Tuesday, June 23, 1931: Dow 145.82 +6.86 (4.9%)

Extra! Extra! Read all about it! Dept.:

Pres. Hoover proposed a one-year moratorium effective July 1 on a quarter-billion dollars of war debt payments owed the US, conditional on similar postponement of reparations payments owed the important allied powers. Announcement of the proposal was followed by a sensational rally adding billions to values in securities markets worldwide, and by sharp rises in commodity prices and buying. Pres. Hoover reportedly came up with the proposal June 5, and has been holding daily bipartisan conferences on the subject since, also asking Treasury Sec. Mellon to investigate the situation on his trip to Europe. No international conference on the proposal is contemplated since it will automatically become effective when accepted by all parties concerned. Sec. of State Stimson says prompt action is necessary by other nations to make proposal effective. Proposal will cause loss of $246M in govt. revenue, but may result in increased business activity, making up the loss.

Reaction in the US was almost uniformly favorable, with praise heard from Democrats; only possible political opposition seen coming from Progressives; approval by Congress expected. Strong praise came from banking chairmen including T. Lamont (J.P. Morgan), C. Mitchell (Nat'l City Bank), A. Wiggin (Chase Nat'l), and P. Warburg (Int'l Acceptance Bank); plan called constructive, wise and courageous; Warburg says it may mark turning point and pave way for general business revival. M. Taylor, chair. of US Steel finance committee, calls plan “the first great constructive move we have made for the world's economic recovery.”

German Chancellor Breuning appeared "tired but smiling"; expressed gratitude for Hoover's proposal, but sought to damp "wild jubilation" in Germany, cautioning the proposal provides no immediate relief to German taxpayers and the unemployed. Dr. H. Schacht, former Reichsbank pres., hailed proposal, recognized Breuning's success in obtaining relief, and called on him to harness all German patriotic forces to take advantage of their new opportunity. "Different tone" taken by Joseph Goebbels, chief adjutant of Adolf Hitler, who attacked Hoover proposal as "inadequate."

Hoover proposal received enthusiastically in most of the world, "except in France and some of the smaller European nations under French influence"; official French statement lacking, but govt. seen likely to propose modifications, including international conference. US opposes conference since it could lead to delays of weeks or months, while German govt. is in immediate peril. French attitude likely due to fact she receives more in reparations than she pays out in debt payments, so would have to make financial sacrifice to accept plan. US officials disappointed but not surprised by lack of French enthusiasm; however, believe France will not be able to stand alone to block the project; also note "France would be hit hard by the substitution of a Communist or Fascist regime for the present one in Germany." Three major British parties cordially welcomed the proposal and were ready to cooperate. Italy approved the proposal although it would involve a sacrifice of 180M lire. Russia expressed some doubt through semi-official newspapers that the proposal was more than an "empty gesture" driven by fear of German revolution.

Further steps may be pending, in particular a huge credit of $250M-$500M to Germany, held to be necessary due to the Reichsbank's weakened position; unprecedented withdrawal of credits in the past two weeks has forced the reserve ratio down close to the legal minimum of 40%. It's not believed a credit of that size is actually needed, but bankers believe "the very knowledge of the existence of such a huge credit" would restore confidence [Note: Bazooka in your pocket theory ...] An unconfirmed report said Treasury Sec. Mellon proposed an international conference to be held in Washington in Sept. on war debts [Note: I assume for planning past the year-long moratorium].

Assorted historical stuff:

Number of customers served by electric utilities was 24.701M at end of 1930 vs. 12.710M at end of 1922; average cost of current was 5.93 cents/KWHr, down 14% since 1926 and 31% since 1913. Over 90,000 farms were electrified last year, largest number in history.

Editorial by T. Woodlock in response to letter from anonymous reader making a variety of heated charges against the railroads. Woodlock, more in sorrow than in anger, refutes charges in dignified manner; says letter and others like it indicate sore need for public education on facts of the rail situation.

Ten engineers of Arthur G. McKee & Co. to sail for Russia where firm is designing and supervising construction of Magnetogorsk iron and steel plant; will be one of largest steelworks in world when completed.

[Note: Sheer Genius Dept.] German railways are experimenting with faster train systems, though current financial conditions prevent their installation in the near future. Most interesting is an all-aluminum streamlined passenger car, weighing 18 tons against 70 for a normal express rail car. It resembles a Zeppelin and is driven by propellor; using a 500 hp aircraft engine, the system has attained a speed of 115mph but requires a dead-straight track; fuel consumption was 60 liters of gasoline/100 km. The system is ultimately intended to run on overhead cables instead of rails. More practically, new trains using all-steel cars and giant locomotives have reached 85 mph and can handle level tracks with curves, though they require strengthening the roadbed.

At one time different alloys of steel were sold by brand name; then, practice largely changed to selling them by chemical content as revealed by analysis. It now turns out the old system may be more accurate, since steel with the same chemical content may perform differently due to different treatment when made [Note: this is partly due to differences in microstructure of the metal, which is an active area of research today].

One farsighted Montreal brokerage has prepared for the next market boom by installing fully equipped kitchens in their new offices to be used in emergencies; they recall that during the 1929 market staffs were at times required to work night and day, with little sleep or food.

An innovative solution to the age-old problem of golf vs. church has been developed by Rev. Arthur Wheelock of Highland Congregational Church, West Plains, NY. Promptly at 8 o'clock every Sunday morning, he holds a special service for golfers, already dressed in their play clothes. The service last 35 minutes, and the golfers can then go to their games with a clear conscience. The morning service for normal people starts at 11, as usual.

Another picturesque tradition bites the dust. Niuafoou, one of the Fiji Islands, receives its mail every four weeks from a passing steamer. Until recently, a mailman swam out to bring in a waterproof mailbag. Recently, he was attacked by a shark "and came out second-best in the encounter." The new mailman uses a canoe.

Market commentary:

Market wrap: Buying orders poured into Wall Street from around the world on "world-wide enthusiasm" generated by Pres. Hoover's proposal; an astonishing 18 issues on the NYSE opened trading on blocks of 5,000 or more, and over 1M shares traded in the first half-hour, extending Saturday's gains in sensational style. This caused some selling pressure by skeptics believing the pace of recovery was too rapid, but offerings were absorbed impressively and, after moderate setbacks, the rally resumed around 11 o'clock. Bears hoping to cover on reactions received little subsequent opportunity, as the rest of the session alternated brief pauses with fresh waves of buying and progressively higher prices. Final NYSE volume was 4.6M, highest since Feb. Bond market active, with prices higher in almost all sections; German issues led rally in foreign list; domestic corp. higher in nearly all grades; "strangely enough, US govt. obligations were mildly reactionary." Commodities extremely strong; grains up sharply, though wheat didn't hold all of a sharp early runup; cotton rose explosively, with July up 69 cents to $9.58. Copper buying much heavier, particularly for export, and price rose from 8 cents to 8 1/4 in mid-afternoon; lead rose 1/4 cent to 4. Silver rose 2 cents to 28 7/8.

Conservative observers believe advance has been too rapid; advise taking profits to reaccumulate on reactions; still warn against taking short side.

US Steel rose over 6 points on top of its 6-point advance Saturday; rails rallied robustly; copper shares were subject of "bullish demonstrations"; trading favorites including J.I. Case and Auburn soared sensationally. "On the whole, the gains in the general list from Friday's close were the most violent seen since the sharp technical recoil of Nov., 1929." Public and odd-lot buying showed a large increase. Foreign demand for securities in NY was heavy; the Paris office of one large NY broker alone bought 85,000 shares; heavy demand also came from Germany; substantial buying from S. America was encouraging after several years of little activity from there.

Stock markets around the world rallied; stocks in Berlin soared, with most quotations opening up 10%-30%; markets also rallied strongly in London, Paris, Brussels, Rome, Amsterdam, Bombay, and Tokyo. Foreign currencies reversed recent trends; marks gained sharply, sterling and francs rallied, while Swiss francs and guilders fell; capital appears to be flowing back into Germany in large volume.

Turn of events abroad seen possibly affecting action taken at important dividend meetings in near future. IT&T heavily bought in past two days on theory it will benefit from international improvement. Oil interests closely watching conditions on West Coast; success of Standard Oil of Calif. price increase would make it "one of the most important steps taken in the oil industry in a long while."

Discussion on local banking at NY State Bankers Assoc. convention finds “too many communities impose excessively heavy burdens on their local banks.” M. Holmes, Assoc. pres., opposes investigation of State Banking Dept. as opening way for partisan politics.

Market observers differed on whether the substantial rallies from the June 2 lows were a definite change in trend or another bear market rally. Skeptics pointed to the close similarity of market movements this year with those in 1921, when the market broke to new lows in June but didn't hit absolute bottom until August, and therefore argued the market was likely to fall close to the early June lows again this summer. Optimists argued "the sudden turn for the better in the international situation has sounded the death knell of the bear market"; also noted the decline this year from the Feb. high was much more drastic than in 1921, making the 1929-31 bear, on a percentage basis, already "by far the most sweeping on record." Whether or not the early June lows are retested later, Dow theory now definitely indicates at least a temporary uptrend, as the industrials have confirmed the earlier movement to a new rally high by the rails; this is expected to bring excellent support into standard stocks by interests who have "been awaiting a signal of this sort." Also likely to generate support for stocks is an apparent change in psychology; dramatic rally since Friday's close indicates "rampant pessimism" had created "drastically oversold" position, requiring only a small spark to ignite the rally. "The recent spirit of hopelessness has been dissipated, and it would require some profoundly depressing developments to cause a recurrence of the gloom prevailing several weeks ago."

Harvard Economic Society: “improvement in business volumes, the first step in business recovery, is already under way”; setback in May not continuing; see strong similarity to 1920-21 depression and recovery.

Letter from T. Macauley, Sun Life of Canada pres., giving more detailed explanation of his argument that the US now effectively holds the key to worldwide recovery; describes world and US monetary system and again advocates large Fed. Reserve purchase of bonds to expand bank credit and raise commodity prices.

Economic news and individual company reports:

"New European union commission" of Aristide Briand has started on a "month of intensive work for getting Europe out of its economic depression." Four subcommissions will meet to prepare practical suggestions; these will be submitted to the European commission for final approval on Sept. 3 and to the League council at the same time, after which they will immediately be put into force.

Collapse of the Creditanstalt wrote “a new chapter in the melancholy history of post-war banking in Austria.” Bank dates back to 1865; largest bank in Europe east of Germany; was identified with the Rothschild family throughout its history. Had unrivalled network of foreign relationships, with credits from every leading country; controlled banks in many European cities; shares held worldwide. Conducted 3/4 of banking business in Austria; problems were caused by “depreciation of its investments not bad management or speculation”; was stuck with large holdings of industrial cos. due to historical circumstances. Has been kept open by govt. support; future uncertain, but at best will survive as a local bank.

Newfoundland Premier Squires announced arrangement made with syndicate of Canadian banks to take care of bond payments due over next two weeks, pending long term financing.

Florida Gov. Carlton reports only 45% of taxes collected up to June 1 vs. 66% at same time last year; state obligations of $1.154M must be met at once. Utah and Idaho introduced state income taxes.

Lord Kylsant, managing dir. of the Royal Mail Steam Packet Co. and “one of the biggest shipping men in England,” ordered committed to trial on charges of fraud in annual reports of the company.

Representatives of Eastern rails continue to meet regarding consolidation; expect to present plan to ICC within a week. Meeting of representatives from life insurance cos. and savings banks held at Met. Life office; will organize emergency committee with aim improving rail situation in order to preserve value of their rail security investments. Cos. represented hold about $4.5B of the $20B in rail securities outstanding. Merchant's Assoc. of NY endorses "reasonable" advance in rail freight rates.

Editorial replying to letter questioning NYSE request for information on short sales - letter asks why "is it the business of the Stock Exchange to know who is selling short, and what quantity"; argues that "when things were booming along in 1929, the Stock Exchange did not ask for a list of the stocks being bought ..." In reply, it's noted that all information requested is strictly confidential, and is only the business of the NYSE to the extent it's necessary to maintain a "free and open market" by preventing "unfair use" of NYSE facilities; this could include creating a "fictitious appearance of distress liquidation," but could also include faking "aggressive accumulation"; the NYSE has requested information and acted on operations on the long side, particularly when it appeared a "corner" was developing.

Several major oil cos. say they must stop buying from outside producers in the East Texas district since their own wells are producing all they can use. Last week, 90 wells were completed in the district, adding 371,362 barrels to the potential daily output of the district.

Northwest Bancorp. reports improved crop conditions in main Northwest producing areas.

US retail sales estimated at $53B in 1930, or almost 2/3 of estimated national income; there are 1.549M retail stores, making avg. sales per store about $32,300.

NY savings banks including Bowery, Dry Dock, Emigrant Industrial and Union Dime, cut interest rate paid to 3 1/2% from 4%.

S. Untermeyer resigns as special counsel to city in transit affairs, but will continue to fight efforts to raise prices paid for BMT and IRT in city transit unification.

NYSE seat sold for $225,000, up $25,000 from last sale.

Iraq Petroleum Co. has placed orders for $13.650M of materials to build Y-shaped pipeline from Mosul oil fields to Tripoli and Haifa.

Companies reporting decent earnings: Consolidated Laundries, Perfect Circle (automotive piston rings).

Jokes [warning: some racy ones today]:

"'I see by the paper that a minister lists among our modern vices: cigarette smoking, drinking, petting, and chewing gum.' 'I never could see any sense in chewing gum ...'"

"Wise Winifred says she carries her money in her stocking because her father told her to put it where it would draw interest."