Monday, June 8, 1931: Dow 129.91 -3.42 (2.6%)

Assorted historical stuff:

German Chancellor Breuning, arriving in England, says German reparations burden has increased $600M in past 14 months; moratorium provided for by Young Plan not adequate for relief; calls for international cooperation, impartial review of German condition, and revision of postponable part of reparations. Says relief is needed by Sept. when unemployment will again rise and suffering become so great as to make revolution almost inevitable. Official German declaration marks “at least a break” in the third attempt to settle reparations after the World War, starting with the Reparations Commission in 1921, then the Dawes Plan in 1924, and finally the Young plan in 1929. The Reichstag may reconvene to debate the govt. austerity decree; govt. stability seen depending on result of British conversations on reparations relief. US Sec. of State had no comment yet on German developments; implies US hasn't changed position that there is no link between war debts and reparations. Observers believe allied countries unlikely to accept revision of reparations without corresponding relief of their war debt to the US.

Stock market in recent months "undoubtedly has operated as a restraining influence on business activity. Fresh enterprise has been choked by fears invariably arising from persistent declines ..." Complaints about harm the market was doing to public demand have come particularly from the steel industry; experts estimate current rate of production is several million tons below yearly replacement needs. It's therefore hoped the recent upturn will "exercise a stimulating psychological effect on commerce and industry." The upturn may also prove "the best tonic that could be administered to the market itself. Just as declining tendencies gain momentum from the nervousness they engender, a sustained rally receives impetus as it proceeds from the confidence that firmer prices create."

Editorial: The NY Chamber of Commerce recently adopted a resolution condemning all trade with Russia due to their aim of destroying the political institutions of Western Europe and the US. An earlier resolution last Nov. called for the US to protect its political and economic interests against Russia, acting together with all friendly govts. While Congress could probably cut off all US trade with Russia if it so desired, a realistic appraisal shows that this would now have little impact on their 5 year plan. Prospects for an international anti-Soviet alliance have dimmed as countries including Germany, Italy, and Britain have reached trade agreements which include financing of exports to Russia. "Americans, therefore, must think of the Russian problem primarily as one of defeating attempted dumping of goods on our shores to the injury of our industries and labor. We must expect to look out for ourselves and to do it single-handed."

Immigration to the US of "working class of aliens" has almost stopped due to enforcement of "likely to become a public charge" provision directed by Pres. Hoover; only class now entering are alien relatives visiting people already here. Visas issues in April were 96% below normal.

Editorial by T. Woodlock: The calculations behind Gov. Pinchot's charges that US public utilities are plundering $500M annually through overcharges "have one quality in common with those of Prof. Einstein. There are probably not a dozen people in the world who understand them." Detailed analysis reveals implausibility of the figure (total revenue from home consumers in 1930 was only $668.5M). Meanwhile, Sen. Norris also may be using unorthodox mathematics in endorsing Pinchot for President: "the Senator says ' ... I am for him five hundred times more than I am for Pres. Hoover.' How much is five hundred times zero? It seems as though the 'square root of minus one' must play a large part in 'Progressive' mathematics these days."

Postmaster Gen. Brown notes Post Office is now spending $17M more for airmail than received in postage, but says expenditure is a matter of national security.

Pan American Airways carried 12,842 passengers to the Caribbean and Central and S. America in the first quarter, an increase of 2,510 over 1930. A record of 100% was established for reliability, with every trip completed on or ahead of schedule. Recently added two Sikorski 41-passenger amphibians, largest planes ever made in the US. With initial development work completed, company is reportedly operating profitably this year.

Daily mileage of airmail flown in US is 74,000 as of today, with inauguration of service between Washington DC and Pittsburgh.

Sparks-Withington Co. to shortly sell first home sound movie machine, the Visionola; several film cos. including Universal to furnish films.

Forest planting by US agencies was 139,970 acres in 1930, up 24% from 1929; total planted is 1.798M acres, though planting has never kept pace with losses from wasteful cutting, forest fires, and erosion.

Receipts from observatory and promenade at top of the Empire State building running so far at rate of over $1M per year.

Construction cost of Grand Central Parkway through Queens estimated at $6M-$8M.

Chase National, largest bank in the world, uses an entirely different name for its Chinese subsidiary: Dah Tung Ning Hong, or Great Universal Silver Bank.

Week in review:

Stocks, after a weak start, "engaged in their most extensive recovery since Nov. 1929" after lowering of margin requirements by leading banks and brokers and decision of govt. to stop fighting the Vacuum Oil - Standard Oil of NY merger. Stocks in Paris rallied sharply in the last 3 days; stocks in Berlin hit lowest levels since 1925 early in the week but improved somewhat toward the end. Bond market also experienced a hectic week, starting "panicky" with many new record lows but staging a quick reversal in midweek with good recoveries in many issues; rails in particular saw "record breaking rally"; public utility bonds were relatively firm throughout and closed the week near record highs. Treasury's smaller than expected offering of $800M 3 1/8% bonds due in 1949 drew huge oversubscription of $6.3B and bonds sold in the market at 1 1/8% premium. Enormous Treasury financing of over $5B this year has apparently not disturbed US govt. bond prices. European issues were irregular, with German weak on talk of reparations revision. S. American govts. rallied, particularly Brazilian, although Peruvian broke after govt. default. Money markets quiet. Call money remained at 1 1/2%. Fed. Reserve member banks in NY continued liquidating security loans but “all other” (commercial) loans rose slightly; holdings of govt. and non-govt. securities rose. Foreign currencies irregularly lower; marks weak near gold export point, with Reichsbank exerting active support; pesetas gained on Spanish govt. decrees but outlook seen doubtful; Brazilian milreis firmed on rumored agreement with British bankers on solution for debt service. Steel production continued slow decline; no change anticipated before late summer; construction demand held up while automotive again fell slightly. Prices were generally steadier, with producers apparently more determined to avoid price cuts. Wheat hit new lows at midweek with July hitting 56 5/8 cents, lowest quote since 1896; prices then turned up after Canadian drought reports and rally in stocks. Cotton fluctuated near long-time lows, with July trading as low as 8.27 cents, lowest price on the futures market since March 1915.

Market commentary:

Market wrap: Bears renewed operations in the short Saturday session, while bullish element was not as aggressive and small traders appeared to withdraw; extensive setbacks from the rally highs took place in active stocks. Rails experienced profit taking; major industrials including Steel, Can, and GM pressured; reaction spread throughout the list and various trading favorites broke sharply, with Auburn 30 points off its recent high. Trading relatively light, but market closed with heavy tone. Bonds moderately active, prices slightly irregular; US govts. firm; foreign somewhat irregular with German bonds down moderately after govt. statement on reparations but issues of most countries relatively steady; highest-grade rails firm, second grade slightly easier; convertible issues down moderately following stocks. Commodities weak; grains soft on late reports of some Canadian rain; cotton down sharply near season lows on news of good weather.

Caution is favored in many quarters, but conservative observers favor gradual "accumulation of the standard stocks on reactions," and completing of long positions if resistance is shown when previous lows are approached; don't foresee long advance, but believe market could work substantially higher after technical reaction.

Stock market weakness attributed to "uncertainty over domestic trade prospects," doubts over staying power of the recent rally, nervousness over German demands for revision of reparations, and prospect of poor US Steel unfilled orders report for May. Filing of application for rail rate increase in the near future seen likely to benefit sentiment on rail securities. Eastern roads have already drawn up a rough draft of their reasons for requesting a 15% increase, and expect to have transport companies throughout the US convinced within a reasonably short time. Railroad authorities are optimistic on chances for getting the increase before year-end. Oil industry merger rumors are reviving due to govt. decision to allow Standard - Vacuum merger.

Recent heavy liquidation in AT&T attributed to "fright on the part of many small holders discouraged by the stock's persistent decline." Buying is said to have developed from "important sources." A leading broker says US Gypsum is likely to cover the full years dividends in the first half, a remarkable performance in view of current conditions.

Heavy oversubscription to new Treasury long-term bond issue seen indicating "investment capital has been piling up rapidly." This capital may "eventually ... find its way back into securities," first bonds and then dividend paying stocks, though "latter development ... may be delayed until much later in the year."

Rail freight figures in coming weeks expected to improve vs. 1930 due to heavy crops in many sections, particularly in the Southwest, and due to easier comparisons as general business began to fall sharply in mid-1930.

Editorial: The Royal Grain Commission in Canada recently found that trading in grain futures not only helps provide a liquid market, but "actually gives the farmer a distinct price advantage." We can't expect this to convince US critics of grain exchanges; "those who are hacking at them have political axes to grind." However, it may "lessen the submissiveness" of farmers who "are called upon to turn the grindstone ... when they learn that they are working against their own financial interest."

French Fin. Min Flandin rebuts criticism of govt. economic policies. Says French tariffs overall lowest in Europe; influx of gold not desired and due to abnormal world conditions; points to 4.2B francs in loans to Central Europe that France recently subscribed to.

Financial district is hearing reports of "some cooperative action toward temporary reduction in wages in certain industries." This would be considered favorable by groups believing one of the final steps in economic readjustment would be "liquidation of labor costs." Independent sheet-steel producers in the Midwest reportedly will get together in the next few days with object of stabilizing prices; many producers say current sales are unprofitable.

US exports in 1930 fell more sharply than some other countries (down 26.7% from 1929 compared to a 10.5% decline in Germany and 18.6% in Italy) but this was attributed to the fall in raw material prices rather than losing export markets to competition; the US held its share of markets in its major "customers," but those customers, including Canada, Australia, Argentina, etc. are heavy producers of raw materials and so suffered most from the price declines.

Economic news and individual company reports:

Creditanstalt situation possibly not solved after all. League of Nations control committee authorized Austrian govt. to issue 150M schillings of Treasury bonds, but there was difficulty selling them. Govt. forced Austrian private banks to take 100M of the issue, while German banks granted a 50M 6-month credit to the Creditanstalt to take the remainder. However, definite announcement by foreign creditors of "prolongation of credits" is needed to stop withdrawal of deposits, which has now reached 500M of a total 1.5B schillings. Austrian central bank holdings of foreign currency were 517M schillings on May 30 vs. 641M on May 7. Austrian central bank raised rate 1% to 6%. “Considerable unsettlement” seen in foreign currencies in coming days due to increasing seriousness of Austrian situation together with the reparations crisis. European capital markets continue to show heavy transfer of funds from Central Europe, “with anxiety tending to shift from Austria to Germany.” Central banks said cooperating to prevent export of gold from Germany.

Upturn in stock prices this week was reportedly an "electrical stimulant" to car sales. Contrary to numerous rumors, Ford reportedly is planning no radical changes to their car lineup this summer or fall.

New state and municipal long-term financing seen likely to set record high close to $2B by end of year as local govts. take advantage of strong municipal market; annual amount in past decade has usually been between $1.2B and $1.4B.

Market value of all NYSE-listed stocks June 1 was $42.534B, down $5.936B from May 1; average price of listed share $32.58 vs. $37.23. NYSE bond trading in May totaled $235.7M vs. $227.8M in Apr. and $227.2M in May 1930.

Despite cuts in dividends on rail stocks, 12 of 27 major rails failed to cover their current dividend rate in the 12 months ending in April; 3 more have already omitted dividends.

Investment Bankers Assoc. takes stand in favor of NYSE recommendations on investment trusts [similar to mutual funds and ETF's], including disclosure of holdings, care when buying securities from affiliated companies, methods of reporting profits and past performance, etc.

US Steel report of unfilled orders as of May 31, to be issued at noon June 10, is expected to show decline of 250,000-300,000 tons; operations dropped steadily in May but new orders fell more rapidly. Youngstown district steel output to rise 1% to 42% this week, first rise in 13 weeks, due to pipeline demand.

Interior Sec. Wilbur says no relief in sight for midcontinent oil industry until East Texas production is brought under control. Drastic curtailment seen necessary to achieve new California production limit of 427,500 barrels/day (excluding Kettleman Hills).

Canadian wheat condition reported most critical in 29 years; no improvement in conditions; urgent need for rain. US spring wheat still in need of rain in some sections, but overall US wheat crop seen large unless something unforeseen happens.

Fisher's wholesale commodity index hit another postwar low of 70.0 vs. 70.3 prev. week and 71.0 two weeks ago.

Total gross income for 105 telephone cos. in March was $98.5M vs. $99.5M in 1930; operating income $69.2M vs. $67.8M

Italian Premier Mussolini says govt. has decided on immediate measures to help domestic wheat growers, including requirement to use domestic wheat in flour.

Assets of Kansas City Joint Land Bank, which went into receivership in 1927 with charges of mismanagement, sold at auction for $26.750M to West Coast financier A.C. Stewart. Union Trust of South Bend, Ind. closes; deposits of $4.5M.

Detroit index of employment May 31 was 80.4 vs. 83.5 on Apr. 30 and 109.2 on May 31, 1930.

9 of 21 W. Virginia coal mines affected by United Mine Workers strike have signed closed shop agreements with the union; 2,700 miners will return to work.

Westchester County foreclosures in May were 77 vs. 94 in May 1930.

Companies reporting decent earnings: Firestone Tire & Rubber (showed improvement over poor 1930 earnings).

Electric utility special:

While market value of 19 important utility and holding companies has declined about 30% in the past 2 1/2 months, they have still been more resilient than the general market due to greater earnings stability. As of June 5, the companies traded for 14.2 times earnings for the year ended Mar. 31. Public utility bonds have found strong favor with investors seeking safety, being among the strongest classes of bonds in the current depression. In the case of holding companies, which have no property other than controlled subsidiaries, debentures are the instrument used, which offer “numerous advantages” over separate financing by subsidiaries.

Unlike other industries, electric light and power is seen as not close to saturation, with large potential demand remaining in both homes and farms. Current total of US wired homes is about 20.4M; during 1930 they used an average of 518 KWHr, at an average price of $.06 per KWHr.

Public utility activities have been investigated for the past 2 or 3 years by various branches of govt. including the FTC, but the next session of Congress is expected to take further steps including investigations into holding companies, possible regulation of interstate power movement, etc. Proponents of govt. control of utilities are exerting widespread efforts to build up public sentiment, including underhanded tactic of mailing out speeches using Congressional franking privileges.

Muscle Shoals has been “political football” for over 100 years, during which “Congress has wrestled ... trying to find some legitimate and reasonable excuse to convert it into an agency for govt. operations.” By contrast, Gov. Roosevelt's signature on the Cornaire bill ended a mere 20-year controversy on development of St. Lawrence River power, which will now be done under control of a state Power Authority.

Capsule histories of Middle West Utilities by Martin J. Insull, pres., and of recent utility industry developments by John J. O'Brien, Standard Gas & Elec. pres.

Detailed looks at individual electric utility and holding companies, including United Corp., Stone & Webster, United Light & Power, The North American Co., Pacific Gas & Electric, American Water Works & Electric, United Gas Improvement, Niagara Hudson Power, Commonwealth Edison, Edison Electric Illuminating of Boston, Connecticut Electric Service.

Britain, a pioneer in the electrical industry, is nevertheless seen offering good opportunity for expansion due to per-capita usage only about 1/3 that in the US.

French cinema report:

The talkie has caught on in France beyond expectations. The first theatre installation, by MGM, was little more than two years ago; 1929 saw 6 talking screens, a year ago it had increased to 120, and now it's more than double that, including such landmarks as the Moulin Rouge, “where once the can can attracted the curious and adventuresome.” Production studios have also been wired, and the native French sound film is thriving, using the talent readily available in Paris. “Unlike the American film, which has accustomed its public to squanderous standards of production, to great singing and dancing choruses ... and to all costly paraphernalia with which Hollywood packs its films, the French film sonore has leaned heavily upon its plays.” Productions tend to modest budgets, “fine plays adequately cast but without star emphasis,” with dialogue “written by master craftsmen.” For now, the US film industry has “forfeited to native producers the great middle bulk of its sales,” but the French appetite for talkies is ultimately expected to offer good opportunities for US producers; some have set up branch production units at Joinville, Billancourt, and Nice to make multi-language films for the whole European market.

Jokes:

"Tourist - Was that one of your prominent citizens? I noticed you were very respectful and attentive to him. Garage Man - Yes, he's one of our early settlers. Tourist - Early settler? Why, he's quite a young man yet. Garage Man - True enough. I mean he pays his bills the first of every month."

Reporter - How did you know to raid that barber shop? Dry Agent - Well, it struck me as odd that so many people were buying hair restorer from a bald barber.

Theater Producer 1 - There are a hundred ways of making money in show business. Theater Producer 2 - Yes, but only one honest way. Theater Producer 1 - And what is that? Theater Producer 2 - Ah, I thought you wouldn't know it.