Friday, June 19, 1931: Dow 130.56 -3.12 (2.3%)

Assorted historical stuff:

Editorial questioning Prof. Keynes' recent lectures that argued the way out of depression was to restore commodity prices to a level that could support "the vast credit structure - in other words, the massive public and private indebtedness" built up in the past 20 years; he also supports maintenance of wages. "To many Americans this will sound like an impossible admonition to salvage the new era." It expects workers who've already suffered deflation to "contribute through their purchases ... to the preservation of pre-depression wage scales for that part of labor which has so far been able to shelter itself." Keynes admits liquidation is the normal consequence of a boom era but says we don't have to accept it fatalistically. "More pertinent is the question whether we have to accept it in fact."

Editorial: Crisis in Germany appears to have passed "for a little time" as, under threat of govt. resignation, new elections, and more gains by radicals, the main parties decided not to call the Reichstag back into session. This gives the Breuning cabinet some breathing space until the Reichstag meets again in Oct.; hopefully, "some constructive action both within and without Germany will be taken in the meantime" to make the gains permanent. Business recovery "will come more quickly and be more complete if we and other nations recognize and act upon the fact that we cannot have great prosperity and security ourselves while all others lack it." As result of recent British-German meeting at Chequers, British Foreign Sec. Henderson has reportedly requested all European foreign ministers to meet July 13. Henderson and British PM MacDonald will visit Berlin July 17. Foreign currency market was quiet as “European affairs appeared to be working slowly back to a more normal basis.” That sneaky old Treasury Sec. Mellon, in spite of repeated assurances current European trip was purely personal, has conferred at length with British officials including PM MacDonald and Montagu Norman (Bank of England head) regarding war debts and reparations.

Dr. O. Ender abandons attempt to form new Austrian cabinet as all parties but his own refuse to accept proposed semi-dictatorship.

Soviet Communist Party Central Committee reprimands Commissariat of Railroads for failure to effectively use experience of foreign experts. US experts in particular have frequently complained that their highly paid advice was often disregarded.

Advertising Federation of America says business can only reach its fullest development through “widest possible distribution among the creators of wealth of an equable share of the profits and of time economies made possible by the development of machinery.”

Bruce Barton, editor, says radio, television and similar inventions offer no serious threat to newspaper advertising revenue. "Radio, even television can never achieve the permanence of the printed page. It comes and goes with the speed of light. Hence, its impression must be, to some degree, transitory and ephemeral."

"Two Frenchmen" have invented "non-inflammable gasoline" and made six journeys between London and Paris by airplane using the fuel.

Bethlehem Steel subsidiary is low bidder for construction of Golden Gate bridge superstructure, at $10.494M.

About 48% of General Foods' 44,400 stockholders are women, either owning the stock individually or jointly with their husbands; this is up from 33% in 1928.

William Randolph Hearst and David Lawrence Inc. have made competing $3M bids for the Washington Post; several new bids expected.

Intensive "Stop, Look & Listen" safety campaign appears to be bearing fruit. Number of deaths due to accidents at railway crossings was 2,020 in 1930, down almost 19% from 1929; number of deaths per registered car has declined from 1/6,600 eight years ago to 1/13,000 in 1930. While rails are gratified over the improvement, "the tripartite injunction still stands. The US Supreme Court also has ruled that if you don't so act, and you get hit; it's your funeral!"

Largest and in many ways most remarkable diamond on record is the Cullinan diamond, discovered in 1905 near Pretoria. The stone weighed 3,024 3/4 carats, or 1.37 pounds, and measured 4 inches x 2.5 inches x 1.25 inches; its value has been estimated at $2.5M - $5M. The original diamond was cut into nine stones and presented in 1908 to King Edward VII, to be placed among the crown jewels; the largest, weighing 516 1/2 carats, is now in a removable setting in the scepter.

Market commentary:

Market wrap: Trading remained very dull, dragging along at lowest level in five years; price movements in leading stocks were narrow for most of the session, but stocks generally drifted steadily lower, and what activity did develop was mostly on the downside; market was generally heavy in the last hour. Bond trading quiet, prices generally steady to firm; rails showed buoyancy after filing of rate increase application with the ICC. Commodities broke badly; grains very weak, with wheat down sharply to post-1895 lows; cotton also down sharply. Copper at 8 cents with little buying; outlook seen weak.

Conservative observers change opinion; now recommend reducing long positions during rallies and remaining on sidelines; those maintaining long positions are advised to protect accounts with relatively tight stop-loss orders; any further decline is seen indicating market trend will be downward until new base is established.

Sharp decline in railroad stocks disturbed investors who had been watching them for clues to the general market trend. Unusually small volume in recent sessions has also discouraged bulls. This is seen as reflecting inability of groups working for higher prices to attract a public following, leaving market "entirely in the hands of the professional element." Market seems to have reached a stage where the public and some important traders are adopting a cautious attitude, not renewing their buying until leading "shares definitely indicate a readiness to renew their upward trend" by moving into new high ground for the rally.

NY traction [mass transit co.] shares were notably strong on optimism conferences now being held between city and company representatives would lead to a workable unification plan. Public utilities have done relatively well in the past month or so, with Consolidated Gas the apparent "favorite in responsible quarters." Shares of farm machinery companies sold off on wheat price weakness. Westinghouse fell to a new bear market low on dividend nervousness; stock is said to be subject of active contest between traders. Chrysler gaining support based on upcoming "vibrationless" 4-cylinder car.

Bond dealers report more buying by individuals this month, though total isn't large; spreading buying activity considered encouraging; investors turning more to second-grade bonds. More financing is under discussion, particularly by public utilities.

NY State Comptroller Tremaine touted safety of Land Bank of the State of NY bonds for purchase by bankers; "secured by mortgages on homes"; enough security to "never permit default"; no instance of bonds selling below par. [Note: interesting ... not sure what happened to these through the Depression.]

Investment trust [similar to mutual funds] semi-annual reports will start appearing soon; it's likely most will show limited market operations in the first half. In spite of many conferences on mergers between investment trusts, number of actual consolidations has been small so far. However, it's still expected many of the most well-known trusts will “disappear from the picture in due course” since their sponsors “would be glad to retire from ... a thankless and unremunerative task.”

Editorial by T. Woodlock: Britain is never afraid to try economic experiments, such as the radical recent proposal of the Royal Transport Commission for consolidating rails and eliminating competition countrywide. However, its latest experiment is "little short of revolutionary," letting the North Eastern Rwy. charge a flat rate by weight, regardless of commodity type! It's time for the US to likewise reconsider many questions long regarded as settled; the tradition of competition should the first to take a long hard look at. "It is all very well to demand an expensive service (competition is tremendously expensive ... ) but it is another thing to pay for it. We have, metaphorically speaking, a Rolls Royce car in our garage, but apparently we think that our bills should be on a Chevrolet or a Ford scale."

Baar, Cohen & Co.: "The time is past when important political, banking or financial events can bring about any wide-open breaks. Stocks have been shifting from weak to strong hands, and unless something of a major unfavorable character develops we would not expect any drastic decline from this point." Expect market during the summer to feature ability to resist bad news. Sees market in "typical accumulating" phase, dull with an "imperceptible upward tendency, sudden reversals, and many minor unfavorable developments to befog the picture." Groundwork being laid for more a substantial advance starting "some time this summer and running throughout the fall, probably longer."

C. Kettering, GM VP, says business will have to be coaxed back, as it's apparently not going to come back by itself. "Suggests new ideas to vary present monotony in products."

Economic news and individual company reports:

More examples given of security prices that seem to bizarrely underestimate value of company assets, including Gulf Oil; B.F. Goodrich bonds (selling in the market for a total of $45.4M, or almost $28M under working capital); US Steel stock and bonds (bonds selling below working capital); Savage Arms (firearms - at 12 1/4, selling for 79% of net current assets, earned $1.96/share in 1930). Most intriguing example - National Distillers, which is selling below 20 though co. has about $90 worth of whiskey backing each share (after balancing other assets and liabilities - the company is allowed to sell whiskey for "medicinal" purposes).

Bank of US trial likely to go to the jury today. Defense contends defendants did not profit by transaction in which two bank affiliates paid off $8M in debts to the bank using the bank's money [note: huh?] while prosecution says person misapplying bank funds is guilty of fraud even if not personally profiting.

Most striking feature of Bank of England weekly report was 5.699M pound sterling increase in gold holdings, bringing holdings to 161.986M sterling, highest since May 1930. Bank has gained 21.845M sterling since low on Jan. 29, and "end to the acquisition is not believed to be in sight yet. ... It now appears that the Bank of England will enter the seasonal period of strain in the fall in good shape, so far as gold reserves are concerned and the strain at that time should not be unduly great." On the other hand, “a sudden shifting of French balances” could “disturb all calculations as has happened many times in the past.” [Note: England was forced to abandon the gold standard in Sept.] Total gold held in Fed. Reserve vaults “under earmark” for foreign central banks has declined by $84.5M this month, to $36.8M; this system is used to avoid shipments of gold by ocean liner, which can take weeks to arrange.

US internal revenue in May was $76.9M vs. $93.7M in 1930; 11 months ending May $2.082B vs. $2.460B.

City of Detroit financial statement for the year starting July 1, filed with Detroit bankers, estimates spending of $191.6M against receipts of $107.9M. Merced Irrigation District, with largest funded debt of any district in California, will default on bond interest payable July 1. St. Louis-San Francisco Rwy. successfully issued $10M 6% bonds to refinance $9.3M in debt coming due; this "relieved one of the most difficult situations overhanging the market."

A few prime names in the commercial paper market sold at 1 3/4%, though most remained at 2%.

Nat'l Industrial Conf. Board monthly report (based on survey of over 8,000 industrial firms) finds May business showed more than the usual seasonal drop from April; first reversal since start of the year and wiped out a considerable part of the gains since then; slowdown continued in early June.

Nat'l Retail Credit Assoc. reports retail business uneven, with volume in some sections of the country exceeding 1930 but others as much as 25% below; countrywide average down 15%.

Money in circulation June 17 was up $33M to $4.756B, total Reserve Bank credit outstanding down $22M to $907M. Member banks in NY City report brokers' loans down $71M to $1.419B; loans on securities to non-brokers down $14M to $1.727B.

State railroad commissions seen likely to oppose rate increase. Business interests and chambers of commerce have generally been against the increase, though there is scattered support from banks. Many of the protests were addressed directly to Pres. Hoover, who referred them to the ICC.

Dow average of 8 iron and steel products held at $43.58, post-1922 low. Scrap markets "practically at a standstill," making price trend hard to judge.

US electric industry budget for 1931 is $702M vs. $853M in 1930, but decline is partly due to lower material and construction costs.

British index of industrial production was 95.4 in Q1, down 3.6% from Q4 1930 and down 15.6% from Q1 1930; average industrial unemployment was 20.9% on Apr. 27 vs 14.2% a year earlier. German index of industrial production for Q1 was down 25% from a year earlier.

France reported heavy trade deficit for the first 5 months of 1931; imports were $771.5M and exports only $548.9M.

Considerable further wind damage reported to Canadian wheat since May 31; rain far below normal.

International Coffee Conference closed Wednesday; "only positive result" was asking for another meeting of exporters by July 1932.

Retail installment sales of jewelry fell 26% in 1930, though unit volume was much less affected; profits were down 83.4% due to excessive inventories.

Six independent oil refineries in California have closed within the past month due to "a demoralized gasoline price market structure."

Likely combination of IT&T and L.M. Ericsson offers interesting possibilities for consolidation of operations; each has far-flung telephone system and manufacturing operations across much of the world, including Eastern and Western Europe, Asia, S. America, etc.

Libbey-Owens-Ford wins huge contract to supply GM with almost all its glass need for 7 years; will expand plants and buy new ones. Improved showing in recent months attributed to increased demand for shatterproof safety glass.

Ford Motor points out it spent about $374M in the Detroit area in 1930, including $159M in salaries and wages, and $210M for materials, services, etc. purchased from over 450 Detroit firms. [Note: apparently part of ongoing publicity squabble with city officials.]

Companies reporting decent earnings: Connecticut Electric Service, Brazilian Traction Light & Power, Universal Leaf Tobacco.

Theatre:

As European theatres install modern devices such as "revolving stages, mechanical orchestras and talking screens," they are also discarding some old traditions. "Perhaps the least of these, but certainly the most vociferous" is the claquer, or professional applauder, "whose horny palms and metallic voice have been the joy of prima donnas and the despair of music lovers." Many French theatres have dismissed their claquers, and Vienna Opera House just prohibited the practice, asking audiences to defer applause until curtain calls after each act. Claquers in France attribute their decline to the talkies; "exuberant applause ... has been greatly subdued since audiences have become accustomed to the unresponsive talkie." Reaction to the loss varies. Artists at the Vienna Opera have refused to take curtain calls in protest against the ban there, while audiences seem to generally welcome "this innovation of unapplauded performances." However, one impresario predicts "opera 'regulars' will miss the seemingly spontaneous audience-enthusiasm which claquers so adroitly simulate."

Joke:

"'What makes you think I was intoxicated last night?' 'You were trying to get the cuckoo clock and the canary to sing a duet."