June 6, 2010

Saturday, June 6, 1931: Dow 133.33 -1.40 (1.0%)

Assorted historical stuff:

Scarface Al” Capone indicted by Federal grand jury on income tax evasion charges.

Editorial: While Sec. of State Stimson's upcoming European trip is for rest and recreation, we hope he'll take the opportunity to inform himself with an open mind on political and economic conditions there. The depression has advanced to a severity that calls for "honest, fearless recognition of existing facts" and demands that "corrective measures [be] taken even if they make necessary some concessions on our part." Some of the best US business minds believe the major cause of world depression "is found in the treaty of peace with Germany, which substituted for a military war one of politics and economics." It's time for us to admit the link between German reparations and allied war debts and to recognize that a restored Europe is necessary for our own welfare.

German Chancellor Breuning, at a press conference, makes clear he will bring up revision of reparations at Chequers meeting June 6. Says Germany has tried 4 times in past 14 months to cut spending, introduce taxes, and do everything possible to maintain sound financial condition. However, political difficulties and radicalism are increasing; “It is not possible for us to solve our economic problems single-handed. A solution requires the friendly cooperation of all the world.” German Pres. von Hindenburg signs decree that will reportedly produce 1.8B marks ($429M) through a combination of tax hikes and spending cuts; this should leave a surplus of 560M marks after closing the budget deficit of 1.240B.

Russia plans 136% rise in tobacco planting to meet domestic and export demand; conditions in Ukraine most suitable.

Boeing gets orders from the Navy for 30 "fighting planes" valued at $494,415, bringing total 1931 military contracts to 165 planes and parts valued at $2.036M.

Police in several cities have recently adopted a "gas rifle" to quell riots without bloodshed. It squirts a gas that affects the mucous membranes, putting victims out of action for about half an hour; it works indoors as well as out.

The new 50 story RCA building, made possible by scientific advances in radio over the past decade, nevertheless bows to superstition in having no 13th floor.

The huge and rapidly growing California prune industry got its start from trees imported a generation ago from France.

Market commentary:

Market wrap: Stocks experienced a day of fluctuations that was on the whole encouraging regarding strength of the rally. Market opened under pressure from profit-taking and bear forces; however, powerful support appeared after the first hour and buying resumed throughout the list around 11 o'clock. Rails developed particular strength, with majors including NY Central, Atchison, Union Pacific and B.&O. substantially higher; strength broadened to major industrials and volume increased. Profit taking set in again during the afternoon, bringing some setbacks in leaders, but renewed demand developed in the final hour; some weakness near the close. Rails closed higher on the day, though industrials and utilities were lower. Bond trading slowed but prices generally improved; highest-grade govt., rail and utility issues were firm close to yearly highs, while many recently weak issues rallied, in some cases sharply; speculative and convertible bonds rose in response to the rally in stocks; foreign list featured sharp rallies in Brazilian and Australian govts. and strength in Italian. Commodities mixed; grains firm with wheat up sharply on unfavorable Canadian and Pacific Northwest crop reports; cotton down sharply. Copper held at 8 1/4 cents; domestic sales small but foreign heavy; report for May expected to show large rise in inventories.

Conservative observers rather cheerful; say technical reaction was to be expected and advise clients inclined to go long to gradually buy their favorites.

In the bear market since Sept. 1929, initial rallies after long periods of decline have invariably been short-lived, giving way to secondary dip before sustained recoveries several weeks long. However, close examination of the rally this week gives some encouraging signs of breaking away from this pattern. On the second day of the rally (Thursday) volume was well maintained and the industrials closed near the day's highs; stocks also traded in higher ground yesterday (Friday). When the 1919-21 bear market ended in Aug. 1921, a rally several months long ensued without a range-bound accumulation period; this has caused Dow theory students to be alert for signs the current recovery might be able to continue without a secondary dip, though Dow theory would be more positive if market tests brought strong resistance by either the rails or industrials.

It's become apparent that short interest in the rails was much larger than realized; NY Central was a recent target, bears apparently had to bid prices up to cover during the recent rally. Brooklyn-Manhattan Transit reportedly being accumulated by informed interests who say it will benefit from NY City transit unification.

Recent period of liquidation seen making “considerable progress ... in lowering the market to what many consider a 'saner' level”; high-priced shares that were overvalued based on current earnings came down sharply, while those “thoroughly liquidated and deflated previously” acted better. It may now “be possible to realize long-range stability, and then establish a base for a good recovery late this year, when there should be seasonal improvement in general business.”

A. Macauley, Packard Motor pres., says auto manufacturers in strong position to survive depression, but dealers and distributors endangered by “destructive trade practices” including excessive trade-in allowances due to buyer's market.

Editorial: a recent report attributed to the British Labor Party said Germany is seriously considering suspension not only of reparations payments but of interest on all foreign loans. However, German spokesmen have repeatedly emphasized that Germany has no intention of defaulting interest payments to private bondholders; a recent statement by Dr. H. Schacht, former Reichsbank head, was absolutely clear on this point, and this principle “has guided all nations jealous of their honor and credit.” While Dr. Schacht was speaking as a private citizen, “his standing and previous official connections undoubtedly made him fully aware of the German national sentiment on such a vital matter - and his remarks were received with that significance in responsible banking quarters here.” “Authoritative circles” in London said there was absolutely no foundation to the Labor Party report of a German moratorium on bond payments. German marks fell to a new yearly low, close to the gold export point to NY; Reichsbank is defending currency through sales of foreign currency and gold held abroad.

S. Vauclain, Amer. Locomotive chair.: “After passing through panics as an individual since 1873 to date, I can say that each panic has been followed by a period of prosperity greater than ever before, and the present period of depression will prove no exception.” Says one of greatest problems facing the country is lack of confidence; “Instead of worrying let us think up ways of getting out of mire and our duration there will be short.”

Economic news and individual company reports:

Bank of US trial continued with cross-examination of chief defense witness I. Kresel; focus was on Kresel's generally sharp memory of long-past events; by contrast, Kresel has been able to recall curiously little about crucial transactions involving cancellation of an $8M debt by two bank affiliates. A. Mobley, Georgia State Banking Superintendent, sued Philadelphia Fed. Reserve Bank for libel, charging notations made on checks payable to the Citizens-Floyd Bank & Trust of Rome, Ga. caused a “quiet run” on that bank and forced it to close in Nov. 1930.

NYSE modifies previous questionnaire on short positions to only ask for statistical information rather than names of short sellers.

Chicago financial situation seems unchanged in spite of conferences with bankers; School Board unable to meet payrolls Friday and is now $5.145M in arrears. H. Steffens, former Detroit Comptroller, hired by bondholders' committee for Asheville and Buncombe County to survey situation and help local boards create budget for next year; state local govt. commission will cooperate.

Texas Gov. Sterling is in extensive conferences daily with independent East Texas oil producers in effort to induce them to agree to curtail production; tentative offers were made by producers to accept quota of 300,000 barrels/day but this was rejected as so high it would be valueless. Texas Attorney Gen. says Texas Railroad Commission has no authority to prohibit rails from transporting oil produced in violation of curtailment.

Eastern rail president's conference agrees 15% freight rate increase is needed to add 10% to gross income and maintain properties adequately; will ask Southern and Western rails to join in request.

New bond offerings in May were $287.9M vs. $440.3M in April and $630.9M in May 1930; first 5 months were $2.140B vs. $2.765B in 1930 and $1.562B in 1929; May total was dominated by public utilities and municipals.

Increase of $52M in Fed. Reserve credit outstanding in June 3 week likely due to holiday and first of month credit rather than credit stimulation of business or Fed. Reserve easy money policy. Liquidation of security loans continued, but some encouragement seen in $4M increase in “all other” (commercial) loans and purchase of $14M in non-govt. securities by NY banks. However, govt. securities remain favored, rising $20M to new record of $1.525B. US gold holdings fell $2M last week, first weekly decline in over 8 months; decline attributed to exports to Mexico as part of commercial bank plan to remedy currency situation. US gold holdings represent cover for money in circulation of over 103%.

Condition of Western Canada wheat crop on May 31 poor; at 75% of normal vs. 96% in 1930; drought area includes over 80% of wheat belt; disastrous situation will result unless generous rains come in next 10 days, though substantial improvement is still possible given sufficient rain.

French Labor Min. reports unemployment has shown gradual decrease indicating it will be wiped out by next autumn.

Report of Royal Grain Commission headed by Sir Josiah Stamp to Canadian House of Commons finds grain futures dealings beneficial on the whole.

Ecuador will embargo foreign crude oil and products to aid domestic producers.

Sen. Pittman, (Nevada) in Shanghai, predicts world silver conference within three months despite Sen. Smoot's announcement of foreign govt. opposition.

Massachusetts legislative committee reports on exhaustive investigation of “extent of penetration of 'outside' interests into the New England railroad field.” Recommends unification of all but 2 New England lines into one system to avoid “future foreign control.” [I think foreign here means outside New England].

Florida legislature approves bill enabling counties to allow pari-mutuel betting at racetracks after referendum; seen as tourist boon.

Bangor & Aroostook RR earnings continued to hold up better than other class 1 rails, covering dividends more than twice over in year ended April.

Chris-Craft experiencing heavy demand for new $795 motor boat (runabout seating up to 6, driven by 43 hp motor giving "flashing acceleration and smooth speeds" up to 30 mph). Los Angeles formed first power boat association; held first regatta on Memorial Day.

Company reports since Apr. 1: 202 companies reported higher earnings vs. 1930 and 733 lower; 802 dividends unchanged, 13 increased, 164 cut.

Companies reporting decent earnings: Irving Air Chute, Equitable Office Bldg, Alaska Juneau Gold Mining.


Daybreak - adapted from the novel by Arthur Schnitzler, starring Ramon Novarro. [Note: Schnitzler was a doctor turned controversial writer, branded as a pornographer for his play Reigen, later made into the film La Ronde; works were cited as "Jewish filth" by Hitler; Kubrick's last film Eyes Wide Shut was based on Dream Story by Schnitzler]. Novarro again plays a dashing lieutenant, this time Willi of the Austrian Emperor's Guards. Conducts many love affairs. Has rich uncle who gets tired of paying his debts and insists on his betrothal to a rich girl. Falls in love with Laura, a poor music teacher, but explains he could never get permission from the Emperor to marry a commoner and offers her money; she bitterly refuses and becomes mistress of Herr Schnabel, a money lender. Attempts to win enough money at chemin de fer to win Laura back; loses to Herr Schnabel but is saved from an honorable suicide by his uncle, who finally relents and allows him to resign from the Army and marry Laura.


He - Use miniature in a sentence. She - The miniature asleep you start to snore.

Isn't it strange the business depression has lasted so long when everybody you meet knows what caused it and how to end it?

Mark Twain observed that in New York people always seem to talk about money. "Now in Hannibal, Missouri, where I was brought up, we never talked about money. There was not enough money in the place to furnish a topic of conversation."

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