Tuesday, July 14, 1931: Dow 142.43 -1.45 (1.0%)

Germany special:

[Note: This information is strangely fragmented, i.e. rather than being a big page one story it's scattered throughout the paper.]

Darmstadter Bank in Germany closed; this was followed by runs on other banks. Govt. reportedly decided to guarantee deposits at Darmstadter Bank but not the bank's capital. All banks restricted payments, even in marks (typically limiting withdrawals to 5%-10% of deposits) and refused transfers abroad. The Reichsbank didn't sell foreign exchange or rediscount bills. It was almost impossible to buy exchange in German banks Monday morning, and Germans found it hard to cash mark checks. Govt. “issued proclamation demanding that the people keep their nerve.” Presidents of mortgage and savings banks issued reassuring statements to the public. Darmstadter Bank chair. “sharply criticized the behavior of foreign creditors who, after extending all manner of credits in the past five years, then suddenly demanded complete repayment within a few weeks.” Nordwolle forced into bankruptcy after creditors refused to accept 40% reduction and extension of loans.

Position of German savings banks, with total of 11B marks in deposits, was “alarming” as of Monday night; banks had paid out almost all their cash despite restriction of withdrawals, and will be forced to close their doors if unable to rediscount with the Reichsbank today.

Dr. Hans Luther was in Basel appealing to BIS directors for a large new credit. The BIS agreed to extend the $100M credit previously granted by 3 months and was examining the plan presented by Luther. Discussions of political aspects were going on between Washington, Paris, London and Berlin. It's believed that a $300M credit from the BIS would be enough to avoid disaster; otherwise, a banking moratorium seems inevitable.

Berlin Stock Exchange trading was suspended; German bonds of all types broke sharply. Foreign exchange markets were “completely demoralized” as result of German developments; session “had no equal in the experience of many old-time traders.” Market was “completely in the dark” with no confirmed information during the session. Fluctuations in the mark were “reminiscent almost of the days of the inflated paper mark.” Marks closed on Saturday in NY at $.2370, and broke in London at the opening to equivalent of $.1675; rate rallied in NY to $.2250, but quotations were "purely nominal" as little actual business was done. Marks were, of course, well below the gold export point but “shipments of gold by the Reichsbank are hardly to be considered at this time.” Francs fell below the gold export point to the US but sterling dipped sharply, leading to some shipments from London to Paris.

France is on holiday until Wednesday, so their reaction to the crisis won't be completely clear until then. Direct losses should be small compared to the US and Britain; short-term loans were almost all withdrawn in past 2 weeks, while there are almost no long-term loans to Germany for political reasons. This is likely to make France more reluctant to extend further credit.

Washington officials "clearly indicated that they believe the situation in Germany Monday was better then had appeared likely. They do not talk about a sudden 'collapse' of Germany," but merely of the danger that some large German banks will be unable to withstand runs by citizens or from abroad. Pres. Hoover spent the entire day at the White House studying the situation, receiving reports from various govt. departments.

Regarding the German crisis, "it was felt that while the situation was extremely grave, the real prospects had been exaggerated by acute fear on the part of individuals and other investors."

Assorted historical stuff:

Editorial: Pres. Hoover's attack on commodity short-sellers reveals he continues to be "badly advised in matters of agriculture." Commodity markets are regulated by law, and a "Grain Futures Administration" has the power to examine books; if there was a conspiracy to depress prices, it would have been discovered. The price situation shows no such conspiracy; in fact, the domestic price is above parity with that in Liverpool, the largest international market. Low wheat prices are largely due to "world conditions," but the Administration made things worse by "turning in an enormous bear into the wheat market disguised for a little while with the hide and horns of a bull. It stands unmasked now: the name of the bear is Farm Board ..."

Editorial by T. Woodlock on proposal by California Railroad Commissioner Whitsell that utilities gradually become "self-regulating" at least as far as rates, by having regular conferences with regulators when they believe a rate hike or reduction is in order (i.e. when they see their rate of return is rising above or falling below the level specified by regulation). Woodlock is intrigued but skeptical: "Common sense of the 'commonest' (because most uncommon) kind! But what are you to do about it when on the one hand commissions are afraid to talk across the table with utility companies lest they be accused of trafficking with 'public enemies', and on the other hand company managers are afraid lest they be walking into the spider's parlor? Your bureaucrat is of all men the timidest; he must shelter himself always behind formalities the while he professes to dislike 'star chamber' methods and talks gallantly of 'dealing in the open.'" In any case, this method is likely to work well when rate reductions are in order but to be greeted by howls of rage when a rate hike is called for.

Ray O. Hall, formerly of the Commerce Dept., charges deletion of statements from a Dept. report on topics including stimulus of tourist traffic to Canada caused by Prohibition, and influence of the impending tariff on imports.

Salvador Congress declares state of siege on request of the President.

This month marks the 100th anniversary of exhibition of the first successful reaper by Cyrus McCormick. An acre of wheat required over 64 hours to harvest in 1830; today it can be done in two hours 23 min. In 1820, over 83% of US workers were agricultural; by 1920 that fell to 26%.

US Geological Survey estimates world water power capacity at end of 1930 at 46M horsepower, up from 23M in 1920. N. America has 21.8M horsepower developed, and estimated potential of 69M; S. America 900,000 developed and potential of 44M.

"The man watching the ticker in San Francisco ... gets the results of a New York dividend meeting a fraction of a second after it is put on the wires; or before the sound of the New York director's adieu has reached his friend's ear. However, the inhabitants of Proxima Centauri, the nearest star (25,000,000 million miles away) have to wait about 4 1/2 years to get the same result."

New German light plane, the "Storm Bird," to sell for $228, $50 less than the cost of the average German motorcycle. The inventor, Fritz Koch, claims you can learn to fly it in less than an hour and has offered to qualify anyone as an amateur pilot for $1.25.

Japanese scientists have recently been investigating life histories of 14,000 citizens over 80 years old who were awarded special recognition by Emperor Hirohito when he gained the throne. The studies revealed that: 1) most came from families that also lived to old ages; 2) must belonged to the middle class, neither rich nor poor; 3) about half eat both meat and vegetables, with rice the staple of their diet; 5) about half of the men and 90% of the women never used intoxicants.

New building of Fidelity Nat'l Bank & Trust of Kansas City will be second-highest in Missouri at 453 feet (35 stories).

A member of the CBOT who owns a farm in North Dakota, after having a lunch consisting of a sandwich, pie and coffee, figured out that it had cost him what he would get for five bushels of rye from his farm.

An exclusive NY hotel is attempting to take advantage of the fascination guests seem to have with learning they are at the same hotel that "a Coolidge, a Lindbergh or an Einstein" previously selected. The hotel's president has commissioned several noted artists to preserve guests in oil, painting portraits for a "Gallery of Noted Guests" which will occupy a room just off the hotel's main lobby.

NY City death rate from Jan. 1 to July 4 rose to 12.24 per 1,000 from 11.72 in 1930 as a result of epidemics of influenza and measles.

Market commentary:

Market wrap: Wall Street was "riveted" on conferences regarding Germany at the BIS, but stocks "put up a good fight" considering disturbing developments overseas; major shares "at no time displayed disconcerting weakness." Stocks opened with substantial setbacks in major shares, and selling was fairly heavy. However, trading quickly slackened after the initial selling had been absorbed. "Rallying tendencies" developed at noon on unconfirmed reports of a $300M credit for Germany, but buyers didn't follow prices up; rally subsided in early afternoon, and prices settled into a narrow range with very light trading. Bonds generally lower on moderate volume; US govts. and highest-grade domestic were steady, but rest of the domestic and foreign list was heavy. Drastic declines took place in German issues, with many hitting record or several-year lows, but other issues showed "no evidences of unreasoning liquidation ... rather the list merely moved down gradually." Commodities very weak; grains down sharply, with July wheat hitting a new season low for the fifth consecutive day and, at the day's low of 50 7/8 cents, only two cents above the record low; Liverpool July wheat hit post-1593 low; cotton down substantially. Rubber, coffee and cocoa down sharply. Copper buying small; most producers ask 8 cents but some metal available at 7 3/4, equalling the record low of late June. Silver down 1/2 cent to 27 7/8.

Resistance of stocks to disturbing German news indicated "an undercurrent of confidence existed in American financial circles that a workable solution would be found for Germany's troubles." "At the same time nobody cared to extend market commitments on either side, preferring to await news."

Brokers report there's still plenty of bearishness among professionals, while public is largely on the fence. Those long the market are "very timid and are averse to increasing their holdings"; "at the moment, it is considered as a waiting market" until German financial status is more settled. "The timidity shown for the long side made for quick profits and rapidly changing market positions." The margin situation remains "as satisfactory as it has been in many a day."

"Interests in the Street" are accumulating amusement stocks on belief most of the industry's bad news is out of the way, and earnings in rest of year will make a much better showing. Dairy observers holding off on buying stocks due to uncertain price situation in dairy products; milk and butter have set new lows due to heavy overproduction. Meat packers' earnings likely to decline this year due to lower prices, though volume has recently been running ahead of 1930. IT&T believed likely to maintain dividend even though it's not currently being earned, "particularly in view of the fact that future financial needs undoubtedly will be looked after at times with stock issues." Telephone and telegraph business has recently shown "faint improvement from the low ebb of the last few months."

Even if bears are correct that the upswing since June has been "a rally against the main trend, and will be followed by resumption of the major decline," the general list still seems in line for a higher summer. Over the last decade, July and August have been months of rising stock prices; this was true even in 1930. With stocks in "the most liquidated position on record," they're well positioned to respond to seasonal improvement in business. This improvement could be stronger than usual due to the impact of the Hoover plan, to the "prolonged reduction in consumer buying to actual necessities," and to the purchase of govt. bonds by the Fed. Reserve, which "has in it elements of inflation," and, "if continued in good volume, ... could have a stimulating influence through pumping credit into industrial channels."

Analysis disputing Farm Board's solution to wheat problem consisting of reduction in wheat acreage to domestic requirements together with protective tariff. Argues that 20% cut in wheat acreage would do farmers more harm than good and also cause losses for business in general.

J. Edgerton, Nat'l Assoc. of Mfrs. pres., advocates thrift campaign on national scale as surest method of preventing another aggravated business slump.

Spencer A. Miller, Workers Educational Bureau of America pres., calls current depression worst since 1873, predicts another economic slump in 1938 equalling the current one in severity and breadth.

Economic news and individual company reports:

US Steel directors' meeting on July 28 seen facing far-reaching decisions on maintenance of dividends and wage rates. There is growing opinion that any cut in wage rates must be accompanied by one in dividends. It's still believed possible both will be maintained; while current level of business would seem to require cuts, US Steel management has shown courage in the past, and may act boldly to maintain optimism sparked by the Hoover plan.

Directors of the Bank of Geneva reached agreement with main creditors for immediate appointment of receiver; bank will remain closed meantime. Geneva State Council ordered investigation of the bank's activities in recent years. Losses in liquidation estimated at 40M Swiss francs ($7.740M); 18,000 depositors affected.

After months of delay, Australia seems to be adopting the “sound measures” recommended by Sir Otto Niemeyer almost a year ago to meet the financial crisis, including spending and wage cuts, a conversion loan for internal debt, and arrangements to ship gold to London to meet short-term debt that matured June 30. Problems attributed to “largely fictitious” postwar prosperity based on high wheat and wool prices and availability of foreign loans to maintain imports.

Canadian officials say Parliament will vote at least $50M in relief for farmers of Western Canada.

New Chilean cabinet being formed will commit itself to maintaining gold standard and fiscal discipline in order to ensure monetary stability.

Minnesota commissioner of state banks has established a department to help state banks improve their bond accounts and "to attempt to prevent the banks from again getting in the unfortunate position in which many have found themselves."

Life insurance cos. with assets of $18.9B and savings banks with $10.6B, through recently formed Emergency Committee, filed petition in favor of the rail rate increase with the ICC on grounds they own a combined $4.7B in rail securities in imminent danger of losing value.

Success of legislation against short selling believed uncertain at next Congress, in spite of two recent statements by Pres. Hoover indicating support.

Laborers on highway projects in White Plains guarded by state police "because of attempts of strikers to persuade them to join"; strikers ask $5/day instead of 40 cents/hour contractors are paying. Two Rhode Island textile mills on strike, over 2,000 workers affected; strike looms at third mill.

Federal Bureau of Roads estimates total Federal, state and local road construction programs for 1931 at $1.616B, up about $15M from1930; Federal aid for 1931 is $259.9M vs. $105.6M. First Nat'l Bank of Boston says annual cost of govt. has increased 300% over last 15 years, while population rose only 24% and national income 135%. Census Bureau reports cost of state govt. in 1929 was $2.061B, total revenue $2.059B, and total net indebtedness $1.662B.

California oil production increased 12,755 barrels/day in July 11 week. Pan American Petroleum has recently increased production of Venezuelan oil by 20,000 barrels/day; this is seen possibly disturbing the oil import situation; agreement between four major cos. operating there to curtail production and imports expired June 30. Conferences on shutting down Oklahoma City field continue. Operators in Kansas agree to shut down wells.

Rather technical editorial on the ICC's release of its valuation of railroad property, and on whether the rate increase case is an "emergency relief" or "fair return" case; upshot is that even under the ICC's conservative "fair return" assumptions, rails are entitled to the increase they ask for and now must simply prove an emergency to get an expedited decision. ICC total valuation for purposes of calculating fair return is apparently about $30B, or 25% over rails' total book value. Anticipated operating income of about $586.5M in 1931 would be a return of 1.95% on the ICC figure or 2.43% on book value, vs. the "statutory return" of 5.75%. In conjunction with rail rate increase case, ICC also launched investigation into practices of railroads that may cause "revenue leaks," such as services the rails perform free for shippers or consignees. ICC decision on rail plea seen possibly as far away as end of year. One of final obstacles to agreement at long last on Eastern rail consolidation is Pennsylvania RR's insistence on trackage rights over the NY, Chicago & St. Louis Rwy. (popularly known as the Nickel Plate) from Ashtabula, Ohio to Brocton, NY.

Mexican nat'l. employers' assoc. says production costs will be greatly increased if the proposed Federal labor law is enacted in current form. Mexican govt. says the law "is far from a menace to capital," and provides it with "guarantees which it merits"; defends collective bargaining provision and right to strike.

Philippines not nearly as hard hit as other countries by depression, says Gov. Davis; benefits from access to US markets; govt. maintaining balanced budget though 1931 tax revenues are declining and depression continues; total trade was 512M pesos in 1930 vs. 623M in 1929.

Canadian auto production in 1930 was 153,372 cars, down 42% from 1929.

Commerce Dept. says British iron and steel industry, despite strenuous efforts to rationalize industry in past few years, showed few favorable results this year.

Motorcycles registered worldwide at end of 1930 were 2.751M, up 5%; in the US 110,750, down 7%; world production 351,529; US production 23,500.

Reports indicate further delays in drawing up of NY City transit unification plan as disagreement on prices for IRT and BMT persists.

Glidden reports June sales were largest in company history, with increases throughout the country.

Companies reporting decent earnings: Kroger Grocery, Niagara Wire Weaving, Cream of Wheat Corp.

Movie:

The Secret Call - Paramount film, at the NY and Brooklyn Paramount theatres. Peggy Shannon is "fairly catapulted into stardom" as Wanda Kelly, replacing Clara Bow after she was removed from the cast. Vehicle is an old play that the adaptors "have endeavored to bring up to date by inserting references ... to the vice squad, city contract scandals and the like. The melodramatic conflict still remains the eventual discovery that the girl who once occupied a room at a hotel with the reforming Senator whom the graft ring is now fighting is none other than the daughter of the principal grafter, the wife of his political henchman, and the sister of the hero ... with whom Wanda Kelly, who is bent on exposing the grafter for framing her father and causing his suicide, is in love." [Note: Oldest plot in the book ...]

Jokes:

Customer - Do you give a guarantee with this hair restorer? Barber - Guarantee, sir? Why, we give a comb.

Teacher - What happened in 1809? Student - Lincoln was born. Teacher - Quite right! And what happened in 1813? Student - Lincoln was four years old.