May 26, 2010

Tuesday, May 26, 1931: Dow 132.87 -5.03 (3.6%)

Assorted historical stuff:

Newfoundland faces grave crisis, with default on bonds apparently inevitable without British aid. Situation arose May 22 after failure to obtain underwriters for $8M bond issue. Bank of Montreal then refused govt. checks, and govt. depts. have been told to stop issuing them. Officials making frantic efforts to arrange loan to meet pressing obligations at end of June. National debt is now $90.3M for population of 265,000. Rumors of sale of Labrador denied.

Dr. S. Miller, Nat'l Assoc. of Credit Men exec. mgr., warns small businesses face an uphill battle due to easy money policies; these will widen the gap with large, financially solid concerns who can usually borrow funds much more easily than their smaller competitors.

Editorial in favor of Treasury Sec. Mellon's argument that the tax base must be broadened. Govt. revenue fluctuates too much depending on economic conditions; the govt. "is now in the position of a man whose income has been seriously reduced at the same time that his expenditures greatly increase." Income taxes are collected from a sliver of the population; about 380,000 people pay 97%. Revenues should be collected from a broader base; this would "serve as a check upon reckless spending" and make revenue less sensitive to economic conditions.

P. Engel of Libaire & Co. returns from European trip, says "Europe shows everywhere a good picture to the traveler and is getting through the general business depression without any serious upset of routine life." Economic position of Italian population satisfactory; no direct poverty; govt. carrying on public works in commendable manner. Germany presents better appearance than reports; extremists of both right and left have lost ground; political situation quieting down. France suffering more in past 5 months than previously; govt. taking measures against unemployment. British govt. has tough row to hoe; "fiscal situation gives much cause for worry"; some slow improvement in sight. Reduction of military spending now an economic necessity. Stock markets oversold as in the US.

Editorial: "European statesmen" apparently were unimpressed with Pres. Hoover's strong argument for disarmament as key to solving the depression. As one example, M. Theunis, former Belgian premier, says Europe is spending more on its military than before the war because it insists on security, flatly denying military spending could be a cause of the depression. Yet, he separately blamed the maldistribution of gold on "the uncertain political situation and ... protectionist policies"; is not military spending an inseparable part of that "uncertain political situation"? This same situation apparently has caused the BIS to conclude the time is not right for extensive credit arrangements. Pres. Hoover spoke not merely of the cost of armaments, but of the "malign inheritances from the Great War" that they perpetuate.

Sen. Brookhart drafts bill that would conscript industry on the same basis as manpower in event of war; would recapture through tax all profits except return of 1 1/3% on value of physical assets.

South Wales Miners committee says low wages in British coalfields "have reduced hundreds of thousands of families to intolerable conditions and semi-starvation."

Post Office says Pres. Hoover's economy drive won't curtail spending on air mail.

Waters of St. Lawrence River reach record low level; heavily laden boats imperiled.

Supreme Court finds Irving Langmuir's vacuum tube patent invalid, reversing District Court ruling that would have given GE and group of other large manufacturers control of radio tube manufacture [decision apparently ends litigation lasting 10 years in patent office and almost 5 in court].

Autogiro” [first successful rotorcraft] plane development continues; designers believe large transport planes of this type can be built. Advantages include ability to land in as little as 10 feet of runway with much lower speed than a normal airplane; also, in case of engine failure, craft just “slowly settles back to earth.”

Although most domestic airlines now use multi-motored planes, trend is now to single-engine craft due to greater speed and efficiency and easier maintenance.

Supreme Court decides FTC has no jurisdiction to prohibit Raladam Co. from advertising its Marmola fat reducing tablets as safe and scientific.

A new observatory was recently built at the peak of the Jungfrau Joch mountain near Basel; it will maintain weather records for the studying of "various phenomena of weather and climate, and their influences upon the various forms of life." Studies of glacier movement will also be inaugurated.

Workmen wrecking an ancient Yugoslavian building found an earthen pot containing several hundred gold coins, some dating back to the second century BC. The money is believed to have been buried by Hannibal of Carthage during his Second Punic War against Rome.

India's railways offer a private coach boasting country club appointments, a tiled bathroom, a kitchen with electric refrigerator, and servants quarters. It may be detached at any point along the line for a stopover. Charge for a party of up to 8 passengers, with 6 servants, is $9.25/day + $0.46/mile; rates lower in summer.

Canada boasts a 1,700 mile air route extending 300 miles north of the Arctic Circle, from Fort McMurray via several stops in frontier outposts to Aklavik; the mail trips, which used to take 70 days by dog-team, are now completed by plane in 48 hours, and the long route has been covered in about 11 hours flying time.

Henry Ford opens new 108-room Dearborn Inn, built to help preserve early American traditions and hospitality, opposite Ford Airport. The inn will be convenient to businessmen and tourists visiting Detroit or his nearby Edison Institute of Technology that contains Greenfield Village, a reproduction of an early American village.

Leo, the large African lion whose huge head is the trademark of a certain major film company, is to go on a world tour. When he gets to Africa, they are going to release him for three or four weeks and watch his reaction to being back in his natural setting after many years of captivity.

Market commentary:

Market wrap: Week opened with "further persistent selling"; large orders appeared at the opening, again converging on US Steel which broke to a new post-1924 low; other leading shares worked slowly down on low volume, with only 500,000 shares traded in the first 2 hours. Trading picked up in early afternoon as pressure spread to other leaders; AT&T led a decline in utilities, and rails also reacted; selling in the industrial section "was growingly insistent." Decline broadened further after Steel broke again to below 95, and sharp breaks took place in trading favorites; market heavy into the close. Bonds trended downward in very dull trading; US govts. narrowly irregular; highest-grade corp. relatively steady near recent highs while other issues turned heavy; German govts. firmed while S. American were weak. Commodities very weak; grain prices down substantially, with Sept. wheat below 58 cents, a new post-1895 low, and corn at a new post-1922 low; "general feeling of despondency prevails in both grain trade and farming circles"; cotton prices down sharply to new post-1915 low. Copper at 8 3/4 cents with larger producers asking 9; buying more active. Cocoa hit new record low.

Conservative observers pessimistic; say market's recent action indicates "generally cautious attitude was more than justified."

During the market's "phenomenal advance in 1929," some conservative observers cited a warning signal that bonds were yielding much more than stocks. These same interests now believe conditions must be closer to normal since things have reversed, and stocks are now yielding much more than bonds. However, just as in 1929, stock market participants don't seem to be paying attention. Buying during the session attributed largely to short-covering; public demand "almost entirely lacking"; lower prices caught stop-loss orders. In spite of some short covering by big operators and the public, the short interest remains large; technical rallies haven't frightened bears into covering, and it appears some unexpected positive news would be needed to force them to retreat.

Steel sentiment appears grimmer after US Steel pres. Farrell's remarks late last week; many who had predicted improved revenues in the second half now believe earnings will lag due to low prices. Rails have been more stable in recent sessions, and are drawing some interest after long neglect from observers who believe they may be oversold. Favorable factors include rumored change in attitude of govt. authorities, and prospect of rate increase, though this will take time.

Woolworth has returned to favor after its rally was interrupted a week ago by the Indiana anti-chain store tax decision. Brooklyn-Manhattan Transit has been strong on NY City transit unification prospects. Allied Chemical dividend in doubt as first 4 months barely covered requirements.

Bear leadership remains "vested in a relatively small group of operators," but they will now have to soldier on without William Danforth, who has been prominent in that group since turning bearish in mid-summer 1929. He now feels the main body of stocks has gone through about 98% of its probable readjustment and is unwilling to play for the last 2%. In fact, he has begun gradually accumulating Steel, Can, and other leaders on expectation of some business improvement in the fall.

Some observers were encouraged by very low volume in Saturday's session (only 550,210) shares. This was seen fitting into a pattern of progressively lower volume in successive phases of the bear market. Volume in the week of the initial crash in Oct. 1929 was 37.5M shares; each following important week in the decline has had smaller volume, falling to only 12.1M in the past week during which the Dow industrial and rail averages hit new bear market lows. This is seen indicating smaller amounts of forced liquidation as the readjustment proceeds; "bear markets customarily wind up in dullness" as forced selling ends.

G. Verity, Amer. Rolling Mill chair., says times have changed since antitrust law was enacted 40 years ago; control of industry has passed from hands of a few to the "public-at-large"; it's now up to the millions of stockholders in modern corporations to demand revision of antitrust law to allow needed cooperation.

L. Boysen, Chicago Mortgage Bankers Assoc. pres., calls for corporations with adequate capital to sell guaranteed mortgage bonds under State Banking Dept. supervision in order to restore investor confidence in mortgage bonds.

Dow industrial average closed at a new bear market low; there were 3 new yearly highs and 129 new lows. The utilities, after holding above their 1930 low far longer than the industrials and rails, broke to a new bear market low.

Economic news and individual company reports:

Financial difficulties of Ausbit-Lieben, Viennese private bank, cause director to commit suicide and chairman to attempt it.

Tennessee Gov. Horton likely to be impeached after legislative committee attributed poor condition of state affairs to undue political influence by the recently indicted Rogers Caldwell [large Southern investment house that collapsed in Nov.] and Col. Luke Lea.

At Bank of US trial, defendant H. Singer admitted I. Kresel, bank counsel, had full knowledge of securities repurchase agreements figuring in indictment; agreements were allegedly devised to avoid taxes.

East Texas oil area is producing 290,000 barrels/day vs. its 160,000 allowed quota; price cuts by major companies imminent barring drastic action. International Great Northern Rwy., (Missouri Pacific subsidiary), in addition to benefitting from East Texas oil traffic, now actually has oil discovered along its right of way, as its main line fortuitously goes through the East Texas oil area; it's leased 7 miles of its right of way for drilling.

Some are suggesting a Federal gasoline tax as means of smoothing revenues and broadening the tax base.

Fed. Reserve Board's index of industrial production rose to 89 in April from 88 in Mar., helped by larger than seasonal increase in car production. Both security and commercial loans at member banks continued liquidation; investments continue to increase. Increase in currency demand in 6 weeks ended May 16 attributed to banking disturbances in Midwest.

R. Whitney, NYSE pres., says was misunderstood on new rules for fixed investment trusts [similar to ETF's - see May 9 and May 22]. Didn't intend to imply that fixed trusts generally pursue unsound methods; large proportion of fixed trusts are expected to gain approval for marketing by NYSE members.

BLS reports general level of wholesale prices declined 1.6% in April and has continued decline in first half of May.

F. Tilton, third Ass't. Postmaster General, says increase of 3% in May postal receipts from April indicates improvement in general business conditions.

Some large sellers of gasoline begin offering third grade of gasoline at lower price to meet competition by cut-rate dealers.

Texas Railroad Commission warns East Texas oil production is endangering proration [curtailment]; asks oil purchasers to help enforce it.

Leaders of major industries to be invited to nonpolitical meeting and dinner in NY City Oct. 21 under auspices of Columbia Univ. and Institute of Amer. Meat Packers; sponsors include Thomas Edison, Henry Ford, Orville Wright, George Eastman, Harvey Firestone, Charles Schwab, and Adolph Ochs.

Argentina has been largest source of US gold imports this year (supplying $81.1M of total $177.3M), after provisional govt. began authorizing shipments for debt service last fall.

Canadian report: Bank of Canada says govt. may save $10M annually in interest after exchanging over $1B in 5 1/2% bonds maturing up to Nov. 1934 for new issue at 4 1/2%. Foreign trade in April totaled $85.1M (exports $33.9M, imports $51.2M). This was down $55M from Mar., down $47M from Apr. 1930, and the lowest volume for Apr. since 1922.

French car production in 1930 was 225,000 units, down 9.3% from record 1929 total; sales decline has intensified since Oct.

Shubert Theatre Corp. working with bankers on financial plan; bond interest payment due June 15 "and the current price of the bonds around 7 indicates doubt that the payment can be made."

Diamond Match [Kreuger-associated] to diversify into chemical field to ensure continued stable earnings; finances extremely liquid after recent recapitalization.

Companies reporting decent earnings: Allianz (largest German insurance co).

Catholic special:

18-point summary by T. Woodlock of recent encyclical by Pope Pius XI on current social and economic problems. Some highlights: Man's right to own property granted by the Creator to provide for personal and family needs and so that humanity as a whole may benefit from earth's resources; denial of property rights on one hand and of limits to those rights on the other are equally false. Right to own and transfer property can't be taken by the State, either directly or through crushing taxation; however, State has right to control use of property to bring it into harmony with the common good. Possessor of wealth beyond his needs is obliged to charity; productive employment of labor is commendable. Capital and labor should act more as partnership, with each necessary to the other; share of capital has tended to be too large and of labor too small; workers should receive wages sufficient to live in decent conditions. Capitalism not wrong in itself, but extreme concentration of wealth in hands of a few due to unrestrained competition can corrupt the State and make it a “slave of greed,” making economic life “hard, cruel, and relentless in a ghastly measure.” Cooperation between nations needed, as is reasonable relation of wages in various economic groups. State “syndical” (Fascist) organization has advantages but also dangers of becoming bureaucratic and interfering with private initiative. Communism and Socialism incompatible with Christianity though modern Socialism has elements of truth. Main disorders of world arise from unrestrained greed and disregard of man's purpose, which is God.


The Smiling Lieutenant - Satire of royalty, directed by Ernst Lubitsch, starring Maurice Chevalier, music by Oscar Straus. Reveals the director's touch unmistakably. The Viennese music is also an indispensable part of the show, as in a scene where Lieutenant Nicki walks pensively downstairs as bass strings play a descending scale, each note falling precisely on the beat of his steps. Nicki is a young Austrian in love with Franzi, a violinist in a Viennese beer garden. One day as the king of Flausenthurm is visiting, Nicki winks to his sweetheart as the king's carriage passes. Naturally, this leads to his involuntary betrothal to the princess of Flausenthurm who was in the carriage (after he amazes and delights the king by spelling Flausenthurm correctly). Nicki proves unhappy in marriage; one day he again happens across Franzi and begins an affair that the princess learns of. In the expected happy ending [for this kind of film] Franzi is summoned to the palace; she and the princess become friends, and Franzi makes the "customary romantic sacrificial act" of giving up Nicki, after first teaching her to dress better and play jazz "instead of 'Cloister Bells' and similar compositions" so she can keep Nicki happy.


Daredevil Driver - Had wonderful luck on our run today, wonderful. Friend - In what way? Driver - The machine smashed up right in front of a doctor's office.

Visitor: Why is that beautiful urn in the living room always covered? Hostess - Oh, it contains my husband's ashes." Visitor - But I had no idea you were a widow. Hostess - I'm not. My husband is just too cheap to buy ashtrays.

Deadbeat Tenant - I trust you will allow me to leave with my laundry. Landlady - Certainly. Your other collar is downstairs.

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