Friday, June 12, 1931: Dow 136.57 -0.25 (0.2%)

Assorted historical stuff:

“Back to Sanity” - The stock market, after a constant decline through April and May during which it seemed ruled by “fear rather than reason,” has of late shown some signs of a return to rationality. “Is there not a limit to reasonable price deflation? And is not that limit exceeded when the market appraises as valueless plants costing millions, organizations built up to a point of high efficiency, patents and good names that cannot be duplicated?” Some examples: Westinghouse - net current assets plus securities $55/share vs. recent stock price of 56 1/8; “the company's lands, factories, ... patents and processes” were given no value by the market, though the business earned $4.46/share in 1930. Lima Locomotive recently traded close to 19, in spite of holding over $31/share in govt. bonds, and over $11/share in other net current assets, with no debt; in other words, the market valued its govt. bonds at 63 cents on the dollar and the rest of the business at zero, though the business averaged almost $4/share in earnings over the past 10 years. In the past 2 months, cash buyers bought at least $476M of securities from those carrying loans on their securities, and bought over $700M of new issues. “Is not the soundest basis being laid for future stock prices when securities pass from the weak hands of those who are in debt to the strong hands of those with cash resources?” [Note: Remarkably, about another 70% of downside from here ...]

Editorial: "It is the habit of the worm to turn, though it is not of record that he thus escapes the attentions of the early bird. ... Whatever it may or may not avail him, there is steadily increasing evidence that the taxpaying worm is wriggling as he seldom has before." Practically everything has been drastically deflated in the past two years from the overinflated "new era" level, with the notable exception of "the country's huge tax bill." As a result, taxes are taking an increasing part of revenue in many parts of the economy. "It is an old story that every candidate for office promises tax reduction, while tax bills grow from year to year. But ... the worm cannot much longer be expected to believe that all the $10B annual cost of government is wise and necessary expenditure in times like these." [Note: The early bird gets the worm, but the second mouse gets the cheese. - Steven Wright]

British PM MacDonald says opposes international conference on, or Parliamentary discussion of, war debts at this time. US Under-sec. of State Castle says question of reparations and war debts serious, but not regarded at present as critical.

Nat'l Urban League reports black unemployment has increased sharply as whites have entered previously mostly black occupations due to the depression.

Norway is suffering a general labor deadlock, with large sections of industry idle for up to two months. Manufacturers are asking a general 15% wage cut.

Governors of two provinces in Spain outlaw use of machinery on farms to relieve unemployment.

W. Smith of the Full-Fashioned Hosiery Workers Union warns manufacturers will call general strike in US and Canada rather than agree to wage cut.

Possible fall of British Labor govt. and general election loom as result of controversy over proposed land tax.

Congress has recently expanded funding for the Weather Bureau to support aviation. Special weather services are maintained along all the main US highways; a continuous day and night information service is furnished aviators from centers at several airports.

Ford 3000-acre experimental farm in Lenawee County, Mich. has adopted $5 eight hour day for farm labor; now employing over 100 men. Ford believes one of the major problems of industry is to "correlate manufacture and farming"; he believes many farm byproducts can be useful to industry, thus widening the farmer's market and letting him buy more of industry's products.

NBC "to test new device on June 13 which transforms electricity into music and broadcasts it without the use of a microphone."

Camels and mules are being used to deliver American cars to otherwise inaccessible regions in Colombia, India and Australia. Cars must be disassembled into about 25 packages for transport by mule; heavier parts are laid across bars resting on the backs of two mules.

Jackie Cooper, child movie star, has a new contract paying $1,500/week.

During King George's recent illness the air he breathed, drawn from the palace garden, was purified by washing it in a shower of water containing a germicide, then dried and warmed over heated plates. Steam was added to reach the right humidity; a touch of ozone and the air was finally ready for the royal lungs.

Last year, Harper's Magazine received 25,000 manuscripts and used about 175 stories; the Saturday Evening Post received an average of about 1,000/day.

Market commentary:

Market wrap: Stocks experienced irregular but encouraging session. Wednesday's gains continued early but ebbed after overnight orders were satisfied. Market was unsettled in late morning by Southern Railway's ending of dividends; leading stocks had good-sized setbacks. However, volume dried up on declines and leading rails drew impressive support, spreading to other departments toward the close. Bond market featured sharp break in German issues, though other Europeans were steady; S. American suffered severe late slump. US govts. gained; highest-grade utilities reached record high; rail bonds were strong, with rally in lower-grade issues. Commodities mixed; grains mixed with wheat down on continued Canadian rain; cotton up sharply on short covering in spite of continued good crop weather. Copper foreign sales heavy, but domestic market at deadlock with producers refusing to sell under 8 1/4 but consumers unwilling to go above 8.

Conservative observers continue to favor gradual accumulation of standard stocks; believe market trend still upward with possible technical setbacks from time to time; recommend using stop-loss orders and raising limits as market advances.

A fight, "bitter ... at intervals," is apparently going on between diehard bear traders and the combined forces of bulls and some former bears who recently switched to the bull camp. "The outcome ... is awaited with keen interest in the Street." "A most encouraging development in recent sessions" has been the drying up of volume on setbacks; this has won over many undecideds to the bull camp. Part of liquidation in the past two sessions was attributed to Midwest interests selling due to the Chicago bank situation. However, selling has not been persistent or large, and did not appear to be forced. Session was encouraging to bulls who "thought that the best interests of the market would be safeguarded if the rally should proceed gradually, preserving a short interest by refraining from straight-line advances. In this way, it was felt that groundwork could be built up for a sustained recovery ..."

Editorial by T. Woodlock: The NY Public Service Commission's new rate schedule for electric service is noteworthy, since it raises rates to small consumers and cuts them to larger ones. “That the ... Commission has had the courage to make a decision so obviously unpalatable to many and so obviously open to attack by the 'politician' is a healthy sign of the times in itself ...”; it also makes clear, contrary to recent demagoguery by Gov. Pinchot, that small consumers are expensive to serve.

US Steel moved up after its report of a 277,277 ton drop in unfilled orders; bears had predicted a drop of over 400,000. NY Central's maintenance of dividend came as a surprise to many since it's not currently being covered by earnings; optimists believe this indicates hope of management for improvement later in the year.

In addition to prospects of rate increase, rail circles also drew encouragement from statement of C. Gray, Union Pacific pres., that freight revenues of Western rails had reached an "irreducible minimum" in the past five or six months.

Coffee has advanced strongly from the record lows of April, rising about 2 cents/pound since; this makes it almost the first exchange-traded commodity to apparently turn the corner on price. Coffee was the first commodity to show sharp declines in early summer 1929, foreshadowing the fall crash; observers are now "attempting to connect the upturn in the coffee market with a definite improvement in the economic structure."

Editorial: Agriculture Sec. Hyde recently implied that US farm exports are impossible in the long term unless farmers' living standards decline to those of Russian or Chinese growers. This is too pessimistic; much of the problem is due to raising poor quality crops on marginal land. "Instead of running away from foreign competition, it would be better to eliminate marginal lands and raise the grade and quality of the product."

Commerce Sec. Lamont tells lumber meeting any control of industrial conditions must come from industry itself; govt. can do little more than furnish information and statistics on conditions; not easy to control overproduction but the less govt. goes into it the better off everyone will be. W. Compton, lumber manufacturers representative, says conditions in the industry ominous, advocates agreements for control of production, possibly including modification of antitrust law.

Economic news and individual company reports:

Rail executives of Eastern, Western and Southern groups unanimously agreed to apply to ICC for general 15% freight rate increase; rates will then need to be adjusted down for some commodities unable to stand the raise, which would result in a net overall advance of about 10%. Rail observers were increasingly optimistic on prompt action concerning rate increase; Administration seen favoring increase to prevent wage cuts, and ICC is seen likely to expedite the matter as an emergency; prospects seen good for putting increase in effect before year-end. ICC observers were more skeptical on the response to rate hike request; the ICC “is thoroughly sympathetic of the railroad's dilemma, but is at a loss as to the proper remedies ... will have to be thoroughly convinced before it will order rate increases”; some within the ICC believe “the railroads can best solve the problem by helping themselves.” Reports that Pres. Hoover will intercede for the rails are discounted; Administration position is that the ICC is an independent body answerable only to Congress. There has also been some reaction in “responsible quarters” that a 15% increase is too high; organized shippers have already made their opposition clear.

German Chancellor Breuning and Fin. Min. Curtius reported on their reparations talk with the British. Breuning reportedly threatened the govt's resignation if the Reichstag steering committee called a special session to debate the austerity decrees, though the cabinet agreed to listen to proposals for modification of the decrees. Berlin stocks again suffered liquidation Thursday, and the mark continued to decline, reaching new yearly lows in London and NY; capital flight "is assuming large proportions," with Switzerland a popular destination. Pressure on the mark has not been relieved despite reserve losses to the Reichsbank of about 525M marks since June 1. However, it's estimated the Reichsbank would still have 40% cover if all short-term foreign loans were withdrawn. Bank of England weekly statement drew interest for 3.353M pound sterling increase in gold holdings, which are now at about 157.8M sterling. Gain was almost entirely due to receipts of gold sold by the Reichsbank to defend marks.

More small Chicago banks close; total this week is now 27 with deposits of $70M to $75M.

A number of large NY banks have announced their security affiliates now aren't contributing to dividend payments as in the past, including First National Bank (affiliate is First Security Co), Chase National (Chase Security Corp), and Bank of America (Bancamerica-Blair Corp).

Money in circulation June 10 was up $51M to $4.723B, total Reserve Bank credit outstanding down $9M to $929M. Member banks in NY City report brokers' loans down $49M to $1.490B; loans on securities to non-brokers down $10M to $1.741B.

GM sales by US dealers in May were 122,717 units vs. 135,663 in Apr. and 131,817 in May 1930.

F Sieberling, rubber co. exec., says US rubber industry, with annual sales of $1B, has had no overall profits over the past 10 years.

Gasoline in Chicago wholesale market sold as low as 2 1/4 cents/gallon, with most sales at 2 3/8 - 2 7/8.

Dow average of 8 iron and steel products held at $43.58, post-1922 low. Scrap prices were slightly lower but sentiment reportedly improved.

Brazilian Pres. G. Vargas optimistic Brazil is on "the sure road to economic betterment"; govt. administrative expense cut by $40M and revenues increased over $30M; studying reform of electoral law; in sympathy with Chilean FM Planet's proposed Pan-American customs union.

NY State Industrial Commissioner Frances Perkins reports NY State factory employment down 1.9% in May vs. April; NY City down 4%; average factory worker wage $26.83/week.

Tire industry has reportedly made definite and rapid progress in restoring profitability. Following conferences of leading sales representatives and bankers affiliated with the industry, many trade practices have been eliminated and much of the industry has “been raised from the severely competitive state” of the past year.

Candy appears close to depression proof; in 1930, about 1.336B pounds were consumed in the US, only 2% below 1929. Per capita consumption was 12.59 pounds; children accounted for 14.6% of sales.

Four leading cigarette makers withdraw promotion of 10% in extra packages to dealers who buy in tins of 50; promotion had been in effect for about 18 months.

NYSE seat sold for $212,000, up $2,000 from previous sale.

Southern Rwy. says plans no further dividends this year after $2 payment Aug. 1. Warren Bros. (pavement) cuts annual dividend rate from $3 to $2.

Companies reporting decent earnings: Electric Light & Power, Edison Bros. Stores, W.F. Hall Printing.

Horse racing special:

The Belmont Stakes will feature a highly anticipated duel between Twenty Grand and Jamestown. On “points”, Jamestown would appear to have the advantage in the Belmont's grueling mile-and-a-half endurance contest: “He is deeper through the loins, is exceptionally well ribbed-up and has unusually powerful quarters, with horizontal pelvis, which gives him a great stroke when in his full stride.”

Movie:

The Vice Squad - a Paramount film, at the Paramount. A disappointingly missed "opportunity to present a scathing indictment of one of the modern community's front page evils - the vice squad." The script's author formerly worked for metropolitan dailies, giving him an authentic background, the actors are capable, and the picture starts out promisingly, depicting "the deceptive methods of the police organization and its stool pigeon helpers" as Stephen Locarno, a diplomatic attache, is forced to cooperate to avoid exposing the unfaithful wife of his ambassador. However, story peters out "in an ineffectual effort to popularize the theme by insertion of a milk and honey romance." [Note: thank goodness Hollywood never did that again ...] Paul Lukas, as Locarno, is "a most effective and debonair stool pigeon."

Joke:

"Patient - Doctor, are you sure this is pneumonia? Sometimes doctors prescribe for pneumonia and patients die of something else. Doctor - When I prescribe for pneumonia, you die of pneumonia."