Thursday, June 25, 1931: Dow 151.60 +7.71 (5.4%)

Assorted historical stuff:

John Maynard Keynes, British economist, finds cause of depression "not in the high level of investment which was proceeding up to the spring of 1929, but in the subsequent cessation of this investment. I see no hope of a recovery except in a revival of the high level of investment." Goes way out on a limb: "There is, I think, a possibility that when this crisis is looked back upon, it will be seen to mark one of the major turning points. For it is a possibility that the duration of the slump may be much more prolonged than most people are expecting and that much will be changed, both in our ideas and our methods, before we emerge." Taking the opposing view is the prolific T. Woodlock: Following somewhat gloomy analysis of rail revenues and expenses in 1930, concludes more optimistically that current situation is unlikely to last since "the country at large has reached a stage where industry and commerce temporarily have shrunk to what virtually is an irreducible minimum"; production "barely is providing for wastage by use and by actual current consumption, if it is doing even that. ... It is clear that shelves of goods are now rapidly being cleared and reorders can not long be delayed." This is therefore like reaching the top of a steep grade; what rails need from the ICC is "a 'pusher engine' to take the train over the hill."

NYSE pres. R. Whitney reviews events of past year. Action of stock market an effect of the depression, not a cause. After the 1919-22 depression, much study was devoted to statistical and economic research, particularly toward understanding of the business cycle. [Note: Strangely familiar dept.:] “Unfortunately the long period of great prosperity from 1925 to 1929 persuaded many ... that the business cycle had been definitely abolished, and that it had become possible steadily to increase general prosperity indefinitely, without the danger of serious depressions.” Current depression marks “only too complete” a return to the cycle. In all probablity no single formula will be found for maintaining prosperity. “To select any single element in the business cycle, magnify it into a dominant causal principle, and attempt by its manipulation automatically to prevent depressions, is a tendency as fallacious as it is human.”

France places some reservations on acceptance of Hoover plan, including proposal that reparations payments being made to the BIS and reloaned to Germany. Sec. of State Stimson says plan remains as proposed; Administration optimistic on its ultimate acceptance. Strong indications seen of further temporary financial aid to Germany; details uncertain but announcement expected shortly. Italy accepts Hoover plan, with proviso that Germany give up proposed customs union with Austria. Australia hails Hoover plan; would get net benefit of 3.090M pounds. PM Scullin says plan in his opinion was first big step in solution of depression. Sen. Harrison (D, Miss.) offered wholehearted cooperation in putting plan through but opposed any tax increase; believes any increased deficit caused by plan can be taken care of by issuing bonds.

Russia will soon have nine of the largest hydroelectric generators in the world. GE is building the generators on the Dnieper River; each is rated at 94,000 hp, which is 16,600 larger than the previous record holders at Niagara Falls.

Oil pipeline from Mosul to Tripoli and Haifa will require about 500,000 tons of pipe; length about 1,200 miles; total cost about $50M; to be completed by 1935.

An Edmonton lumberman and his son have reportedly perfected a process for making fine quality insulation material from the "muskeg vegetation" that spreads over huge areas in middle western Canada and that has posed an almost insurmountable obstacle to road and rail construction in many places.

For the first time in the history of US jurisprudence, a talking film was introduced as evidence in court. The dramatic development took place at a recent trial in Philadelphia; a man had "confessed before a voice and picture recording apparatus."

British reaction to US food innovations, including the hot roast beef sandwich, has been skeptical. "Since the beginning of history, Britishers have been eating cold roast beef for dinner five times a week. But it had never occurred to anyone in the British Isles that a piece of hot roast beef could be placed between two slices of bread."

British clothing manufacturers make a suit in 3 hours 20 minutes including shearing and transportation of wool, smashing US record of 6 hours 4 minutes.

A miniature railroad system is operating in the Detroit zoo, skirting the entire park for 2 1/2 miles and for a 5-cent charge, sparing the feet of animal lovers who had "trudged weary miles visiting everything from the ... polar bears to the battling baboons." The railroad may be unique in not facing automotive competition.

Rates on all Graf Zeppelin trips reduced about 50%; summer schedule includes a 4-day trip to Norway, Iceland, and the Polar Zone, a flight to Brazil, and numerous shorter trips.

Market commentary:

Market wrap: Stocks experienced "further violent advances," apparently inspired by French cabinet's conditional acceptance of the Hoover plan. Trading started actively, with prices showing "buoyant tone"; rally picked up speed quickly through the morning, and whole market moved ahead on huge turnover, with 2.1M shares traded in first 2 hours; shorts again "badly punished." Rally appeared to gain further impetus around 1 o'clock after report of favorable Radio Corp. decision; Radio itself ran up on huge volume, and the general list also advanced further, with US Steel providing "invigorating leadership." Bonds active, with "pronounced strength in nearly all departments" and sensational advances in some groups; US govts. rallied sharply; German issues in "big demand", leading advance in European bonds; S. American extended this week's rally; domestic industrials rallied, with oils particularly strong; convertibles rallied in sympathy with stocks; second-grade rails gained sharply while highest-grade reached best prices in a decade; best-grade utilities firm around yearly highs. Commodities firm; grains and cotton higher. Foreign copper buying remained very heavy, and price advanced to 8 1/2 cents; domestic buying slower; zinc and lead rose; lead is up from 3.75 cents to 4.25 in the past few days.

European security markets rallied. Foreign currencies were quiet, though major European rates sagged. Spanish pesetas fell sharply.

Market action has impressed many, though conservative observers continue to favor stop-loss orders, with limits raised as the market advances.

Tobacco issues staged a "sensational uprush" on rise in wholesale prices; copper shares responded vigorously to price increase; rubber shares pushed ahead on prospect for tire price hike; rails gained extensively in spite of Pennsylvania RR dividend cut; bull operations resumed in trading favorites including Case, Auburn, Vanadium, and Worthington Pump. NYSE volume totaled 5.1M shares Wednesday, highest since Feb.

Brokers report renewed public interest as reflected in larger attendance; customers who "had not been watching the market for a long time" have reappeared in brokers' offices over the past few days, although "many of them have not regained sufficient courage to purchase stocks."

Recent rally has been largely due to improved psychology, as business news has remained poor. However, sentiment had become so depressed that the most urgent need "was to have the world abandon its defeatist attitude. With hopes for the future revived through Hoover's masterful stroke, the impetus has been supplied for general cooperation in the search for solution of immediately pressing problems." Popular opinion is that the Hoover plan will be followed by other steps helpful to the railroads and to farmers. Leading economists believe the plan will be followed by other steps for world relief, including credit assistance to S. American countries.

Successful adjustment of conditions abroad would benefit US industry; industrial leaders are watching developments closely, though "many of them have not generated as much enthusiasm" as witnessed among traders in the past few days. Recent sharp gains in commodity prices are very encouraging, since "no factor has been more weighty in curtailing world business than the persistent decline in commodity prices over the last two years."

Recent developments recall "the age-old maxim that 'it is always darkest just before dawn.' When the speculative atmosphere is filled with impenetrable gloom, and no relief seems in sight, something invariably happens to brighten the picture." Currently, interests who had expected to accumulate stocks slowly in a dull, sagging market are faced with a completely changed situation; people prevented from buying by the suddenness of the rally will now be "anxious to buy at moderate concessions from the recent highs," and this should provide powerful support for the market on setbacks. Some big bear operators are known to have maintained their short positions, and are likely to test the market soon; good resistance to this test should go a long way toward drawing the public to the long side.

Editorial: The Farm Board has objected to the rail rate increase at a time when cotton prices have declined so much. "This seems very much like straining at a gnat after swallowing a camel"; cotton has lost over half its value since the Board started financially "assisting" it. The objection is also unsound; "freight rates are not on a sliding scale ... instead, they are compensation for the service performed." In setting rates, the ICC "must have some regard for what service costs the carriers."

Standard Oil of NJ, in its company publication The Lamp, points to price declines as severe economic problem; many commodities and manufactured articles are being sold below replacement cost; "this situation, if long continued, means a drying up of these activities"; prices must recover to point that encourages industry to continue operations. However, cut in labor costs would be a last resort. Another article claims Russia is seeking to build up foreign credits by disregarding costs, using expropriated properties developed by foreign capital, and depriving its population; estimates per capita annual Russian oil consumption at 1/100 barrel.

Economic news and individual company reports:

Four leading US cigarette makers raise wholesale prices 45 cents/thousand to $6.85, second advance in two years following 40-cent hike in Oct. 1929; increase expected to lead to large gains in net income. Cigarette production for first 5 months was 47.924B, a record high, vs. 47.675B in 1930. Five-cent cigar production rose 2.4% in May vs. 1930, bucking a 10.8% decline in total cigar output; five-cent cigars made up 67.3% of the May total.

Fed. Reserve figures show commodity prices prices in a number of major countries were close to stability in the first 4 months of 1931, though they continued to fall fairly rapidly in the US. This raised hopes commodities may be nearing bottom, especially since US commodity price indexes have steadied lately.

Editorial: The oil industry has argued that curtailment of their production was unfair and ineffective absent a tariff or embargo on foreign oil. However, on Apr. 1 a voluntary agreement became effective among the larger importers to reduce oil imports; since then, imports have declined by 52,500 barrels/day, or 21%, while domestic production rose 254,800 barrels. This seems to "support the contention heretofore made in this column, namely, that the affliction of the American oil industry is far less the absence of a tariff on oil than it is reckless and apparently ungovernable production at home." Chicago wholesale gasoline market "fairly steady" at 2 1/4 - 2 5/8 cents/gallon.

Weekly steel reviews showed some optimism in spite of production decline. Hoover debt moratorium and rise in commodity prices were seen as favorable, and increasing pipeline and construction demand improved sentiment. On the other hand, steel operations are practically at the low of last Dec. excluding the Christmas-New Year week. Finished steel prices showed little change in trend, while scrap weakened.

Drop of 28,437 cars in most recent freight loadings report was worse than expected; declines vs. 1930 and 1929 of 20.9% and 31.5% were the worst this year. Total of 732,453 cars was lowest for the corresponding week in records dating back to 1918. Low level of traffic seen affecting rail equipment makers.

Federal Radio Commission decides in favor of Radio Corp., allowing it to keep 1,400 radio licenses in spite of court finding of antitrust violation.

Drought conditions in Canadian Northwest now called critical; "good rains are urgently needed and are being hoped for, in almost prayer-like fashion, by farmer and business man alike." US govt. weekly weather report finds generally fair to good crop progress, though rains are needed in much of the cotton belt. Spring wheat conditions greatly helped by beneficial rains from North Dakota eastward; Pacific Northwest conditions were also helped by favorable weather.

Russia cuts salaries of civil servants another 10%-20%, following previous cut of 15% a month ago, due to tense budgetary situation.

Spanish agriculturalists call on Pres. Zamora to protest against govt. ban on farm machinery in some areas to relieve unemployment; say ban has raised cost of harvesting 5%.

Newfoundland Premier Squires says no satisfactory bids received for $8M long-term bond issue; will await more opportune time to offer it.

US electric output for week ended June 20 was 1,579 GWHr, down 4.6% from 1930, vs. a 4.9% decline prev. week and 2.9% two weeks ago.

Detroit index of employment June 15 was 74.8 June 15 vs. 80.4 on May 31 and 104.5 on June 15, 1930; however, the index beat expectations of 70.

US air lines flew a record number of miles in April; 36 reporting transport cos. flew 3.413M miles, an increase of 1.180M over Apr. 1930. Air mail carried was 795,539 pounds vs. 706,375; express 59,165 pounds vs. 26,814. Passengers transported were 32,079 vs. 37,950, but the decline was due to a decrease in two lines operating over short distances.

NY State Bankers Assoc. endorses rail rate increase and Hoover debt moratorium; also recommends Federal law against circulating malicious reports on banks.

Mortgage rates charged by NY savings banks have declined from 5 1/2% - 6% a year or two ago. Currently, on loans made up to the 60% limit of value, banks are getting 5 1/2%, on 50% of value 5%, and on a small loan of 20%-30% of value, as little as 4 1/2%. [Note: still not sure about term].

NY City transit unification conferences continue at the Transit Commission offices.

Pennsylvania RR cuts annual dividend rate to $3 from $4; Westinghouse maintains $4 annual dividend rate; both dividend payouts not covered by earnings.

Companies reporting decent earnings: Chicago Great Western RR, Bohn Aluminum, Lily-Tulip Cup.

Theatre:

The Wooden Soldier - comedy by and starring Alexander Carr. "Will not do very much to alleviate the present condition of comedy in New York." David Kaufman is the "itinerant, mendicant brother of the prosperous Moses Kaufman." Moses plans to improve his fortunes by arranging the marriage of a pretty niece to a Baron; David attempts to intercede on behalf of Arthur, orphan and law student, with whom the niece is in love; "the intercession is accomplished with an approach to the custard pie style of farce that was once so popular in the movies." David is always drunk and disheveled, but "has little of the romantic color usually associated with eccentric wastrels of this type." Theme is of the "' Laugh, Clown, Laugh' - though the heart be breaking" school, but Mr. Carr has added little new.

Vaudeville:

Most interesting new feature of the Palace program this week is "charming and vivacious Mexican moving picture actress" Lupe Velez, whose largely spontaneous act combines "unpretentious songs and dances and devastating impersonations of Hollywood actresses," including Marlene Dietrich, Gloria Swanson, and Dolores Del Rio.

Jokes:

'You remind me of one of those airplanes.' 'Because I'm such a high flyer?' 'No, because you're no good on earth.'

Solicitous Friend - And have you found a law firm that is satisfactory? Widow - Don't talk to me about lawyers. Why, I've had so much trouble over the property, I sometimes wish my husband hadn't died.'