Friday, June 26, 1931: Dow 150.36 -1.24 (0.8%)

Assorted historical stuff:

Editorial: Plan of the Nanking govt. in China to build 22,000 miles of highways is a modest start compared with what must be done, but the important thing is that the start be made. China is in great need of improved transportation; much of current transport is by porters. Railroads are also essential, but apparently the most pressing need is for highways. "Great is the importance of a modernized China with ... the people earning wages sufficient to establish the standard of living somewhat comparable to modern ideas. A population 2 1/2 or perhaps 3 times that of the US, with a fairly good purchasing power, would set at rest the present complaint of surplus production ..."

Rather indecisive editorial by T. Woodlock. However much people may disagree with Mr. Keynes on his proposed methods for raising commodity prices, no one can doubt the need to raise them; this would do more than anything to relieve the world depression. Reviews history of "secular" commodity price trends. A common cause of these has been great wars, which usually cause inflation and are followed by deflation; another factor is fluctuations in gold supply. An increase in gold supply leading up to the World War, combined with the war itself, led to explosive rise in prices; these two factors reversed after the war and caused a large decline to a temporary resting place; in past two years, prices have resumed their fall, with as yet no sure sign of a bottom. If we hadn't so recently experienced depreciated currencies, there would be more demand for currency inflation; this may yet happen. However, some self-corrective factors may be operating; commodity prices are mostly below cost of production, which suggests stabilization is reasonably likely, and supply of gold is apparently increasing in response to its greater value. While deflation damages debtors and the credit structure as a whole, "all human experience" indicates "the structure as a whole will stand the strain."

W. Tyler Page, clerk of the House of Representatives, has calculated that the recent Congress appropriated money at the staggering rate of $1,400 an hour for every hour it was in session. [Note: seems way too low.]

Willard H. Dow, Dow Chemical pres., predicts good future for Dow metal, a lighter-than-aluminum magnesium alloy made from seawater.

The photo-electric cell, or electric eye has previously been used to make an automatic fireman; the eye sweeps across an area, and, when it "sees" a blaze, releases a stream of extinguishing fluid. The same principle is now used to save water in drinking fountains, by turning the water on when someone bends over the fountain.

IT&T to introduce telephone conversation recorder.

Record for producing a finished suit from sheared wool is smashed again [see yesterday]; operatives of John Crowther & Sons, a British firm, convert wool sheared from 12 Kent sheep into a finished suit in 2 hours, 9 minutes, 46 seconds.

Franklin P. Ferguson, lawyer, broker and Harvard graduate, indicted on charges of criminally receiving securities obtained by seven gunmen in $1.2M hold up of Lincoln National Bank in Lincoln, Nebraska.

Market commentary:

Market wrap: Stocks opened strongly as $100M credit to Germany was greeted enthusiastically; leading shares moved up on huge volume, and the ticker fell a few minutes behind. Anaconda's dividend declaration brought a fresh burst of strength around noon. However, considerable selling broke out in late trading, leading to some sharp reactions off the day's highs; weakness attributed to profit-taking, renewed bear activity, and reports the French cabinet might be forced to resign due to Parliamentary opposition to the Hoover plan. Bond market active; prices generally higher, with sharp rallies in some parts of the list. US govts. dull and a shade lower, while foreign govts. advanced; Australian issues were up sharply. In the domestic corporate list, rails and oils extended their rallies and high-grade utilities were firm. Commodities mixed; wheat down subtantially on heavy new crop deliveries, other grains steadier; cotton up moderately after receding from early highs. Copper prices rose 1/4 cent to 8 3/4 on continued heavy foreign demand; lead rose again. Silver rose 1/4 cent to 28 7/8.

Conservative observers say market met resistance about where expected; still advise buying standard stocks on further good setbacks, using stop-loss orders.

"Bullish interests generally felt that the market should be afforded a breathing spell after its recent violent exertions." The Dow industrials closed Wed. having rallied 30 points in three weeks, recovering 42% of the ground lost in the previous decline; this was about as much ground as was recovered in the previous two-month rally from Dec. 17 - Feb. 24. Due to the sharpness of the rally, market observers felt a technical reaction could develop at any time, but most felt "setbacks of this character would amount to only minor interruptions of the upward movement." Hornblower & Weeks note "great awakening of speculative interest, which has lain dormant for a year or more"; "while it looks like rash judgement to buy stocks in these active markets, the general level of prices is still so low" that long-term investors should hold on to their purchases; it will probably be mid-July before a serious reaction develops, "and that is apt to be from so much higher levels that purchases at this week's lows should not be disturbed."

In spite of short-covering that has at times been urgent, short interest is believed to have increased in the past two days as skeptical traders sold on rallies.

Leading industrials admit business hasn't notably increased and many don't anticipate expansion until after the summer, but say the debt holiday and rising market have "brought more cheer among consumers." Copper demand has shown more influence from the debt moratorium plan than any other raw material; continued good demand is expected from abroad due to low inventories. Steel production has already reached the 35% rate predicted as the summer low, and seems likely to decline further in coming weeks. Quite a few traders are fighting the advance in oil shares, citing continued high output in East Texas. However, some oil interests are confident production there will fall in the near future.

Barron's reports dealers in fixed trusts [similar to ETF's] have experienced a marked fall-off in sales since early May; decline attributed to unfavorable publicity from NYSE publication of proposed rules in May, to the stock market reaction in that month, and to severe competition.

Editorial arguing that proposals to remedy the depression by shortening working hours and raising wages would be self-defeating. While the long-term trend is in this direction, forcing it now through legislation or union action without an increase in productivity and without similar action by other countries would leave US producers at a competitive disadvantage. "Industrial reaction means precisely that the long-term trend has been interrupted by temporary adverse factors, which must be removed by temporary expedients [note: I think this means wage cuts], before the natural course of development can be resumed."

Letter to the editor proposes that building associations across the US should allow small mortgage borrowers to suspend payments of principal for duration of the depression, while continuing to pay mortgage interest and expenses; this would "be a godsend" to the borrowers, while allowing building associations to keep paying shareholders. However, this relief should only apply those with "honest intention to take care of their obligation when conditions were normal," not to "speculators who might take an undue advantage ..."

Prof. Irving Fisher says world response to Hoover plan may mark turning point in depression; favors complete cancellation of war debts.

Dr. J. Klein, Asst. Commerce Sec., says “brakes on the business machine” have been worthwhile in avoiding the “ruin that came in the wake of every one of the earlier crises, violent industrial disorders, widespread financial chaos.” These “brakes” include the Fed. Reserve system, vastly improved statistics, and much more effective organization of industry and trade. Capital reserves are “in far better shape than after any such catastrophe in previous years.” Current deflation is less damaging since it's gradual and controlled; “the descent into the present dark chasm was far more orderly ... than in any of the previous cases.” Depression likely hit bottom in Dec. or Jan.; declines to predict timing of upturn, but sees no basis for prediction of no improvement for many months.

Economic news and individual company reports:

French govt. position on Hoover plan somewhat uncertain; Treasury Sec. Mellon arrived in France to seek to convince govt. to abandon their reservations “before proceeding with his vacation in southern France.” Both Mellon and the German foreign office were reportedly optimistic on prospects of achieving a compromise.

$100M 21-day credit for Reichsbank arranged by BIS and central banks of France, England, and the US; credit was necessary to bolster Reichsbank reserve ratio, which is down to 40.4% vs. the legal minimum of 40%. However, marks weakened again, and the Reichsbank had to sell foreign exchange Thursday after three days of quiet, indicating withdrawal of foreign credits continues and confidence hasn't been reestablished. Bank of England seen possibly reducing rate, now at 2 1/2%, in July; gold holdings rose another 2.027M pounds sterling to 164.013M in the past week.

Anaconda declared its regular dividend; this was unexpected due to depressed earnings in the copper industry, and, as for the Pennsylvania dividend yesterday, "was taken as ... evidence of the desire of industry ... to follow the lead of the President, and strengthen his hand." US Industrial Alcohol suspended its dividend.

Fed. Reserve bought $20M of govt. bonds in the past week; this may indicate officials believe recent developments will increase demand for credit, and are acting to make it available. This is an apparent change in policy; since Aug. 13, 1930, Fed. Reserve holdings of govt. bonds had remained around $600M in spite of pressure from economists to buy more [see the occasional letters from T. Macauley]; Reserve officials felt banks would simply allow additional reserve deposits to pile up rather than lending them out. Total Reserve credit showed an even sharper increase, rising by $53M after having remained close to $900M since mid-Feb. Money in circulation June 24 was down $23M to $4.733B, total Reserve Bank credit outstanding up $53M to $960M. Member banks in NY City report brokers' loans down $13M to $1.406B; loans on securities to non-brokers down $1M to $1.726B.

Fed. Reserve monthly business review finds industrial production in May held at about the April level, which was 9% above the low in Dec., "when in the opinion of many reliable statisticians the bottom of the present depression was reached," but 14% below May 1930. Employment fell by the usual seasonal amount.

Some difference of opinion seems to be developing between the ICC and rails on the rate increase request. The rails have refused to specify exemptions to the 15% increase in reply to the ICC request. The ICC, "although fully cognizant of the seriousness of the rail situation, ... appears to entertain the view that a 15% increase is out of the question." Rail rate increase seen stimulating steel trade by forcing advance in steel prices and stimulating forward buying. May operating income of first 18 class 1 rails reporting was down 33.7% from 1930, vs. a 26.0% year-over-year decline for the same roads in April.

Dow average of 8 iron and steel products held at $43.58, post-1922 low. Scrap markets weaker.

Major rubber cos. are dubious of the possibility of a tire price increase, in spite of rumors circulating in trade circles for the past few days.

Canadian Bureau of Statistics reports crop prospects suffered further setback in past week due to unfavorable weather; "intense heat and damaging winds completely dimmed the hope of an average crop."

German Chancellor Breuning revokes part of recent decree eliminating minors from unemployment dole; also exempts Reichstag members and Prussian police from new income taxes. US capital invested in Germany totals about $2.5B, including $275M invested in German industry and $1.225B in German govt. bonds.

Number of farms in NY State on Apr. 1, 1930 were 159,809, a decrease of 43,586 from 1920.

International Shoe production is averaging 186,000 pairs/day, highest in over a year; further rise expected. Underwood-Fisher reports sales of portable typewriters so far in 1931 running sharply ahead of 1930 due to new models. Consol. Gas of NY reports automatic gas refrigerator sales in the first 5 months of 1931 up 40.8% vs. 1930. Dow Chemical earnings for year ended May 31 were $3.44/share vs. $4.08 prev. year.

Companies reporting decent earnings: Public Service Electric & Gas, Grocery Store Products.

Theatre:

Paid Companions - "Characterized by the producer as 'a broad-minded comedy drama' ... the result of a groping sense of humor gone naughty. Quantities of under-graduate language are forced out of the mouths of the principals ... Miss Cecil Spooner, in particular, is made a regular cussing machine. ... The story is a pent-house version of the old problem-plot - to confess or not to confess one's past to one's affianced." Lila Vaughn is a young girl who has come to New York to develop her voice. She falls into the clutches of Bruce Reynolds, "big game hunter and bad-man-about-town ... played with drunken villainousness that reaches the point of unintentional comedy." Lila's childhood sweetheart from Maine comes to her rescue; Lila kills Reynolds to save her sweetheart during a fight.

Movie:

The Skin Game - from a play by John Galsworthy, adapted and directed by Alfred Hitchcock. Adapted from a good play and reasonably well acted; unfortunately the sound recording is "atrocious" and the "photography ... mediocre." A country loving British family tries to prevent a Mr. Hornblower from erecting an industrial plant near their beautiful property and turning out of their home an old couple of workers. In the end they are able to win only by resorting to blackmail, leaving them "saddened by the thought that the end they sought to achieve has been bereft of much of its value by the despicable means used in reaching it."

Poem by B. Griffin:

"L'ETAT, C'EST MOI" (Benito's Revision of Louis)

"I'm minister this and minister that, in steering my state I am versatile. ...
Your politics chooses from rival camps? with candidates, platforms and voting free?
For politics such I've a substitute, That's simple and much improved - Its me!
Some other things, too, are much better here, On which my people never hesitate,
All our trains on time and our faith sublime, Not the state for man, but man for the state.
The kids who will soon be of army age, There's never a doubt who has them in fee;
No sharing at all with the Pope or King, They belong to the state - which, you see, is me!"