Roberts, US member of the Leagueof Nations gold committee, blamed much of the worldwide depression on maldistribution of gold; in the case of the US, concentration of gold was said to have supplied the basis for inflation of credit and wild speculation. This view of the role of gold is exaggerated. Shortage of monetary gold is years away and can be dealt with. The US didn't purposely concentrate gold, and didn't hoard it but used it as the basis for extending foreign credit. Maldistribution of gold is an effect, not a cause, of economic disorder; it will be corrected by freer trade and international financing.

Editorial: Owen Young's testimony yesterday "swept through the turgid atmosphere of Washington like an ocean breeze." Whether or not his solutions prove workable, his open mind, clarity, and freedom from personal animosities are an "exceedingly valuable" example for all public men.

Farm Board chair. Legge says danger of wheat imports [in spite of 42 cent tariff] has now passed; fears shortage of wheat if drought continues; says his statement that wheat stabilization would be impossible if farmers continue overproducing was intended as long-range assertion, not as statement Farm Board would refuse to stabilize the 1931 wheat crop. Agriculture Sec. Hyde urges reduction in acreage of all crops and reforestation of idle land.

NY State Senator S. Hofstader says at least 10,000 jobs in NY are held by 14-year-olds; introduces bill requiring children to remain in school to age 15. NY State Assemblyman F. Zimmerman (D, Queens) proposes restricting billboards to commercial districts to protect scenic beauties from "billboard monstrosities."

Eastman Kodak develops new type of movie film about three times as fast as previous film, called one of the greatest advances in film in 20 years [fast film requires less light for exposure]. Benefits include reducing intense light needed for filming, increased depth of field, and ability to shoot newsreels of indoor events.

US Navy tests new small plane designed to be folded up and carried in a submarine.

Prince Edward Island has a thriving business supplying grass seed for US golf courses, lawns, etc. In 1930 over 350,000 pounds were imported from P.E.I. to give US golfers a better chance to "get down in one" from more than 15 feet from the cup.

S. H. Kress to open first five-and-ten cent store in Hawaii.

Market commentary:

Market wrap: Bears increased activities in stocks, with renowned bear leader Bernard E. Smith heavily selling US Steel; weakness spread across standard stocks; some stop-loss orders were uncovered, causing liquidation in some issues; some recovery in last hour. Bond market quieter; US govts. continued rally on general opinion veterans' bonus will be resolved without huge new bond issue; foreign govts. firm; corp. high-grade steady, lower-grade and convertibles irregular. Commodities mixed; grains down moderately on reports of moisture in drought areas; cotton again up substantially. Copper buying moderate despite drop to 9 1/2 cents.

Conservative observers continue to advise staying on sidelines, since stock prices are still close to recent peaks.

Dow theory adherents see resistance encountered by industrials at about 171 as highly significant; this is second time industrials failed to penetrate Jan. high, indicating general market isn't ready for sustained advance. Trade reports have also given no indication of early business revival. A rise to 175 would be a strong positive indication, but failing that bears may try to test support of the Dec. lows.

Brokers report stocks of companies whose 1930 earnings held up well compared to 1929 have been attracting more inquiries from customers, though most aren't yet buying those stocks at current prices.

GE seen having good prospects in new fields it's entering, including washing and ironing machines; it's offering a liberal partial-payment plan. Consistent diversification of company activities is believed to position the co. well for any improvement in general conditions.

Broad Street Gossip: Veteran traders note that after a depression, recovery is always slow, with inevitable reactions. Late in 1928, many thought correctly that stocks were too high, but the market continued up for a year. Similarly, many have said for the past 6 months that stocks were too low; they may also have to wait a little longer before being proved right. “Let me say, as ... a trader with a good memory, that business will be far better ... and the stock market much higher, before a majority is convinced that we are headed for normal conditions.” One argument the bears can't use is stock "saturation," since almost no new issues have been offered since the market break in Oct. 1929. Reports circulating of important changes in the copper industry before year-end; shareholders said dissatisfied with poor state of industry since consumption is still relatively strong at 75%-80% of normal.

Managed investment trust (similar to mutual funds) year-end reports are showing depreciation (difference between cost of securities and current price) far worse than 1929; only a few report less than 25%. Rapid decline in second half made “prices melt beyong anything they had ever suspected as possible.” Some prominent banks are now launching fixed trusts (similar to ETF's).

G.M.P. Murphy note steady postwar growth of cigarette industry, comparable only to record of public utilities. See years ahead as promising; inventories are low both at sellers and consumers; per capita US consumption is relatively low; export markets are promising.

K. Templeton, CBOT member, says govt. intervention in grain has destroyed foreign markets through tariff retaliation.

H. Jones, Franklin Trust VP, says US Pres. should have business executive as advisor to coordinate economic efforts; would “carry the ball and ... hit the line of business depression while he ... captains our entire team.”

C. Bullock, Harvard Econ. Society pres.: “On the whole, we believe that the turning point is not far away.” Cites better world political conditions, low inventories, bank difficulties past peak, easy money, and precedent of previous major depressions lasting 17-20 months from peak to bottom. Sees positives in recent construction and manufacturing reports.

Economic news and individual company reports:

M. Steuer, conducting Bank of US hearing, questions I. Kresel, bank counsel, about some strange-looking loans to subsidiaries of affiliates.

Rep. Rainey charges Eugene Meyer intentionally ruined Joint Stock Land Bank system after taking it over in 1927.

Fed. Reserve reports money in circulation Feb. 4 up $32M to $4.576B, total Reserve Bank credit outstanding down $7M to $949M. Member banks in NY City report brokers' loans down $18M to $1.716B; loans on securities to non-brokers down $20M to $1.915B.

New stock and bond offerings by domestic and foreign corporations in Jan. were $673.4M vs. $159.9M in Dec. and $731.9M in Jan. 1930.

Texas Railroad Commission faces problem of controlling production in huge newly discovered East Texas oil area.

Steel production has shown some improvement since year-end, but below what had been anticipated by leading trade authorities; production has gained 11% in the period vs. 17% in 1930, and new buying has fallen off. On the other hand, Youngstown steel executives say the gradual upturn has fully met their expectations, and are more optimistic. Dow steel and iron average remains at $44.56/ton. Scrap markets quiet, with weaker tone.

World copper output in 1930 was 1.770M tons vs. 2.107M in 1929.

US exports of industrial machinery in 1930 were $227.1M vs. $257.1M in 1929 and $209.5M in 1928.

US exports of movies in 1930 were 274.4M feet valued at $8.1M vs. 282.2M valued at $7.6M in 1929. Largest market is Europe.

Bank of England weekly statement shows rise in gold holdings of 899,000 pounds, to 141.040M; this was first rise since Nov. 6, during which time a total loss of 21.4M pounds was suffered. In past 2 weeks, Bank has successfully raised London bill rates through open market operations and "moral suasion."

Canadian employment index Jan. 1 was 101.7 vs. 108.5 prev. month and 111.2 on Jan. 1, 1930; decline was less than usual seasonal amount, attributed to unemployment relief measures.

Bank of Chile pres. M. Burr says Chile weathering depression well; govt. ran surpluses in past 4 years including 1930; unemployment low.

Sweden cuts discount rate to 3%; attributed to excessive supply of funds entering country due to stable finances, as in Switzerland and Holland.

Berlin press favorable on French participation in 130M mark credit to Germany, though 6 1/2% rate is considered unduly high by many bankers.

In spite of vigorous German campaign to lower costs of living and production and drastic declines in world prices of food and raw materials, cost of living has only declined 7% in past 18 months; wholesale price index is down 14%. Govt. faces problem of high duties on farm products, and regulated prices in important sectors.

NY City's outstanding debt as of Dec. 31 was $2.128B vs. $1.969B prev. year.

Boston asks ICC for lower rates for rail freight transported there so port of Boston can get more New England exports that currently pass through port of NY.

Union Carbide 1930 net was about $3.10/share vs. $4.19 in 1929; chemical division holding up better than old line chemical makers thanks to development of new specialty lines subject to less competition. Remington Rand (office machines) earnings drastically declined in second half 1930 (Q4 net $0.02/share vs. $1.02), but business started trending up in Dec. and Jan., and co. is hopeful on 1931; with most of the world having only started to modernize office equipment, a large potential demand is seen once general business picks up.

Companies reporting decent earnings: Connecticut Power, Mapes Consolidated (makers of cushioned egg cases).

Movie:

Finn and Hattie - A "slow-moving, dull-witted film farce"; the usually amusing Leon Errol, Mitzi Green, and Zasu Pitts "seem to be straining for humor, without quite reaching it." Saving grace of the current showing at the NY Paramount is appearance of Maurice Chevalier on stage, singing both English and French songs, and "conveying the meaning of the latter numbers in very funny pantomime."

Joke:

"Caller - Is George in? Wife - Yes, he's in. Caller - Good, then p'raps I'll get the money he owes me. Wife - You're an optimist. If George had any money, he wouldn't be in."

' It's so hard to choose a career for my son. I want him to go into my business; my wife wants him to be a doctor; and he insists on being an airman and going on a world tour.' 'That's tough. How old is he?' 'He'll be four next January.'