Monday, July 27, 1931: Dow 138.24 -0.77 (0.6%)

Assorted historical stuff:

Pres. Hoover sends letter to heads of all govt. executive departments citing seriousness of US financial situation and anticipated large deficit for current fiscal year; suggests department heads refrain from committing money now available except where clearly necessary for public welfare. Washington opinion is that a savings of about $40M during the current fiscal year is about the best the Administration can hope for. Largest spending departments of the Federal govt. are Veterans Administration $729M; Dept. of War $478.4M; Navy $354M; Agriculture $296.8M; Farm Board $190M; Treasury $204.5M; Post Office $145M.

Editorial: Indications are multiplying that "faith in a pegged economy as a bridge over depression is on its way out" and that business thought is moving toward "wholesome realism." Men everywhere seem more disposed to "climb over obstacles in the path to recovery" rather than take "longer and more difficult detours around them. Abroad, a pretentious meeting of statesman" first ended in "disappointment over its apparent futility," but then brought "realization that it escaped the temptation to pile one house of cards upon another". At home, Pres. Hoover has "bluntly ordered" the govt's house be put in order; at the US Steel meeting tomorrow, directors will consider cutting the dividend and are then likely to move to wage cuts; these actions indicate "the growing necessity to face realities and to move courageously to meet them." If the moves by US Steel "permit a subsequent expansion of its output and labor employment, their action will be regarded as a harbinger of industrial reconstruction."

Many believe that when the rail rate question has been settled, the railroads may try to get further relief through readjustment of wage scales.

Wickersham Committee finds current US prison system antiquated and inefficient; doesn't reform the criminal but hardens him; "the millions of dollars now used to construct elaborate maximum-security prisons could, with much better advantage, be used in the development ... of adequate systems of probation and parole."

Argentine govt. has shut down five newspapers for "alleged publication of sensational reports concerning the political situation."

Cuban Federation of Labor orders general 24 hour strike Aug. 1 to protest arrests of several labor leaders; minor strikes already in progress.

Disturbances in Seville, Spain cause 26 deaths but are unsuccessful at aim of starting a general strike.

IT&T has invented a new recorder able to keep a complete record of long-distance telephone conversations on a magnetic steel wire.

Pullman intends to construct an experimental aluminum sleeping car; could save 30%-40% in weight over current steel cars.

Television development ahead of schedule. NBC has received permits for construction of television and sound station on 84th floor of Empire State building; the Columbia System recently opened station W2XAB, which will broadcast 7 hours/day; “while this of necessity is merely experimental, ultimately it is likely to be improved to the extent of broadcasting in color.” Some television sets on the market today are considered satisfactory, but leading radio cos. are working on improved models; it now seems several leaders will be ready to market sets by early 1933, by which time broadcasting experiments should be complete.

Commercial Solvents is working on development of synthetic plastics and resins through its Resinox division; Corn products has purchased an interest in Resinox as a possible outlet for corn sugar, one of the raw materials from which plastic can be made.

Summer stock gets a new meaning - even in these lean days, several brokerage firms have representatives who appear in the Social Register staying at leading seaside and mountain resorts throughout the East to drum up business.

Story quoting an affidavit from one Major James B. Merwin that relays remarks Lincoln made to him a few hours before his assassination: "Merwin, with the help of the people we have cleaned up a colossal job. Slavery is abolished ... the next great question will be the overthrow and abolition of the liquor traffic ... less than a quarter of a century ago, I predicted that the time would come when there would be neither a slave nor a drunkard in the land. I have lived to see, thank God, one of those prophecies fulfilled. I hope to see the other realized." [Note: Drys and wets have both claimed Lincoln as backer, drys apparently with more evidence.]

Market commentary:

Market wrap: Stocks moved lower through a dull Saturday session in spite of a rally in Berlin, as attention apparently turned to dividend uncertainties at important domestic cos. including US Steel and Bethlehem. Opening was weak; fractional recovery after first half-hour but trading turned increasingly dull; activity increased somewhat in final hour and leaders slightly extended declines. Bond trading also extremely sluggish; German issues fell to new low ground while rest of the foreign list was also soft. Some weakness extended to the domestic list, but highest-grade issues generally steady. Commodities weak; grains lower with season lows hit in corn; cotton down moderately in spite of unfavorable weather. Copper remained at 7 3/4 - 8 cents with buying small. Silver down 3/8 cent to 27 3/8.

Wall Street now seems generally convinced the US Steel dividend will be cut at the meeting tomorrow afternoon; up to a few days ago many were hoping the board would maintain the $7 annual rate "because of its effect on sentiment generally."

Stock market has been so dull in many recent sessions that both good news (better than expected earnings) and bad (continued uncertainty abroad and likely US Steel dividend cut) has been ignored in most cases.

Wall Street is now following the gold drain from England as much as the German fiscal situation. Sterling has firmed, and it's hoped continued strength will stop gold exports and prevent a need for further London rate increases. The Street "is cheered somewhat by the apparent cooperation of the German banks in the effort to help one another out of their difficulties" but "realizes that there is a long row to hoe before the situation in Germany can be considered much improved."

Somewhat complex technical analysis finds recent stock movements failed to break through important resistance levels on the upside, making [note: as usual] "the next week or so fraught with great importance." Breaking through July 15 resistance levels on the downside (about 138) would indicate general list is headed for a test of the June 2 bear market low (121.70). Failure of the latter to hold "would point to prolongation of the existing business depression."

Short interest reportedly is smaller than a few weeks ago due to covering during recent technical setbacks.

American Can has been weak on industry uncertainty; in past week, it's been announced that the California peach pack this year will be only 9M cases vs. 13M in 1930, and the US pea pack only 13M vs. 22.5M; observers say curtailment is more drastic than anticipated. Opinion is divided on the rumored Sears - Montgomery Ward merger; some observers believe the combined company couldn't maintain the current sales volume each has separately; many customers who prefer to deal exclusively with one or the other might be lost following the merger.

In spite of continued weakness in commodity prices following the brief rally inspired by the Hoover debt plan, a survey of chief executives of 12 NY commodity markets "indicates that the groundwork for a sounder commodity foundation is being laid by an improved statistical position." Possibility of price revival is seen as likely for 5 of 12 commodities and fair for another 4.

Editorial backing Pres. Hoover's position that he has no legal authority to declare an embargo on imported oil because of overproduction. While the tariff law gives the President the power to lay an embargo to combat "unfair methods of competition," this doesn't apply here. "The mere fact that there was a great oversupply of any commodity in this country would not make importation of it an immoral act" unless it could be proven there was a conspiracy among importers to demoralize the market. Producers must instead help themselves by voluntary curtailment of output.

While cotton textiles are in their seasonally slow period “strong statistical position” makes it “obvious that the fundamentals of the market are much stronger than they were a year ago”; this should continue into the fall unless producers abandon curtailment plans.

D. Willard, B.&O. RR pres., returning from inspection trip, says "Times are not as hard as people think they are. I have been as far west as Kansas, and never have I seen the crops looking better or the citizens in all sections apparently happier. Times are slow, yes, we have been forced to cut our operations 30% ... but I am confident the situation is temporary and a result of abnormal caution on the part of the buying public."

Officials at leading industrials say they're prepared to take advantage of an upturn when it develops, since the prolonged depression has led them to take many steps to lower costs and increase efficiency; many cos. will be able to show higher profit margins when business revives.

Week in review:

London conference adjourned late in the week; while it "undoubtedly ... made important progress in demonstrating the willingness of leading nations to work together for the restoration of international economic stability," it came up with no "definite solution of ... Germany's disrupted finances"; the major resolution adopted was that banks should maintain short-term loans to Germany at current levels, "which they had already been doing by informal agreement." Germany will likely have to look to France for a longer-term loan. While the German difficulties "are being ironed out, considerable unsettlement seems likely in European affairs."

Bank of England suffered severe gold drain to Europe (mostly to France), necessitating a rise in the discount rate to 3 1/2% from 2 1/2%. Sterling firmed in response, though the market isn't yet certain if this will be enough; some expect another rate hike in the near future to draw gold from the US. Marks firmed during the week but market was nominal due to rigid control of transactions. Berlin stock market remained closed until further notice. Other European stock markets were lower, with the Paris market least affected due to “relatively small French losses in Germany and the strong international monetary position that Paris holds.”

Fed. Reserve weekly statement indicated abandonment of recent five-week "campaign for a larger volume of credit" through buying govt. bonds; "experiment apparently proved futile under present conditions" as banks and businesses didn't make use of the greater supply of available credit.

Stock trading turned very dull; NYSE volume for the past week averaged 851,670 shares daily, the smallest week's trading since Nov. 1924. Prices rose early in the week but slumped toward week-end to end lower. Traders appeared to turn attention to domestic prospects after end of London conference, particularly upcoming dividend meetings; consensus developed that US Steel was likely to cut its dividend, bringing heavy selling into the stock that spread across the market; leading rails also affected by dividend uncertainty.

Bond trading quieter; German issues moved lower, sending some back close to their record lows; speculative European issues weak while higher-grade were irregular; S. American issues generally lower, with Argentine particularly weak. Domestic issues showed few noteworthy changes, particularly in the higher-grade section. Municipal bonds somewhat lower on quiet trading; Dow average of 20 long-term city and state bonds was at a 3.89% yield vs. 3.86% two weeks ago and 3.81% on June 26.

Minor upturn took place in steel production, but this was believed due to rebound from holiday shutdowns. Strength of price structure was hard to gauge due to lack of demand. US Steel seen likely to have barely covered preferred dividends in first half, and no indication is seen of substantial improvement for rest of 1931.

Grains showed narrow price movements, with corn dipping early in the week. Cotton rallied early in the week but then sold off along with stocks.

Germany special:

German govt. plans to lift all restrictions on internal payments by end of July. German banks agree to "work together for mutual support" in a "new and important measure" to "prevent recurrence of the recent disturbances" after current emergency measures including the partial banking moratorium are withdrawn. "With a motto of 'all for one and one for all,' the banks agree to assure each other all necessary financial assistance ... The Reichsbank will back the agreement." Darmstadter bank, on first investigation, appears to have enough reserves to cover losses and is likely to stay in business [note: large bank closed during German crisis].

Guaranty Trust says agreement at London conference is far from a solution to German financial problems, as further fundamental reforms are needed. German govt. failed to take some required "drastic measures" after the war; together with reparations obligations and political uncertainty; these led to complete inability of republican govt. to balance budget and to inflation that almost wiped out the formerly prosperous middle class. In more recent years, system of dividing tax revenue among local govts. on fixed basis has led to imbalance in which German Federal govt. is hard-pressed while local govts. often get revenues higher than estimated, encouraging "extravagance." Foreign borrowing over past decade has worsened problem; "instead of employing the funds for productive purposes, the states and municipalities have used them in social ventures and enterprises." Much of the borrowing is short-term, making Germany vulnerable to sudden heavy withdrawals during a crisis. Most encouraging aspect of current crisis is apparent realization by Germany that she must help herself; no country can indefinitely continue to run deficits and borrow to cover them. On the bright side, Germany has the best industrial system in Europe and relatively high per-capita income and wealth.

The NY bill (short-term paper) market believes the official estimate of $600M in German short-term debt owed to the US is a substantial underestimate; bill obligations alone are put at about $500M, and total credits as high as $1B.

Sterling advanced above the gold point in NY and Paris, but the sterling-franc rate remained slightly below the gold point in London, and Bank of England's heavy gold losses continued, with 3.8M pounds sterling exported Saturday, reducing holdings to a new yearly low of 137.8M. Swiss francs rose to a new yearly high. NY bankers expect Bank of England will need to raise rate again, perhaps to 5%. Seasonal demand for currency in August will make the Bank's position more difficult. “French action, whatever its motive ... is in marked contrast with the abstention on the part of the US banks from similar embarrassing action.” French short-term loans have been withdrawn heavily from England as well as Germany, in apparent French scare over British finances; one French bank over a week ago dramatically refused to accept some best-grade British banking paper. French financial circles are discussing a large US or French-US loan to England to support sterling. French gold reserves set a record, exceeding 57B francs, thanks to heavy British shipments; on Friday, seven airplanes landed 10 tons of gold outside Paris, while trains carried 4 tons. French bankers announced they intended to continue purchases as long as profitable.

Economic news and individual company reports:

Labor Dept. reports general surplus of labor in most of the larger cities in June; industrial situation little changed, with many plants on part time schedules; some expansion in building but activity remained below normal; work on 1932 municipal improvement programs has provided employment for many; volume of road construction higher in almost every state, absorbing many previously unemployed, and new contracts should provide additional work.

Winter wheat harvest nearing completion across the Southwest. "Low prices have startled the farmer" but haven't hindered his work; favorable conditions allowed harvest to be completed at very low cost. Much grain has been piled on the ground; many farmers are building sheds and filling them with grain; one farmer with storage space bought wheat from his neighbors, "arguing that it was cheaper to buy the grain than to produce it." Agriculture Dept. expects total world wheat crop 250M - 300M bushels less than last season, but still larger than the 1929 crop.

Fisher's wholesale commodity index fell to 69.5 vs. 69.8 prev. week, a new postwar low.

Treasury offering of $50M in 91-day bills oversubscribed almost 4 times; average rate 0.46%, a new record low. Few important local govt. bond sales are scheduled for the next few weeks; most new local govt. financing will apparently be in the short-term market for the time being. Demand for short maturities continues strong although yields have been moving steadily lower; Boston just sold an issue of $2M notes due Oct. 6 to yield 1%. The Japanese bond market is improving so rapidly that the Industrial Bank of Japan has announced plans to "convert into mortgage debentures the loans which it made to aid certain second-class companies to pass the year-end." Banks and other institutions, seeking reasonably safe investments, "are even besieging the government to issue more bonds."

ICC announces dates of further hearings on rail rate increase to be held at nine locations across the country during Aug.

Managed investment trusts [similar to mutual funds] have over $300M in cash and equivalents; "considerable of this will go into the purchase of domestic common stocks, once the way seems clear for an advancing market."

W. Farish, Humble Oil pres., testifies to Texas House investigation of oil industry; says situation in East Texas hopeless and legislation to stop overproduction an imperative necessity; production now up to 550,000-600,000 barrels/day; East Texas and Romania only two uncontrolled oil producing regions. Federal District Court nullifies Texas Railroad Commission curtailment order, deciding the Commission wasn't given power by Texas law to control oil production in order to support prices; didn't attempt to decide if such power would be lawful. Oklahoma Gov. Murray expected to issue conservation order shortly giving official force to “gentleman's agreement” for shutdown affecting about 80% of potential production of the Oklahoma City field. Gasoline in Chicago wholesale market firmed to 3 cents/gallon vs. 2 3/4 - 3 previously.

Youngstown district steel production will be up 8% to 42% this week. Youngstown producers expect to follow US Steel if it makes a general wage cut.

Nat'l Assoc. of Finance Cos. reports ratio of installment sales to total sales of cars, furniture, jewelry, etc. substantially the same during the depression as it was during the preceding prosperous period. About $10.7B of consumer credit is now outstanding, of which installment debt is $2.5B, open account credit $4.5B, small loans $1.5B, and life insurance loans $2.2B.

NY American estimates US tourists will spend $100M less abroad this year. In 1930, US tourists spent $811M, while $171M was spent in the US by visitors.

European nitrate conference in progress; no decision so far, but Chilean financial crisis seen making it imperative for them to reach agreement with European synthetic nitrate producers and avoid the price war that seemed to loom after breakup of the cartel last week.

In bidding for business in Omaha and Council Bluffs, Union Pacific points out that 30,113 people, or 12% of their population, are directly dependent on the railroad for their support.

Nat'l Biscuit's lower earnings in the first half was first interruption in their upward earnings curve in 14 years; co. still seen likely to cover dividend in 1931.

Earnings reports: General Mills year ended May $3.71/share vs. $4.83. North American Co. year ended June $3.89/share vs. $4.87. NY, New Haven & Hartford RR Q2 $1.00/share vs. $1.76; half $1.86 vs. $3.06. Studebaker Q2 $.56/share vs. $.41; half $.91 vs. $1.03.

Companies reporting decent earnings: Coca Cola International, Studebaker.

Report from Paris:

It's the peak of the tourist season, when European theaters compete "to exploit the world, the flesh, and the visitor from overseas." The traveler returns with memories of high priced tickets that admitted him to "gay and prancing revues, to squanderous exhibitions of draped and undraped nudity; bizarre dances and exotic settings; to a risque play or two; and to music halls where the lean and lithe of limb dance ... The Paris theater, particularly, has left its memory of color; not rainbow tinted but deep erotic colors that tell of the Orient ... and against this exotic background are forms - human bodies, dancing, swaying, posturing ..." [Note: Holy Toledo!] The reporter then goes on to say some lame stuff about how this is all for the tourists and "The real French theater has harked back to the days of chivalry; it is as stately as a minuet and as fully clothed as a Colonial dame"; in fact, all across the Continent, "the back-to-romanticism movement ... has been crowding tawdry and sordid pieces off the stages ..."

Joke:

An author recently stepped out of a taxi in front of the Lambs' [first "Professional Theatrical Club" in the US, founded 1870; still around, though not in its original location on W. 44th St], only to find he had nothing but a $20 bill to pay a $1.10 meter charge. The driver said that was the first $20 he had seen since shortly before the war, "and to expect him to change it amounted to mockery." The author turned to an actor lounging on the club's stoop and asked for a dollar and a quarter. The inevitable reply - "If I had a dollar and a quarter, do you think I'd endanger it hanging around here?"