May 5, 2010

Tuesday, May 5, 1931: Dow 150.50 +3.01 (2.0%)

Assorted historical stuff:

[Note: Strangely unfamiliar dept.] Obituary: George F. Baker, dean of US bankers, dead at 91. One of the founders of First National Bank, [a forerunner of Citibank] chartered in 1863; called frequently to Washington to advise the Lincoln Administration while in his early 20s. Credited with meeting the panic of 1873 with the astonishing principle that "any panic could be averted if banks stood ready to pay out their resources rather than holding them." First National has enjoyed a phenomenal record of profitability and payments to shareholders. Trademarks of Baker's leadership were "simplicity and solidity"; these traits also anchored his directorships of about a dozen of the largest US corporations over most of the past 50 years. "It is not without meaning that one of the largest and strongest of the world's banking institutions was the creation of a man who cared so little for complexities and so much for what was simple and secure."

M. Traylor, First Nat'l Bank of Chicago pres., assigns some blame for the depression to the country's financial leadership; "not one had the courage to fight in the open against the tendencies he knew were wrong, and to demand a right-about-face." However, "aiding and abetting, if not leading, the financial group" were those leading the country's security and commodity exchanges. While these institutions are necessary, we've paid too high a price to maintain them; in the past 30 years, every major depression has followed a stock market collapse. Calls for reforms including ending floor trading ("has about it most of the characteristics of plain crap shooting, and few, if any, more redeeming features than that delightful Ethiopian pastime"), disallowing margin on small accounts to avoid "wreck and ruin of people of small means which followed the last crash," and ending daily call money settlement so the Fed. Reserve can more effectively regulate credit.

"Baltimore tax party" - a new national movement for tax relief will convene in Baltimore on May 28, bringing together from 35 cities "housewives, skyscraper owners, ... school teachers, doctors, dentists, business executives, young woman and middle-aged men." This will probably be the first national meeting of property owners; it was called by the Nat'l Assoc. of Real Estate Boards in connection with its own annual meeting May 27-30.

Pres. Hoover, addressing Int'l Chamber of Commerce meeting, says competitive spending on arms is gigantic waste and obstacle to recovery. Points out world spending on arms is now $5B/year, about 70% over the prewar level; armed forces of 5.5M active and 20M reserves also greatly exceed prewar level, in spite of the Kellogg-Briand pact renouncing war. In addition to economic burden, threats and fears arising from large militaries contribute to political instability. Points to example of naval arms limitation agreement; calls success of upcoming conference on reducing land arms most important issue for world economic recovery.

Editorial by T. Woodlock (formerly of the ICC): Two proposals have been made regarding the rail situation by undisputed experts on the subject. Prof. Ripley suggests the ICC duties be assumed by a new Cabinet post of Transportation Secretary, while Mr. Lisman suggests the rails themselves agree on a "czar" or "umpire" to resolve "conflicting individual interests looking to the common good." Lisman's idea is sounder. In current system, the ICC has complete control over every important decision the rails make except declaring dividends; they can't build or remove a yard of line, issue a dollar of securities, or change any rates without ICC oversight; "regulation in their case is a garment that covers the whole body." However, the ICC has a "remarkable record" in its 44 years of freedom from scandal and politics thanks to its status as an independent commission reporting directly to Congress; this would be endangered by bringing it into the Cabinet.

Extremely sarcastic editorial: To paraphrase Mark Twain, everyone complains about democracy but nobody's doing anything about it, except "a pitifully small number of Mussolinis, Stalins, and Sir Oswald Mosleys." One explanation for the poor state of democracy may be that our elected representatives, being the "pick of the citizenry," speak a language that goes over the head of "us groundlings." For example, a Western Progressive Senator recently said: "The insidious encroachment of the predatory privileged class upon the rights of the individual challenges the very perpetuity of our institutions." While sounding impressive, it would help if "we were told, in words of one or two syllables, who or what the predatory privileged class is and exactly how it is tampering with perpetuity."

Canadian govt. to use airplanes to count population in the "far stretches of the North." Commerce Dept. announces temporary ban on carrying passengers in all Fokker tri-motored planes made in 1929 until reliability tests can be completed. It was in this type of plane that Knute Rockne and seven other passengers recently crashed and were killed.

Spencer Trask & Co. is one of the few Wall Street houses that has lasted 50 years without any name changes. Firm is now one of leading investment houses; played important role in early development of electric industry through financing of Edison Electric Illuminating Co. of NY, whose predecessor company was the first to offer commercial electric lighting on a permanent basis; Mr. Trask was made pres. of the company two years after it started operations at 257 Pearl St.

IBM acquired exclusive rights to Filene-Finley system for simultaneous translation, used at major international gatherings and to be installed at League of Nations. System was invention of Edward A. Filene, Boston dry goods merchant and economist.

Wages for unskilled workers on Hoover Dam construction set at $4 for eight hour day.

500 feet below the surface of NY City, its second water supply tunnel is being constructed (first one built in 1917). The tunnel will be 20 miles long, 17-20 feet in diameter, and lined with concrete about a foot thick. Currently about 3,000 men are blasting the tunnel through solid rock, progressing about 36 feet/day.

The Warner Brothers drama "The Steel Highway," featuring the story of railroad workers, went far for authenticity, compiling a complete glossary of railway jargon to be used in the film. Among the terms listed: engineer - hoghead; train master - wart hog; switchman - snake; executives - whiskers; locomotive - teapot; rails - ribbons; getting fired - pulling your pin; passenger coaches - varnish buggies; Pullman cars - snoozers; private cars - brain wagons.

Market commentary:

Market wrap: Leading stocks opened slightly weaker, but then improved. After “important banking circles" reassured the market that "there was no foundation for various disturbing rumors that had been afloat over the past week,” the upturn made continued progress. Some unsettlement was created by weakness in copper shares around noon, but selling didn't spread and rallying reappeared across the list in the afternoon; leading rails showed good gains, and major industrials reached their best level in the final hour. Trading volume, however, decreased sharply during the session in contrast with heavy volume during last week's decline. Bond trading very dull, prices mostly firmer; rails showed improvement in both high and second-grade issues; even the S. American list was "devoid of the usual sharp fluctuations." Commodities strong; grains higher; cotton up very sharply. Copper buying remained inactive; some metal offered at 9 1/4 cents but large producers still asking 9 1/2. Zinc hit new post-1900 low of 3.30 cents/pound. Coffee down sharply.

Market observers continue cautious due to lower volume on the rally; advise against both long and short sides; recommend stop-loss orders to protect accounts.

At least one prominent bear recently dropped out, in the belief he had too much company on the short side. One of the largest operators in the group hammering leading stocks for the past two months, he covered all his commitments late last week and left for a Virgina resort.

Market students see similarities between markets in April and first half of last Dec.; both featured consistent declines and very pessimistic sentiment. In mid-Dec. market suddenly turned without any apparent outside reason; it remains to be seen if this will happen again. Considerable support came in from traders who like to take positions for swings of 2-4 weeks, playing for an intermediate recovery; this was based on market action since last Wednesday's lows. Despite widespread poor sentiment, leading shares have developed increasing resistance; this reminded many of the middle of last Dec. when stocks turned around and staged fairly extensive recoveries. Standard Amer. Trust Shares says behavior of 25 most active NYSE stocks in April was typical of final stages of a period of decline, showing less active trading on each successive drop in the market; lower volume in April therefore "particularly significant" considering large decline in that month.

Decline of $257.7M in brokers' loans reported by NYSE in April much larger than expected from bank reports showing $145M decline in 4 weeks to Apr. 29.

Remarks of E. Grace, Bethlehem Steel pres., on steel industry are drawing attention. Many considered him too gloomy last Oct., but subsequent events proved him right. Now he's said that new steel business wasn't supporting current production rate of 48 1/2%; he doesn't anticipate a sharp decline in steel buying but sees little prospect of a sizable increase in the near future.

Harvey Firestone approves of 5-day week and shorter hours to provide work for more men.

Brazilian coffee export tax seen encouraging shift to "mild" grades of coffee grown outside the country, threatening Brazil's 60% share of the world market.

Yet another opinion piece castigating the Farm Board for, in Oct. 1929, loaning $100M of public money on wheat on a basis of $1.18/bushel to farmers to help them hold back their crops and achieve "orderly marketing"; not only will the Board take a large loss on loans it called "completely safe," but this interfered with natural flow of US wheat exports and allowed other countries to get the business, leaving US wheat to pile up in the surplus and rack up carrying charges.

Wage cuts are now increasingly being considered in leading industries. Contrary to opinion of economists, many in the financial district believe cuts would be encouraging since in the past wage deflation has been among the last steps in a period of depression.

C. Howard of the Canadian Bank of Commerce calls for candid advertising to combat psychological uncertainty and revive business by unlocking "immense though latent demand." Sees some improvement in Canadian conditions; stability of its banks should help recovery earlier than other countries.

G. Theunis, former Belgian premier and outgoing Int'l Chamber of Commerce pres., hits high tariffs as one of fundamental causes of depression; also criticizes govt. agricultural price stabilization. However, believes if depression phase isn't over we've at least “passed through the greater part of it, and are about to enter on a more or less prolonged period of quiescence, preparatory to recovery.”

Harvard Economic Soc. says based on historical record, current declines in commodity and stock prices won't necessarily prolong the business slump.

Labor Sec. Doak says bottom of business depression has been reached and “an upward movement has started.”

Economic news and individual company reports:

Bank of US defense begins after denial of motion to dismiss charges; expected to complete case within two weeks. J. Hoyt, senior partner at failed Prince & Whitely firm, indicted for mail fraud based on firm's answer to NYSE questionnaire in June 1930. First Bank & Trust of Washington, Penna. closed Monday, total deposits $5.4M.

In spite of huge stock holdings valued at $109.6M, George Baker's death is seen causing little market disruption due to liquidation; he had long made arrangements to settle his estate with the same simplicity that marked his life. First National stock was up on increased possibility of merger with other banks.

Treasury deficit in 10 months to April was $879.0M (spending $3.559B, revenues $2.680B), vs. deficit of $145M a year earlier. US customs receipts in April were $31.8M vs. $41.1M in 1930; receipts for 10 months ended April $321.9M vs. $463.1M.

Ford worldwide production of cars and trucks in April was 117,891 vs. 99,035 in Mar. and 206,340 in Apr. 1930; highest total since July 1930.

Editorial: The ICC's acceptance of container-car service on rails as a "sound and useful" transport method should help coordinate rail and highway transport, reduce wasteful duplication, and give rails a larger part of total traffic.

European wheat interests seek services of T. Chadbourne to formulate international agreement on wheat curtailment similar to the one he negotiated for sugar.

Internat'l banking group including German and US interests makes $120M offer for Berlin Electric; city of Berlin is attempting to sell electrical properties due to large floating debt and difficulty of selling long-term bonds.

German banks reduced dividends this year after suffering heavy stock market losses; German banks generally have higher stock holdings than in other countries. However, despite 1930 losses the banks began 1931 with considerable reserves.

Ecuador considering 1 cent/word tax on cables passing through Santa Elena transfer station to close budget deficit. Costa Rica considering increase on import duties for many items imported from US.

Prof. Kemmerer and commission members return from 4-month trip to Peru to advise govt. on reorganization of financial system. Main recommendation made, and only one adopted so far by Peruvian govt., was return to gold standard; also advised were establishment of land taxes and revision of banking laws.

New South Wales Savings Bank reopens; depositors allowed to withdraw limited amounts, with funds supplied by the Commonwealth Bank.

Canadian report: Sir Josiah Stamp's report recommends continuing trading in wheat futures on grain exchanges but with more controls. Index of employment Apr. 1 was 99.7 vs. 100.2 a month earlier and 107.8 a year earlier; decline was less than usual in March. Construction contracts in first 4 months totalled $96.2M, down 30% from prev. year. Total bond offerings in year to Apr. 27 were $232.1M vs. $192.0M in 1930 and $140.8M in 1929.

Curtailment in East Texas oil fields reportedly making good progress in reducing production from 350,000 barrels/day last week to quota of 160,000.

Wm. Wrigley, in addition to accepting Southern cotton in exchange for gum, is increasing cotton consumption by using stationery made from glazed cotton cloth.

Westinghouse stock is now about 60, while value of net current assets plus investments in Radio Corp. and wholly owned subsidiaries is 63.

Goodyear increased tire production at Akron and Calif. plants for the second time in a week, to 59,000/day from 56,500,

Berkshire Fine Spinning Associates mill no. 4 reopened after 3 week work stoppage, during which most of 700 employees were unionized by the AFL [note: merged with Hathaway Mfg. in 1955, later bought by you-know-who].

Companies reporting decent earnings: Standard Power & Light, Pacific Telephone, Grand Union, Boots Pure Drug Ltd.


Devil in the Mind - revival by Leo Bulgakov of Leonid Andreyev's prewar Russian drama, translated to English. In spite of several weaknesses, "one of the more ponderable productions of our present ... season." Dr. Anton Kerjen is rejected by Tanya, the only woman he ever loved. In response, he makes the intellect supreme and tells himself he's superior to emotional longing. When after several years he kills the man Tanya has married, he contends it's a demonstration of the superiority of his mind over matter and passion. Question of whether he's a maniac or a murderer is left unanswered in the asylum to which he is committed.


"Betty - How did Mama find out you didn't really take a bath? Billy - I forgot to wet the soap."

'Seven cities claimed Homer.' 'Some of our citizens are wanted by more than that.'

"Mrs. A. - My husband has no idea what I go through when he snores. Mrs. B - Mine never misses his small change either."

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