Saturday, May 30, 1931: Dow 128.46 -3.35 (2.5%)

Assorted historical stuff:

Austrian Nat'l Council votes law granting Finance Min. necessary powers for next 2 years to reorganize Creditanstalt and guarantee liabilities. Action was “considered of far-reaching importance and was received with considerable relief in local banking circles, as it virtually removes what has been regarded lately as a highly disturbing situation.” Bankers over the past few days had been worried not only over “the specific difficulties of this bank but because it presented possibilities of spreading to other banks” in central Europe. It's believed foreign bankers will cooperate to raise a substantial credit for the Austrian govt. NY bankers believe the Creditandtalt affair raises likelihood of suspension of German reparations and allied war debt payments.

Sir O. Niemeyer, Bank of England vice gov., recommends financial program for Brazil including suspension of interest payments on all foreign debt, establishment of central bank under British and US supervision, balancing budget, and new $200M loan to stabilize currency. Brazil has lost gold heavily over the past year. Foreign investments total about $3.250B of total estimated wealth of $16B; largest investor is Britain with $1.5B. Govt. expected to announce suspension of payments within 10 days. Niemeyer was reportedly not invited by the provisional Brazilian govt. but sent by Rothschilds who previously loaned funds for coffee valorization. Initial reaction to the reported recommendations was positive; the milreis (currency) and bonds rose.

Spanish Fin. Min. orders all merchants and exporters with significant holdings of pounds sterling to turn them in for pesetas under penalty of confiscation and prison. Spanish pesetas plunged again, falling 1/2 cent to $0.0865 and selling below 9 cents for the first time.

Editorial: Official deficit figures for this fiscal year ($1.001B as of May 26) are somewhat misleading; due to the way veterans' bonus loans are accounted for, the actual difference between Federal income and outgo has been about $500M higher [however, "sinking fund" payments of about $400M are misleading in the other direction]. Veterans' bonus has had more or less the effect predicted by opponents, but "there is no use crying now over this spilt milk." Upcoming year will probably see less drain on the Treasury by veterans, barring new legislation, but is also certain to have revenues well below this year. Congress will face choice of increasing taxes, vigorously cutting spending, or "it will have to confess its helplessness to control a rapidly mounting national debt."

US musicians have been waging a determined fight against use of "canned music" in theatres playing sound movies. Their efforts have been partly successful, but British musicians have done even better; over 20 London movie theatres recently announced plans to reinstate their orchestras.

The high-goal polo season will open at 4 pm Sunday at the Sands Point Club near Port Washington; tickets are $1.00 for general admission; the 2:09 from Penn Station arrives in good time for the game while the 3:29 arrives around the end of the first chuckker. The upcoming season on Long Island is "looked forward to with the keenest sort of enthusiasm among the players and the polo-going public."

Lafayette A. Jackson, instigator of unsuccessful lawsuit against Indiana anti-chainstore tax, killed while resisting holdup at offices of his chain of groceries.

Arthur Mason, automotive pioneer and founder of both the Buick and Chevrolet companies, dead in Flint, Mich.

Market commentary:

Market wrap: Stocks opened strongly, with leading industrials showing good-sized gains. However, NY Central suffered an outburst of selling about 11 o'clock, breaking to a new post-1922 low on poor April earnings and dividend doubts, omission of Erie RR second preferred dividend caused further unsettlement, and leading rails were heavily pressured, including Atchison, Union Pacific, and B&O. Reaction spread across the market and picked up momentum as session progressed; US Steel broke below 90 for first time since 1923, GM hit a yearly low, and active stocks across the list declined substantially. Bond prices "highly irregular" in week's closing session; US govts. were firm and highest-grade utility and rail issues maintained strong tone, but lower-grade bonds, after some early rallying, turned weak again and some volatile issues hit new lows; foreign list featured sharp rally in S. American bonds and strength in German govts. Commodities mixed; grains irregular; cotton up moderately on pre-holiday short covering. Copper generally available at 8 1/2 cents, some second-hand at 8 3/8; buying slow. Silver plunged 7/8 cent to 26.

Market observers point to recent action as confirming wisdom of staying on sidelines; advise waiting until market indicates it's "ready for more than a technical recovery of a few hours."

One "shrewd observer" believes there's a chance "this bear market is about burning itself out," but warns "no one can say how long the embers will continue to smoulder." For weeks, many have thought the market may be nearing a turn only to see the decline continue almost without interruption. This has kept the public on the sidelines, but once a definite turn does come "a good amount of public buying should develop because large sums are waiting for encouragement to enter the market." Weakness in blue chip stocks has attracted comment; possible explanations include investment trust liquidation and attractiveness as bear targets due to relatively high prices.

Some companies whose earnings have been resilient broke sharply; Borden and Nat'l Dairy were pressured on ice cream price cuts by competitors; Drug, Inc. sold off on reports of forced liquidation. Recent heavy selling of Lehman Corp. [large investment trust created by Lehman Bros. - apparently turned out to be one of the better managed ones] attributed to forced liquidation rather than any adverse developments in company affairs; now selling at 29% discount to asset value. Standard Oil of Indiana fell after Indiana officials decided chain store tax should apply to filling stations; Standard has almost 15,000, many in Indiana.

Oil shares were irregular following sharp cuts in buying prices for East Texas oil and speculation on whether prices in other areas would also be cut, although California situation appears to be looking up thanks to agreement of operators on curtailment.

Cotton has been steadily liquidated through May, leaving several months below 9 cents, and at lowest levels since July 1915. It's difficult to say how much of the liquidation is due to stock market weakness, though probably a larger part is due to and "unsound statistical position" and unfavorable general business.

Foreign bonds have suffered renewed liquidation in recent weeks; numerous investors who until recently were hopeful of improved conditions abroad have apparently concluded things are instead getting worse and are accepting losses to "clean their lists of foreign bonds." Some bond men believe the reaction has gone too far; while some bonds have run into serious difficulties, issues with better prospects are also being sold; point to plunge in Australian bonds as possible overreaction; cite case of France, considered poor risk after the war, which is now ranked second to none in the foreign bond field.

Rather technical editorial on Supreme Court decision concerning ability of states (Ohio in this case) to tax natural gas piped into the state and sold locally.

Farm Board chair. Stone says failure of London wheat conference not due to US attitude, Russia just as much to blame.

G. Leman discussed Far Eastern currency situation at the Nat'l Foreign Trade Council. Japan returned to gold standard on Jan. 11, 1930; likely to stay on gold standard, even though doing so is “serious drain” on resources, barring “crisis of the magnitude of the World War.” India fixed gold value of rupee in Apr. 1927 and has maintained it using “various expedients,” but outlook is problematic. Chinese currency is silver-based and fluctuates in value with the metal. Believes US might help solve problem of drastic decline in silver values by buying a 30 year supply of coinage requirements (about 200M ounces). Steel official Eugene Thomas tells Council US bankers should adopt policy of using loans to promote purchase of US exports; in normal times bankers shouldn't be asked to impose conditions like these that “interfere with the free movement of credit, but these are not normal times”; unfortunately, other countries haven't followed the US example and have made loans “with a view chiefly to the effect upon the interest of their own country.”

C. Spens, Chicago, Burlington & Quincy RR exec. VP, says "business state of mind in the Southwest is buoyant"; record-breaking wheat crop expected.

A. Robertson, Westinghouse chair., says $16M order for electric locomotives by Pennsylvania RR of "immeasurable value" at this time, indicating "confidence that a great railroad places in the future"; should be "effective factor in restoring public confidence and in stimulating other forms of enterprise." G. Swope, GE pres., praises Penn. RR's vision and courage, says placing order now allows it to be done at low cost and provide work for men around the country.

Dow industrial average closed at a new bear market low; there was 1 new yearly high and 176 new lows.

Economic news and individual company reports:

Easy money policy of the Fed. Reserve continues to have "no appreciable effect on the general credit situation." Banks continue to liquidate loans and have been selling non-govt. securities; holdings of non-govts. are now $1.158B, down $2M from Feb. 25. Total volume of Fed. Reserve credit outstanding has declined from $967M on May 6 to $886M May 27; influx of gold, which would normally expand the credit base, has been largely "sterilized" by this reduction in Fed. Reserve credit and further offset by banks' "building up of surplus reserves" and by increase in currency in circulation.

Despite poor business conditions, balance sheets of 150 leading corporations held up well in 1930; total cash and equivalents ended the year barely changed at $2.967B vs. $2.968B; net current assets of $7.353B were down 4%. The income statement did reflect the depression, with only 21 reporting higher earnings per share and 18 reporting a loss vs. 8 in 1929.

While automotive sales suffered an unexpected slowdown in the first half of May, the industry is operating with such low inventories that the sales letdown isn't expected to lead to the usual overstocking problems. The June production outlook is obscured by uncertainty over whether Ford plans a July vacation shutdown. GM production for June is expected to decline 15%-18%.

Bradstreet's reports retail trade, while “spotty,” held from the previous week when some gain was noted; positive factors included coming holidays and low prices. Reports from 40 leading centers showed slightly improved but still pessimistic sentiment. Wholesale remains at a standstill. Dun's reports some improvement in trade sentiment but gains in trade volume too slight to gauge a trend.

Total class 1 railroad operating income in April was about $39.5M, down 36.5% from Apr. 1930 and 58.0% from Apr. 1929; revenues were about $370.5M, down 17.8% and 28.0%. The 36.5% year-over-year decline was worse than the 24.9% decline shown in March but better than the overall Q1 decline of 39.3%. Union of railroad trainmen says will assist rail efforts for rate increase; attacks truck, waterway, and other competitive transport as unfairly compromising efforts of rails to carry out legally required functions. Nat'l Automobile Chamber of Commerce opposes regulation of interstate trucking.

East Texas oil production rose to 351,040 barrels/day in week ended May 27 vs. 303,750 in week ended May 23; much is being produced in violation of the Texas Railroad Commission's quota. Texas Gov. Sterling says willing to convene special session of state legislature if there was hope of enacting a law to enforce curtailment; officials of Humble Oil and Gulf Production Co. held private conference with Gov. Sterling and the Texas RR Comm. on the situation. Gasoline in Chicago wholesale market selling as low as 2 5/8 cents/gallon; price outlook seen weak.

NYSE trading in May totaled 46.7M shares, lowest May total since 1926 (23.9M shares).

Volume of new bond issues continued uptrend this week, with total of $92.6M vs. $88.0M last week and $46.8M a year ago; utilities made up most of the total.

Representatives of Union Miniere de Haute Katanga, large “Belgian Congo” copper producers leave NY without agreement on copper curtailment.

Youngstown district steel output to remain at 41% this week.

Bureau of Agric. Economics reports farm price index May 15 was 86% of prewar vs. 91% prev. month and 124% a year earlier; lowest level since 1910.

Pres. Wyper of the Board of Fire Underwriters urges rise in fire insurance rates, warns against "unjust competition."

Commonwealth Edison loans city of Chicago $2M to meet overdue payrolls for city employees. Miami Beach cuts salaries of city employees 10%-22%.

Empire Steel, fifth largest US steel sheet producer, put into receivership after reorganization plan involving raising $1M from stockholders failed.

The two leading can makers (American and Continental) report improving business after a slow start in 1931; canned vegetable consumption up sharply this spring.

New Haven RR was a bright spot among the rails, maintaining its dividend last week.

Warren Foundry & Pipe and IT&T are reportedly experiencing improved recent business.

Company reports since Apr. 1: 192 companies reported higher earnings vs. 1930 and 700 lower; 664 dividends unchanged, 12 increased, 138 cut.

Companies reporting decent earnings: Engineers Public Service, Drug Inc., Diamond Match [Kreuger-associated], Arundel (sand and gravel), First National Stores.

Movie:

The Maltese Falcon - at the Winter Garden. Dashiell Hammett's novel transformed into "exceedingly tiresome mystery film" featuring generally "atrocious acting," particularly Ricardo Cortez as a private detective with a constant "annoying smirk."

Experimental theatre:

The Legend of the Golem - at the New School auditorium. While new forms of theatre can't be expected to be perfect, "people who attend the experimental theatre have a right to expect some sign of plausibility in form or idea from the stage. And they ought to be made to feel at least a desire, on the part of those in possession of the stage, to communicate with the audience." Sadly, this didn't come to pass; "a cluttered stage and a muddled play of this type ... are as far from dramatic realization as a rock pile is from a building."

Joke:

Guide - Why not go to the top of the mountain? The famous six-fold echo is now twelve-fold. Tourist - How is that? Guide - In the busy season we hire more men.