Tuesday, July 7, 1931: Dow 152.80 -2.46 (1.6%)

Assorted historical stuff:

Pres. Hoover announces debt moratorium proposal accepted in principle by all important creditor govts. French acceptance involved some technical changes that must be approved by other countries, but substance of proposal retained. Agreement "morally in effect as of July 1." Proposal means some sacrifices by US and allies to lighten load on Germany and Central Europe. Hails almost unanimous support in US as evidence of "sincere humanity of the American people." Plan is mainly economic, "yet economic means the swinging of men's minds from fear to confidence, the swinging of nations from the apprehension of disorder and government collapse to hope and confidence of the future."

Editorial: "Grandiose schemes of public works ... to pull the US up out of depression are steadily increasing in number"; while still vague, they "are gaining somewhat in the respectability of their support." The next session of Congress will certainly spend much of its time considering such measures, so an advance examination is in order. "It should begin with the fact that 5M or 6M workers are unemployed at present," most of whom are likely to remain so through winter; "next comes the justifiable assumption that these men and their dependents are going to be fed and sheltered, as they ought to be, by one means or another. Whatever the country can obtain from them in useful services ... will be net gain for all concerned." Therefore, supporting them through public works that produce "results of economic or social value is preferable to outright charity." However, financing such a program without creating hardship for existing private businesses "presents huge difficulties" that "proponents ... like Norman Thomas and William Randolph Hearst ignore. Bond issues and taxes mean the withdrawal from private enterprise of funds which would otherwise be available to it"; they also increase "difficulties which states and municipalities have already begun to encounter in balancing their budgets. ... Nor can the extremely slow pace at which all government machinery moves be overlooked." An AIA officer estimates $500M has been appropriated for federal buildings that won't be used "until the emergency is passed. ... Why talk of federal bond issues in gorgeous sums ... while the government has hundreds of millions ... authorized which it cannot get in motion in any quicker tempo than that of a glacier?" Proponents of a huge new program should instead try to cut "the red tape which binds what Congress has already tried to do" or concede that reemployment is a task govt. "should encourage and assist private enterprises to perform."

Indiana Sen. Watson, Republican floor leader, says most important legislation confronting next Congress will be bills to put trucks and buses under ICC authority.

Worldwide total of motor vehicles registered Jan. 1 was 35.805M, of which 26.697M was in the US; US has 4.59 people per vehicle vs. 200 in rest of world; Canada and New Zealand were second to US with 8, followed by Australia with 11; fewest vehicles per capita in Yemen, Oman, China, and Ethiopia.

[Note: Stalin - inventor of perestroika?] "Under the impetus of a pronouncement by Joseph V. Stalin," Russian industrial policy is making some important changes, including: 1) "obliging every Soviet enterprise to justify its existence by earning profits"; 2) giving higher wages to workers of greater ability, ceasing discrimination against efficient non-party workers in favor of Communists, and giving "wider scope ... to individual initiative"; 3) abandoning "unwieldy trusts" in favor of "smaller, centralized management." Soviet officials denied any compromise with capitalism, saying the proposals, on the contrary, were intended to complete more quickly the process of industrialization in order to form the basis of a real Socialist state.

M. Petsche, French Under-Sec. of State for Beaux Arts, announces annulment of French licensing plan for film imports and free entry of foreign films originating in any countries which impose no restriction on entry of French films.

Corn Products Refining Co. fined $5,000, in victory for Federal effort to penalize companies providing supplies for making of illegal alcohol.

The newest Army "single-seater pursuit plane," the smallest craft produced by Boeing, contains over 30,000 different parts. There are "519 different kinds of raw material and 813 different kinds of finished or semi-finished parts," not including engines and instruments.

One agricultural industry that seems to be on the upswing is sod. Many farmers in NY and NJ have recently switched larged acreages from grain crops to growing and selling sod for golf courses, cemeteries, lawns and parks; prices are 2 - 6 cents/sq ft, and some farmers claim to be making $500 - $1,000 an acre.

Pennsylvania RR broke all records for Fourth of July travel, carrying over 140,000 passengers to and from New Jersey resorts over the weekend; this more than doubled the total from last year.

Editorial: "The other day the British House of Commons staged a genuine rough-and-tumble row." This story was a welcome diversion from the grim run of everyday news; "few there are who will not wish they might have had ringside seats." On a deeper level, however, "this row should make us feel that the British are our brothers. They act just like us and even conduct their parliamentary proceedings much after the manner of our own Congress. ... It is true we have seen others act as we do; we have read of free-for-all fisticuff discussions in the French and Italian chambers. But of England, the country of the author of Martin Chuzzlewit, who could have thought it?" One of the 8-day around-the-world fliers "said that so far as he could see people were the same the world over regardless of race or nationality. That was a pretty hard thing for a great many Americans to understand who, perhaps from an inferiority complex, try to make themselves believe we are superior to all others. ... that incident in the House was ... of great benefit to American conceit, for if it did not raise us up it at least pulled the Briton down to our level of correct parliamentary procedure."

Market commentary:

Market wrap: Stocks again fluctuated along with progress of debt negotiations. Opening was weak on reported hitch in the talks; however, initial setbacks in first hour gave way to extreme dullness and then a recovery about 11 o'clock. Rally strengthened around noon after optimistic statement by Under-Sec. Castle; Chrysler and Woolworth were subject of bullish demonstrations. Unsettlement returned in late afternoon following sharp break in wheat markets, and market turned generally reactionary. Bond trading quiet, prices somewhat lower; foreign issues accounted for much of the trading and showed particular weakness, led by German bonds; US govts. steady; domestic corp. high-grade issues were fairly steady while second-grade were weaker, though second-grade rails held relatively strong. Commodities weak; grains off, with wheat hitting new season lows on heavy receipts of new winter crop - Chicago July wheat hit post-1895 low of 55 cents; cotton down substantially. Copper remained at 8 1/2 - 9 cents though it was reportedly "offered ... quietly at 8 1/4"; buying small. Silver fell 3/8 cent to 29 3/8.

"Conservative observers see little in the present market upon which to base new trading commitments." Market will apparently require "new stimulus" to continue recent gains; at the same time, customers are warned against short sales until business response to efforts to improve German situation is clearer.

Q2 earnings estimates are coming more frequently, and the first reports will appear within a week or two. These are widely expected to be unfavorable, and some traders are shorting stocks in anticipation. "However, there is a growing opinion that dismal earnings statements will not prove to be the shock bears expect" since stocks "have had ample time to adjust themselves to the outlook"; also, greatly improved sentiment in the past two weeks has produced "many potential investors ... anxious to acquire representative shares on price recessions." On the other hand, there is the disturbing example of Q1 earnings reports in April, which were followed by a selloff in spite of generally being no worse than predicted.

Trading was very dull, with total volume of about 1M the lowest since the 900,000-share session on June 17. Friday's session ended with good gains in rails and industrials, but both fell short of attaining new highs on the recovery since June 2; analysts believe a move beyond this level would indicate further general gains. Short interest appears considerably reduced; many traders who tried to pick the top of the rally apparently were discouraged by the market's good support and covered their commitments. National Biscuit broke to record low for current shares on expected unfavorable Q2 earnings.

Bears believe positive influence of the Hoover plan has been "fairly well spent" and market will sell off sharply on announcement of a final agreement. Bulls admit market may "sell off on the good news" but believe improved sentiment due to Hoover plan should be a continuing factor in helping to accelerate world trade.

Rather technical editorial by T. Woodlock on the rail rate decision facing the ICC; case is difficult with "room for infinite dialectics on both sides"; however, "heart of the matter" is "whether carrier revenues are not so far below a sufficient amount as to make it its duty under Section 15a to permit an increase in the freight rate structure" and "no amount of argument will avail to obscure or remove it" [Note: well, that clears that up!]

Letter to the editor asking "why, with an excellent decimal system of currency ... are stock and ordinary bond quotations given in whole numbers and eighths ... US govt. bond quotations in whole numbers and thirty-seconds, and foreign exchange rates in mongrel forums such as 4.86 11/32?" Calls for using straight decimal system to simplify records and computations. [Note it only took another 70 years to do this for NYSE stocks.]

Harvard Economic Society says Q2 had "brought some signs that the great depression had about run its course ... but in June the outlook was suddenly clouded by an acute situation which developed in Germany which has now led to Pres. Hoover's proposal for a moratorium." Believes the moratorium will "probably restore exchanges to a balanced condition for the coming year, check the inflow of gold into the US, remove pressure from commodity markets, restore confidence, and, finally, impress everyone with the need of solving permanently a major difficulty which for a dozen years has hampered the trade of the world."

Long-term effect of the Hoover plan is "likely to come chiefly from its firming influence on commodity prices" which is already apparent in many commodities and has caused increased activity in some lines. "Psychology has a tremendous influence on material purchasing. The spectacle of firmer prices is counted upon to have a cumulative effect on demand pent-up by the paralysis of fear that existed for so many months. Once the buyers' strike is broken, momentum should accumulate on the constructive side" as it did during the downward cycle. Increased credit for debtor nations may also improve demand.

Observers optimistic on world trade "contend that some measure of inflation, of necessity," must follow the debt moratorium, concentrated in "commodities with a worldwide market." Many economists believe "the signal for inflation has already been given in the increase in this country's national debt," pointing to the decline in commodity prices in 1921-30 "in sympathy with the new contraction of credit resulting from the Treasury's reduction in the war debt."

A. Robertson, Westinghouse chair., notes “paternalistic proposals that big business, or the government, assume many of the obligations formerly recognized by the individual as ... his own responsibility.” However, business, far from being immune to depression, is “just about as helpless as the employee.” Rights of stockholders are also in danger of being ignored. Country will weather the storm; “certainly the worst is behind us” and at least some lines have started to improve.

Nat'l Conf. of Business Paper Editors survey finds business now in "the condition that generally precedes an upturn"; replacement buying can't be delayed much longer; increase in production and distribution already apparent in some lines.

Economic news and individual company reports:

German capital flight intensified, with a loss to the Reichsbank of 60M marks ($14.4M) reported Monday; attributed to drawn out debt negotiations that harmed confidence both in and out of Germany. Reichsbank drew for the first time since 1924 on the $50M credit that its Gold Discount Bank subsidiary had with a syndicate of 30 US banks. Marks dipped close to the gold export point and pounds were soft while guilders and Swiss francs advanced sharply.

Drought in Western Canada has reduced wheat crop to not much more than half of normal. Some estimate population in dire need at 100,000 while others place it much higher; Federal assistance expected soon; discussions ongoing on “financial tangles” of wheat pools, which are near collapse.

Rogers Caldwell, formerly one of the South's leading financiers (as head of the large Caldwell & Co. investment bank that collapsed last Nov.), found guilty of fraudulent breach of trust in connection with $200,000 bond transaction; verdict carries sentence of up to three years.

Market value of NYSE-listed shares July 1 was $47.417B, up $4.883B from June 1; borrowings by NYSE members fell $43.4M to $1.391B or 2.93% of total share value, both record lows.

Col. Robbins, Amer. Life Convention pres., notes recent improvement in insurance business from early months of the year; "much lapsed business has been revived ... and many policy loans are being paid off."

East Texas oil producers generally dissatisfied with new Texas Railroad Commission order setting limit of 250,000 barrels/day with limits based on 20-acre units. Oil being sold as low as 8 cents/barrel, average about 12 cents. East Texas has favored the special legislative session to be called by Gov. Sterling, and oil men are confident of quick passage of a tougher curtailment law.

Fisher's wholesale commodity index rose for the third consecutive week for the first time in 1931, to 70.6 vs. 70.3 prev. week.

Following conference of almost 2 hours with Vice President Curtis and Sen. Capper, Farm Board chair. Stone says Board won't make any immediate sales of wheat at current prices. Curtis says not entirely satisfied, would have preferred Board name a minimum price of 85 cents or $1. Heavy rains in drought-affected areas of North Dakota and Montana arrived too late for crops but should help revive ranges and lessen emergency movement of livestock.

Swedish Board of Trade reports no sign of improvement in conditions in past quarter; position of some industries has deteriorated further. Industrial employment in Q1 fell to the lowest level since 1922. Export trades are main sufferers, but domestic industries increasingly affected.

Dow Service reports new building permits filed in NY City in first 6 months of 1931 totalled $194.6M vs. $162.0M in 1930.

NY Gov. Roosevelt says highway construction has been speeded up, and is providing work to thousands more than in previous years; state will spend about $58.3M on highways this year vs. $50.7M last year.

Alaskan mineral output in 1930 totalled $13.812M vs. $16.066M in 1929; gold was $8.476M vs. $7.761M.

450 employees of Northern Indiana Rwys. make voluntary request for wage cuts until company business improves.

Chase Nat'l Bank reports first-half deficit from operations of $14.8M.

Retail sales reports: Woolworth - June $22.0M, up 6.1% from 1930; first half $130.3M, down 0.8%. S.S. Kresge June $11.9M, up 4.3%; first half $67.2M, down 0.3%.

Procter & Gamble likely to report record earnings of about $23.250M or $3.50/share for year ended June 30 vs. $3.37 prev. year; sales will be about equal to prev. year's $203.4M; higher profit margin attributed to control of operating expenses and low raw material costs; increased dividend anticipated.

Household Finance likely to report record first-half earnings of about $2M, up 7% from 1930; has 295,000 loans outstanding, up 12% from a year ago; average loan size $202; collections continue at a normal rate.

Companies reporting decent earnings: Procter & Gamble, Household Finance, Alaska Juneau Gold Mining.

Joke:

"'I don't see what you find so attractive in that young man. He is neither handsome nor intellectual.' 'No, but he has the reputation of buying lovely engagement rings.'"