July 17, 2010

Friday, July 17, 1931: Dow 141.99 +4.13 (3.0%)

Germany special:

German situation improved. All German banks, including even the Darmstadter, reopened on limited basis; wage, unemployment and tax payments were met throughout the country. [Note: I couldn't tell for sure what, if anything, banks were allowed to pay out to depositors.] Crowds of depositors were already assembled when banks reopened, with policemen at every branch and emergency squads in school buses at strategic points. However “though crowds expostulated at first concerning the new decrees, there was no serious disorder.” “Public feeling remains unusually calm. Continuation of the improvement noted thus far, however, is believed to depend largely on foreign aid.” “Communist or Fascist uprising scare waning. Tendency to change money into goods disappears. Hopes expressed currency crisis will be overcome in few weeks. Two years held necessary for gradual liquidation of foreign debts.” German measures were received favorably in banking circles in NY and abroad and “calmed the fears of troubled investors.” Herman Schmitz, I.G. Farben director, appointed govt. commissioner of business and finance; to supervise all banks.

German Fin. Min. Dietrich said he considered it a matter of course that payments would be made on long-term German loans, refuting press reports that Germany was contemplating a moratorium. French cabinet considering loan to be divided equally between US and Europe; France not pressing political claims and hope is seen for French-German compromise at Monday meeting in London. Reports to local bankerrs from Paris indicate loan the French cabinet is considering for Germany will amount to $500M and be guaranteed by customs receipts.

Sterling recovered sharply against dollars and francs and francs fell back against dollars, in a return to more normal levels; Swiss francs declined; marks rose as high as $.2275. Bank of England lost 5M pounds sterling in gold but found it unnecessary to raise rate, although sterling remained below the gold export point to Paris, NY and other centers. Sharp pressure on sterling in a largely external crisis was attributed to huge amount of foreign funds on deposit in London, estimated at over 400M sterling, with net liability over 250M. Commercial banks are giving Bank of England statements of all foreign liabilities; “where necessary, the Bank of England will give any support required and is already understood to be assisting some houses.”

Stocks rose in London, Paris and Amsterdam. German bonds rose very sharply in NY and other European bonds were strong.

German crisis will be taken up at meeting of US, British, French and German statesman. Following conference with Sec. of State Stimson and British Foreign Sec. Henderson, France invited German Chancellor Breuning and Foreign Min. Curtius to Paris for a conference, probably to take place tomorrow. General meeting will take place in London Monday; Sec. of State Stimson will represent the US; Pres. Hoover asks Treasury Sec. Mellon to attend if possible. "Developments gave hope that Germany's troubles would be solved by concerted international action, with the US represented."

Many US bankers and industrialists believed at start of the week that Germany's situation could be helped quickly by a plan for new loans combined with German internal measures. Developments in the past few days, however, "have led to the opinion that while the worst of the German situation may have been seen, whatever improvement comes will be slow and tiresome." Chase Nat'l Bank granted judgment against property of Darmstadter due to failure of German bank to meet bills totalling $50,484 due July 14. International Silver Council asks Pres. Hoover to loan 200M - 400M ounces of silver to Germany as move to improve silver situation while helping German financial conditions. No comment forthcoming from the White House on the proposal.

German imports from the US in 1930 were $311M.

German crisis causes withdrawals from two Brazilian banks. Private banks in Riga, Latvia limit payments to 5% per week as result of bank runs.

Meeting of steel cartel scheduled to be held in Brussels Friday postponed due to inability of German members to attend.

Assorted historical stuff:

Washington report: Ferocious political attack is seen gathering against the Farm Board. Wheat belt farmers are said to be in open revolt against the Board, and high officials including VP Curtis and Senate Republican leader Watson are in open disagreement with Board policy. The Board may face radical changes or extinction if farm conditions don't materially improve by the time Congress convenes in Dec. Based on Washington news and interest, “this country is thinking in international terms to a greater extent than for ten years”; the German crisis has received more official attention and newspaper space than several pending domestic situations put together. Dispute between Commerce Dept. and Dr. Ray Hall on charges of doctored statistics, whatever its resolution, highlights less-than-perfect record of govt. agencies in providing clear and frank information over the past 2 years; in fact, there were even “cases where there were attempts to put obstacles in the way of agencies which were trying to tell the clear truth about business and financial conditions. In the recent past, however, the idea that the depression could be overcome by hiding the facts seems to have been pretty well eliminated.”

Farm Board chair. Stone, pressed for solution to problems of Southwest wheat farmer, said he believed they would do better by holding some wheat off the market; if followed by acreage reduction, prices should rise. Believed Kansas farmers would do well to use wheat as animal feed, even at current low livestock prices. Stresses this is just his personal opinion, not official advice from Farm Board.

Chinese Fin. Min. T. Soong says campaign of armies of Nationalist govt. against Kiangsi communists is only a prelude to a life-and-death struggle between the Chinese social and economic system and the Communist system introduced from Russia. China seen likely to import wheat this season, though there's little reliable information on wheat consumption by that country's 400M people.

Russia and France take reciprocal actions cancelling restrictions on imports from each other.

Navy Dept. awards secret contract for development of powerful high-speed airplane engine on appropriation of $220,000.

Editorial: The recent court decision preserving the nickel fare on IRT lines may be seen as a triumph of "municipal statesmanship" in other cities that pay more for less transportation. The decision admittedly may advance the cause of city ownership and operation by ending the IRT's "last hope of wrangling a little longer and ... more successfully over terms." However, the nickel fare is preserved at high cost to the city, since "no court decision can alter the fact that subway and elevated operation costs substantially more than five cents per passenger" and that by contract the city absorbs most of the loss; a higher fare would, on the other hand, mostly have gone into city coffers. The nickel fare is a bargain to the several hundred thousand daily commuters and to out-of-town visitors, at the cost of all city taxpayers. IRT seen likely to end further litigation on 5-cent fare.

Henry Habersaat of Waupaca, Wisconsin has a whole field of pre-baked potatoes available for the digging up. It seems a fire burning in peat beds near his farm "crept underneath the tubers and did them to a turn."

Market commentary:

Market wrap: Stocks rose early on less active trading as foreign news was more hopeful; active stocks showed good recoveries from Wednesday's lows. Rally encountered renewed resistance around noon, and trading became "highly irregular," with rails particularly pressured after poor NY Central earnings. However, trading dried up as leading industrials fell back to Wednesday's closing levels, and another rally set in during the final hour; Steel, Can and other leaders rose well above the morning highs. Bonds strengthened; German issues rallied very sharply after a weak opening and other Europeans generally were strong. Chilean bonds fell after news of official action on withholding external debt payments until trade surplus is restored. Domestic high-grade bonds notably steady, while some speculative industrial issues showed strength. Commodities very strong; grains up sharply, led by corn; cotton up strongly. Copper remained at 7 3/4 - 8 cents with somewhat better domestic inquiry. Silver up 1/8 cent to 28 1/4.

Conservative observers unmoved by yesterday's rally; "insist that a waiting attitude is best under existing uncertain conditions."

Encouraging factors included Berlin bank reopening, mark strength, indications of more constructive French attitude, and Bank of England decision not to raise rate, which was seen as indicating confidence decline in sterling is temporary. Wall Street seemed to view German developments "in a calmer light"; Reichsbank rate hike to 10% recalled a hike to 9% that was effective in a "similar emergency in early 1925"; Germany's trade surplus in the first half of 1931 was $195M, or about 2 1/2 times the 1930 figure. Liquidation from foreign sources seen in domestic securities; some appeared forced by sharp declines in European bonds.

Tobacco stocks have been supported better than other sectors during this week's reaction. Lorillard has been strong, reflecting activity of a new bull pool. J.C. Penney sales have been running below 1930, but first-half earnings are expected to compare favorably with the record $1.32/share shown in 1929 and $1.14 in 1930, due to higher profit margins; "some quarters familiar with the company's affairs" believe at least $1.60 will be reported. Chrysler has been subject of some "persistent buying" on apparently favorable public reception to new low-priced car put on the market a little over a week ago.

By contrast with "extensive declines" in industrial and rail stocks from the recent rally highs, bonds have turned in a much steadier performance. The Dow average of 40 representative bonds hit a low of 93.74 on June 2, the same day as the Dow industrial and rail stockaverages hit their 1931 lows; it reached a rally high of 96.02 on July 11 and has only declined to 95.63 as of Wednesday's close. Bulls are encouraged by the good support in bonds, since "improvement in bond prices is one of the forerunners of business revival."

Recent declines broke through the previous trading range, bringing more liquidation into the market. Chart students are concerned since the breakthrough took place relatively easily, "without great effort on the part of the big bears."

Yet another editorial pointing out looming vast oversupply of cotton and taking Farm Board to task, "not ... for the business depression but ... for advising against selling at a reasonable price, discouraging exports as well as domestic consumption and encouraging the use of more foreign cotton."

Banking difficulties in Europe seen "likely to retard the business recovery" in the US; at the least, it has lessened the improvement in sentiment following first announcement of the Hoover plan. Industrialists are still confident of some improvement in the fall, though it may not reach normal seasonal proportions. "At the moment, everyone is watching conditions abroad."

One leading corporation's president comments on lessons learned regarding corporate extravagance: "We have learnt a thing or two out of all this business, and have even gone so far as to do without our back collar button and undershirt." [Note: I understand Goldman Sachs has cut back to lighting their cigars with fifty-dollar bills ...]

Economic news and individual company reports:

Middle West Utilities noted general improvement in crop, business and industrial conditions in June across its territory, which includes practically the whole Eastern half of the US. Crops throughout the area look to run well ahead of last year; industrial activity is still well below normal but a general pickup was noticeable; retail trade showed a slight uptrend in most states and further improvement is expected when crops are marketed.

NY Central first-half earnings were about $.60/share vs. $4.63 in 1930 and $7.77 in 1929 (dividend requirements for the half are $3). ICC rail rate increase hearing continue. J. Pelley, spokesman for Eastern rails, testified rails are not trying to escape their fair share of the general depression or asking for the full "fair return" provided by law, but just for enough revenue "to tide them over the present emergency"; reminds ICC that in 1930 rails gave lower emergency rates for drought relief traffic and actually increased traffic expenditures in order to minimize the depression. Editorial by T. Woodlock criticizing the railroad "reparation industry" in which "numerous agencies ... in different parts of the country" have been organized with the "principal or sole business" of getting freight bills from shippers so they can bring complaints to the ICC that rates are "excessive"; usually an agreement is made that whatever reparation is recovered from the railroads will be split by percentage. While awards are not a huge drain on railroad treasuries, the complaints are "strangling the ICC's usefulness" and causes rail to waste considerable time and expense in defending cases.

Ford worldwide production in June was about 80,000 cars and trucks vs. 102,095 in May and 174,528 in June 1930; first half 538,500 vs. 988,000. Decline of 45.5% in first-half Ford production was considerably worse than 29.2% decline in total N. American output. Ford output of about 75,000 expected in July.

First effect of wide shutdown of oil wells in Oklahoma, Texas, and Kansas seen, as one company raised buying price in West Texas from 10 cents/barrel to 25.

Money in circulation July 15 was down $28M to $4.806B, total Reserve Bank credit outstanding down $9M to $951M. Member banks in NY City report brokers' loans down $25M to $1.430B; loans on securities to non-brokers down $10M to $1.703B. New Treasury issue of $51.2M in bills was oversubscribed about 4 times and bears 0.49% interest.

NY State Superintendent of Banks Broderick announces settlement of 100% for depositors and other creditors of World Exchange Bank closed last March.

Dow average of 8 iron and steel products held at $44.25. Scrap markets showed mixed trends in different areas.

Agriculture Dept. reports wholesale commodity prices made a 2-point recovery in June after falling 4 points in May; prices little changed in first week of July.

US electric output in the first half was down only 4% from 1930, remarkably stable considering 74% of total consumption is normally for commercial and industrial purposes. Homes continue to increase demand, and industry is switching to electricity from other energy sources. Consolidated Gas of NY (mainly an electric utility) is selling for about 19 times last year's earnings, and yields 4%. [Note relatively high valuation compared to other sectors.]

Negotiations to extend world nitrate cartel fail; Chile to resume open market sales; higher worldwide production and price war seen inevitable.

Merchandise transported through the Suez Canal in 1930 was 28.5M tons, down 17%.

Canadian revenues in June from customs, excise taxes and duties were $17.8M, down 20% from 1930.

Earnings reports: E.I. du Pont de Nemours Q2 $1.22/share vs. $1.33; half $2.23 vs. $2.84. American Chicle Q2 $1.25/share vs. $1.21; half $2.22 vs. $2.16. Connecticut Electric Service year ended June 30 $3.68/share vs. $3.45. Alpha Portland Cement year ended June 30 $.57/share vs. $1.78. Gillette Q2 $.43/share vs. $1.20; half $.95 vs. $2.18. General Baking half $1.46 vs. $1.40. Bigelow-Sanford Carpet half $1.91 vs. $1.41.

Companies reporting decent earnings: American Chicle (chewing gum), Connecticut Electric Service, General Baking, Bigelow-Sanford Carpet.


Sherlock Holmes' Fatal Hour - produced in England for Warner Bros., at the Warner and Beacon theatres. "The fascinating detective again walks the screen of local theatres in the person of Arthur Wontner," whose "impersonation is polished and commanding. He seems to breathe new life into a character that has become almost too familiar to persistent playgoers." [Note: Fortunately, Hollywood in our time has found the one foolproof way of rejuvenating any worn-out character - add kung fu.] Film is "quietly effective. It will not please those Americans who have grown to love the sound of machine guns and the brutal maneuverings of rival gangsters in the recent series of melodramatic racketeering films, but it will please many others craving a relief from such an atmosphere."

Historical jokes:

Shortly after the fall of Richmond, Pres. Lincoln and members of his cabinet were being driven in a stagecoach along a bumpy road to the fallen capital. The driver, a war-weary private, was "lustily cursing his steeds," leaving few epithets unused. As the stage came to a stop at a crossroads, Lincoln leaned forward and asked the driver "I beg pardon, my good man, but are you an Episcopalian?" The youth turned, saw who was addressing him, and turned very red. "Why, er - no, Mr. President. At home I was a Methodist, but I guess I ain't much of anything in the Army." "It's all right," responded Lincoln, reassuringly. "No offense intended, but you cuss just like Seward and he's a church warden."

Henry James was once asked whether some young actresses who had come to see him were pretty: "He replied, 'Pretty? Good Heavens,' and then with the air of one who will be scrupulously just, he added, 'One of the poor wantons had a certain cadaverous grace."

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