Monday, July 13, 1931: Dow 143.88 -3.09 (2.1%)

Germany special:

Editorial: "All but one of the great European powers have declared the Hoover debt suspension plan to be in practical effect. All but one recognize the still urgent need of preventing a general financial collapse in Germany and its incalculable consequences," and are ready to leave unsettled questions to the "conference of experts" on July 17. That lone holdout is [note: wait for it ... ] France, who "persists in what is virtually a demand that her special interests shall be served before she gives a binding consent." The situation is complicated by the rapid flight of capital from Germany, which "cannot continue much longer without consequences of the most embarassing sort." Capital flight is mainly caused by France's attempted use of Germany's credit emergency to "extort ... political concessions" that might overthrow the Breuning govt. This stand will antagonize not only Germany but all countries outside France's immediate circle. A "stroke of statesmanship" is called for; of the two sides, France is in the better position to deliver it; "it may yet be expected to do so, if only at the eleventh hour."

French bankers reportedly are willing to grant further short-term credits to Germany “under German guarantees of severe credit restriction.” However, long-term loans depend on “evidence of stability of the present Reich govt.,” giving up the Austrian customs union, and ending “building of 'pocket battleships.' It is felt that Germany is in a position similar to France in 1926 and that internal reforms are more important than further foreign credits.”

German stocks fell sharply Saturday after reports Reichsbank pres. Luther had met with little success in Paris negotiations for a large central bank loan. The decline became so severe that banks reportedly were forced to support the market. Capital flight also intensified, estimated at 100M marks for the day. Total losses since July 1 are about 540M marks, and since June 1 about 1.890B ($470M). Marks fell below the gold export point in major centers; exports can be looked for unless the Reichsbank takes steps to prevent them; “Reichsbank is in no condition to stand further heavy gold losses.” Swiss francs and guilders were strong. Heavy withdrawals of French balances from London brought sterling "uncomfortably close" to the gold export point; "it is strongly felt in many quarters that the withdrawals may have a political significance as no satisfactory reason" is seen for high French demand for currency. Bankers expressed hope any gold exports would come from NY due to Bank of England's previous difficulty in building up gold reserves.

Editorial by T. Woodlock: The Hoover plan only gives us a "12-months' breathing space" from debt problems; we must plan ahead and consider the next steps. The entire structure of intergovt. debts rests on German reparations payments; what Germany can pay is what we will be able to collect in turn from our debtors. At things stand, Germany can't meet planned reparations. "Preservation of Germany's social and political order is ... essential for ... the peace of Europe and for the stability of the world's financial structure." Therefore, long-term adjustment is needed, and the US holds the key. In our own interest, we must wipe out or postpone for a long term the $250M due annually from our debtors. The World War, as the Chinese said about the French Revolution, is too recent an event to appraise, but it's clear it left us in a bind, with sharply increased nationalism at a time when economic interdependence "absolutely requires an international consciousness."

"Opinions expressed by Wall Street bankers that Germany was exaggerating its difficulties ... exercised a reassuring effect. Calm consideration of the whole German situation will be made during the next few days in conferences at the BIS. These surveys will be calculated to set forth the question in its true light. Confidence persisted that Germany would be accorded any credit assistance that was urgently needed."

Week in review:

“Stocks conformed to a Wall Street tradition” by selling off sharply on the good news of agreement on the Hoover debt plan. At peak of the upturn June 27, the Dow industrials had recovered about 35 points or 25% from the June 2 lows. “This extensive advance naturally invited active profit-taking for the account of important interests” who took advantage of low levels in late May and early June to accumulate. [Note: Damn, those important interests are smart!] However, declines in stocks drew good support on general confidence that “the agreement had marked a definite step toward the economic rehabilitation of the world” and that the recent “critical period ... had marked the low point of the depression.”

While there's no way to ignore that “Germany's credit difficulties continue pressing, ... the constructive leadership taken by Pres. Hoover ... affords a virtual guarantee that efforts will persist until the foreign situation has been stabilized.”

European stock markets were generally lower; the French Bourse showed the most resistance, only losing about a third of the post-Hoover plan rally.

Foreign exchange market centered around German developments. Marks were steady, but only through continued heavy losses of foreign currency by the Reichsbank; flight of capital continues, making the task of defending the mark difficult. Francs were very strong at end of the week, raising possibility of gold shipments from both New York and London to Paris; this may deter the Bank of England from lowering rates. Bank of France is drawing down its foreign balances. Difficulties of the Bank of Geneva resulted in “no ill effects.” Bank troubles also appeared in Barcelona, with failure of the Banco de Cataluna; unlike the Banque de Geneve, no govt. support was forthcoming on grounds the bank “was a private institution.” Some strikes and disorders were reported in Spain.

Bond market was dominated by German developments. German issues fluctuated over a wide range; “sentiment alternately blew hot and cold as new stringencies in Germany's credit status were revealed.” Other Europeans were irregular. S. American issues backed and filled most of the week but weakened Thursday after resignation of Chilean cabinet. Highest-grade domestic bonds were “serenely steady as a whole” and even advanced in some cases; demand spread to second-grade issues in some cases. Municipal bonds extended gradual decline of the past month.

Commodity markets have reflected improved sentiment since the Hoover plan was announced, “clearly the most hopeful sign since the depression began.” While
“fresh reactionary tendencies” have recently cropped up in grains and copper, recovery in other commodities such as silver, cotton and silk “has been substantial enough to indicate that a definite turn for the better has occurred.”

The steel industry has also benefited psychologically from the Hoover plan, and “the feeling appears quite general that improvement is near at hand. Actual developments, however, continued to mirror the tendency toward lower output familiar at this time of year.”

Grains and cotton slumped sharply later in the week, with wheat hitting post-1895 lows.

One dealer cut short-term bill rates due to heavy demand from large banks, and others are also expected to do so, particularly if, as seems likely, the Fed. Reserve continues to buy govt. securities to make credit conditions easier. “All other” loans of NY City member banks increased for the fourth week in a row, in an encouraging sign that banks are using the credit the Reserve is making available.

Assorted historical stuff:

Interesting letter from a reader in Colombia: "'There is but one bigger coward than a million dollars, and that is two millions' ... and the present situation is proving the truth of this. The money of the world is still in existence; there is no famine raging because of lack of production of food ... the plagues of Egypt have not returned ... Capital cannot remain unused in banks and produce anything to its owners. Capital requires activity, and when it fails to find a medium therefor, its owners do not suffer alone, but all who are dependent thereon for a livelihood join in the suffering. This is the situation now. ... When banks close their vaults to honest borrowers, industries begin to shut down, labor loses its earning ability ... and then the 'universal crash' has apparently begun." Notes enormous available field for development in S. America; calls for all to "stop moaning and get behind the cart of industry and push."

Sen. George (D, Georgia) says situation of cotton growers becoming desperate, Farm Board unjustfied in refusing to sell surplus cotton to Russia.

Recent foggy conditions have plagued transatlantic ship crossings. One one returning ship in the past week, the captain maintained a vigil on the bridge for 50 hours without sleep due to persistent heavy fog; another ship sounded its fog horn 7,430 times in one trip.

Montgomery Ward is conducting a series of 15 minute broadcasts every weekday morning over 35 NBC stations “in an effort to determine whether daytime broadcasting has value from an institutional advertising standpoint.”

William Randolph Hearst, Jr. plans to start new weekly tabloid "devoted to news and gossip of newspaper men; will be called Newsdom."

Rep. Ruth Bryan Owen of Florida [daughter of William Jennings Bryan] predicts radio speakers will soon be forced to give up use of manuscripts. Rep. Owen never uses a manuscript and is considered one of the best radio speakers in Washington. She notes "the dead quality in a voice reading the written word" vs. "the freshness of extemporaneous speaking." When Congress is in session, a representative who rises to speak with "a voluminous manuscript" will see the gallery empty; "but let a speaker rise and begin without notes, without manuscript, without anything but his voice and his eyes to see the reactions of his audience, the empty seats fill ..." [Note: To paraphrase Joe Franklin, spontaneity is the most important thing in political speeches - so once you learn to fake that, you've got it made.]

Market commentary:

Market wrap: Stocks opened weakly following news of sharp declines in Berlin shares and nervousness that French conditions for extending credit to the Reich might lead to fall of the Breuning govt; majors including Steel, Can, Union Carbide, du Pont, and Union Pacific declined in early dealings. However, trading turned very dull and settled into a narrow range after the early setback. Bond market featured irregular foreign list, with German issues off again on uncertainty about availability of further credit; US govts. and highest-grade corp. steady with some buying extending to second-grade list. Commodities weak; grains down substantially with wheat again hitting post-1895 low as market gave "emphatically bearish interpretation to Pres. Hoover's pronouncement against short selling." Cotton moderately lower. Copper at 8 cents; foreign sales increased after price cut to parity with domestic.

Stocks now appear to offer lower risks for the long-pull investor for a number of reasons. Market resistance to bad news was indicated by US Steel upturn Friday following report of decline in unfilled orders; "it is obvious that adverse factors now existing in domestic business must have been largely taken into consideration on the 260 point decline" in the Dow industrials from the bull market peak. "As a matter of fact, it is difficult to see where further liquidation will come from unless later developments prove that a heightening of the world depression lies ahead." This is unlikely due to "cooperative steps in progress for solution of international problems." Moreover, "the market was never in better position to withstand disturbing developments" due to its record liquidity, with loans at only 2.93% of the value of listed stocks. "Important interests ... have been quietly accumulating standard stocks ... over the past two months." Dividends on "seasoned" stocks offer attractive yields compared to rates available in the money market, an opposite situation to that at the bull market peak in 1929. All in all, stocks are well positioned to respond to any pickup in business. "On seasonal grounds alone, some improvement ... appears inevitable," and in fact there's an "excellent prospect that business improvement in the fall months may exceed seasonal proportions" since "consumer purchasing has been postponed for so long."

The market seems to have settled into another trading range, with upturns met by profit taking but reactions bringing short-covering rather than liquidation. Brokers report public interest in the market low, with public participation on either side negligible in the past few sessions. Traders are also less active than a few weeks ago. There seems to be "growing inclination to wait for news which will affect affect the market"; it's uncertain if this will come from domestic or foreign developments, or from another Washington initiative.

Editorial: Shippers have been demanding that railroads cut wages before asking for higher freight rates. An illustration of why this is impractical is the case of the Louisiana & Arkansas Rwy., which first proposed cutting wages in Sept., actually cut in Feb., and was just ordered to revoke the cut by an "Emergency Board" appointed by Pres. Hoover. "This was the time consumed in disposing of a case involving one small railroad. How long would one involving a great system or all the railroads of the US be likely to drag out?"

A. Guetting, Nat'l Shoe Retailers' Assoc. pres., says US shoe trade has definitely turned the corner.

Economic news and individual company reports:

No action seen likely by commodity exchanges in response to Pres. Hoover's attack on short selling until a definite request comes from Washington. C. Williams, Farm Board vice-chair., favors law to allow publicizing names of those engaged in "short selling ... against the public interest." H. Bodman, NY Produce Exchange pres., blames low commodity prices on oversupply and loss of foreign markets. Grain traders denied any unusual short trading in the Chicago wheat pit; J. Murray, CBOT pres. also denied knowledge of excessive short trading in the Chicago market. USDA estimates that although the US and Canada enter the new crop season with record carryovers of old wheat, total supply of old and new wheat will be 112M bushels below last year, and world supply outside Russia and China 250 bushels less. Bumper N. American winter wheat crop has been offset by worst spring wheat crop in over 10 years due to drought. Substantial reduction in carryover expected.

Banque de Geneve to be supported through Geneva govt. purchase of preferred shares; Geneva Finance Dept pres. Moriaud resigns; Swiss Nat'l Bank will loan temporary funds needed to keep the bank open.

Australian deficit for fiscal year ended June 30 was 10.8M pounds sterling; anticipated deficit for this fiscal year is 5.2M but this will be reduced to 1.1M if Hoover plan becomes effective; gross public debt 386.6M pounds and state debt 767.3M, for total of 1.154B. Govt. plans drastic spending cuts and tax hikes.

Florida State Supreme Court rules for bondholders, finding that cities of Clearwater and Punta Gorda must levy sufficient taxes to make bond payments.

Chicago City Council passes austerity law docking all 25,000 city employees 14 days pay.

Oklahoma City oil operators vote to shut down the field "until oil goes to $1 a barrel, even if ten months is required"; call on operators and officials in other areas to follow to restore order to the industry. Oklahoma shutdown would be one of the most drastic moves in industry history, and "would go a long way toward correcting the present condition." It's still necessary for major companies to approve the plan, and some are opposed since they depend on Oklahoma oil for refining operations. Oil purchasing prices cut in Pennsylvania, Michigan, and Ohio. West Texas oil operations approaching standstill as result of shutdowns due to low prices. East Texas field saw 92 new wells completed in week ended July 9; production at 381,543 barrels/day, up 29,586 from prev. week.

Hearings begin in lawsuit by Gillette shareholders charging the company generated "fictitious earnings" for many years by billing shipments to subsidiaries and taking the profit immediately, going so far as to pay Federal taxes of $1.5M on the fake earnings. Also charge purchase of Autostrop was part of plan to enable a "pool to unload its stock on the company at high prices."

One dealer lowered short-term bill rates 1/8% after enormous demand from banks; new rates at 3/4%-7/8% up to 90 days; uncertain if other dealers will follow. Money in circulation June 30 was $4.820B or $38.56 per capita, vs. $4.702B on May 31 and $4.522B a year earlier. NY State savings banks deposits again hit new record in June, at $5.097B by 5.521M depositors.

Auto finance co. officials say fully 25% more people own their cars free and clear today than in 1929, though there "are no comprehensive statistic readily available to support these assertions." This is seen indicating that "the moment the public begins to feel ... secure again, it will have the means to go into debt for new cars."

Commerce Dept. - Univ. of Chicago study of 500 bankruptcy cases finds failures in current depression about equally divided between old and new businesses.

Fisher's wholesale commodity index fell to 70.4 vs. 70.6 prev. week, breaking streak of three weekly increases that was the longest uptrend since 1929.

Youngstown district steel production will be at 38%-40% this week.

Refined copper inventories in N. and S. America on July 1 were 413,474 tons, up 14,807 in June and up 96,712 over 1930; production of refined copper was 98,275 vs. 102,695 in Apr. and 124,821 in June 1930; shipments 83,468 vs. 71,949 and 116,705.

"Leading figures in NY's financial district" are reportedly discussing programs for aid to S. American countries; one idea is to have a number of banks that have handled securities of S. Amer. govts. in the past to form "a sort of fixed investment trust" [similar to ETF] to buy up securities of those govts.

Chinese Fin. Min. T. Soong estimates revenues for next fiscal year at $125M, spending $150M; 87.5% of govt. outlay is military.

Hanseatic League estimates Germany's total foreign debts at $6.4B.

Italy has deregulated rents after 13 years. Rents have gone up 10%-12%; they might have gone higher if there weren't so many vacancies.

FTC study reveals number of cooperative grocery chain stores (association of independent retailers acting cooperatively), at 53,400, is almost as large as number of centrally owned chain stores.

Erie RR fined $15,000 for giving rate concessions on flour shipments.

Companies reporting decent earnings: Douglas Aircraft (military planes), Distillers Co. Ltd., National Standard [wire braid for tires].

Movies:

Die Lustige Weiger von Wien (The Merry Wives of Vienna) - German operetta, at the Little Carnegie Playhouse. "A thoroughly enjoyable affair," provided you understand German. Film opens in 1875 as 10 charming daughters of the Commissioner of Monuments are preparing with their dancing teacher for the celebration of their father's 25th anniversary of service. Then comes the shocking revelation that he wants to marry an ex-music hall actress. The daughters naturally decide to leave home and live with the dancing teacher until papa changes his mind. As part of their efforts, they get parts in the chorus of a vaudeville show, which "naturally infuriates" their father, who tries to get the Minister of Fine Arts to stop the show. The minister, however, misunderstands; unaware the girls are the Commissioner's daughters, "he arranges an after-theatre supper and makes love to the maidens while their father looks on." [Note: I assume this meant something different back then.] Happy ending ensues as father is cured of love for music hall actress and girls return home.

A Woman of Experience - Following Dishonored in which Marlene Deitrich played a spy caught between duty and love, comes this similar but less effective spy melodrama starring Helen Twelvetrees as the heroine. Matters are complicated because the young officer she falls in love with is unaware of "the extent of her 'experience'"; in the end she selfishly marries him despite knowing she only has a few months to live "as a result of a bullet wound received when she captured the foreign spy while her beloved was abroad on submarine duty." [Note: I hate when that happens.]

Jokes:

[Note: best joke ever.] Office Manager - I'm afraid you are ignoring our efficiency system. Worker - Perhaps so, sir, but somebody has got to get the work done.

Census "enumerator" - How many bushels of grain did you harvest in 1930? Farmer - 2,000. Census - How did you dispose of it? Farmer - The ducks got it all. Census - How many ducks have you got? Farmer - Four. Census - Did four ducks eat 2,000 bushels of grain? Farmer - No, I took the grain to the elevator. They deducked for storage, they deducked for freight, they deducked for insurance. By the time they got through, the ducks got it all.