July 15, 2010

Wednesday, July 15, 1931: Dow 140.85 -1.58 (1.1%)

Germany special:

German govt. has been forced to declare a two-day banking holiday after failing to get more aid from central banks. Berlin stock market likely to remain closed for the week. Reichsbank has obtained a short breathing spell by refusing to sell foreign exchange or issue banknotes, but Thursday brings a large demand for currency for weekend payrolls and unemployment doles. Banking circles in Basel believe Germany needs a credit of at least $500M. Central banks continue discussions there; US bankers are “awaiting construction of some definite plan by European bankers before extending cooperation.”

Breuning govt. seen carrying on without convening Reichstag. Former Reichsbank pres. H. Schacht, who reportedly recently joined the Hitler Party, has offered his services to Breuning and participated in recent discussions but there's as yet no question of him joining the govt. Nationalist Party requests reconvening of Reichstag; demands reconstruction of cabinet on “broader basis,” interpreted as demand to include Nationalists and possibly Fascists.

Reichsbank is discussing proposal to issue "Rentenbank notes" which would be good only for internal circulation and could be backed by the industrial guarantee to the Gold Discount Bank. Alternative is a moratorium, but govt. fears resulting "political and social disturbances." Some official circles are bitterly opposing the proposal due to inflation concerns.

Reichsbank reserve ratio is down to the legal minimum of 40% for the first time since reorganization of the Reichsbank in Oct. 1924; banknote circulation is 4B marks and reserves 1.6B, including 600M of foreign credit.

German banknote circulation hasn't gone down in the normal seasonal way since June 30. [Note: I wonder why ...] “Commodity prices are unchanged, with transactions infrequent. Hoarding of mark notes is general.”

Washington - “The present German situation is viewed here by informed quarters as a banking crisis inside Germany. There is no occasion for exaggerated anxiety.” While the banking situation has caused “a panicky feeling among the German people, ... the German govt. itself is in no financial difficulty.” Hoover plan is now definitely in effect, and this is believed to have “taken most of the dangerous strain off the general situation.” Confidence is felt that steps taken by German govt. will halt capital flight and “pave the way for assistance to Germany on a sound basis.” “Sen. Copeland (D, NY), after discussing ... the German financial situation with Pres. Hoover, declared that he felt better ... than he did before his visit to the White House. He called at the White House mainly” to invite Pres. Hoover to the opening of the Waldorf Astoria on Sept. 30.

German crisis traced to three causes: “over extension” of some German banks; general German banking practice of financing foreign bills; and previous experience of German people with mark depreciation, leading to capital flight. Panic was temporarily stopped by Hoover plan, but delays in finalizing it renewed the flight.

C. Moret, Bank of France Gov., returned to Paris from Basel, informed govt. he was in complete accord with decisions of the BIS on the German crisis.

State Dept. said it had word from Vienna that Austria didn't expect to declare a moratorium. Austrian banks and the stock exchange remain open; the Mercurbank, a Darmstadter Bank affiliate, was closed to prevent a run but it was announced the bank was solvent and would reopen in a few days. Banks in Hungary closed until Friday by government decree. Action was a shock to business world; it was reportedly taken on advice of the BIS to prevent crisis similar to current German situation. Two Latvian banks suspended; govt. guaranteed deposits except those in foreign countries. Banks in free city of Danzig [now Gdansk] restricted withdrawals and payments to 10%; shipping seriously hampered.

Foreign exchange “highly irregular” as traders awaited German developments; sterling fell sharply and more gold was exported to Europe. Quotations on marks continued to be “highly nominal” about $.2150.

Assorted historical stuff:

Sec. of State Stimson expressed deep satisfaction with visit to Rome; said discussed matters of interest to US and Italy with Premier Mussolini and FM Grandi “fully and frankly and with the utmost friendliness”; despite earlier insistence he was only in Italy on informal vacation trip [note: sneaky!]. Particularly satisfied with Italian position on upcoming arms conference in Geneva and Italian agreement with the US on many aspects of arms limitation.

Lord MacMillan's Committee on Finance and Industry calls on world's central banks to cooperate in breaking back of depression; insists prices must be raised toward the 1928 level; calls for giving Bank of England greater freedom of action. Recommends central banks act together to maintain stability of world prices, with frequent coordination to decide whether “general tendency of their individual policies should be toward relaxation or tightening of credit.” At present, “central banks should favor a persistent and determined policy to maintain an abundance of cheap credit,” and persuade member banks to reduce rates paid on deposits in order to discourage the public from “withholding their resources from the investment market.” Says Fed. Reserve can help other central banks by buying securities, driving down long-term interest rates and bringing revival of new enterprise. Hits French and American gold hoarding; argues gold standard no longer works automatically but needs international management. Lord Bradbury dissents, blaming Britain's troubles on unproductive debt, lavish govt. spending, and too high a living standard.

Shipping traffic at Shanghai, world's third-largest port, tied up by pilot's strike; disagreement concerned changing of fees from silver to gold basis.

Denmark protests Norway's "occupation" of East Greenland to Permanent Court of International Justice.

Bolivia and Paraguay accept Argentina's offer to negotiate dispute over Chaco Boreal.

Labor Sec. Doak and Commerce Sec. Lamont met with John. L. Lewis of the United Mine Workers and other officials of miners' unions regarding coal industry problems, following up earlier conference with coal operators.

Pittsburgh coal operators are experimenting with a new process for cleaning coal using petrolem, which is said to reduce sulfur content to 1/2% and ash to 5%.

Snail beats plane. The British Royal Air Force field at Lake Habbaniya near Baghdad recently was overrun by countless snails. After all means failed at eradication, the Royal Air Force had to pack up, planes and all, and move to another base.

Absence of US visitors to Europe is very noticeable this year; in the West End of London, streets like the Haymarket that normally swarm with tourists at this time are visibly deserted; British theatres and restaurants are markedly lacking in American business. One musical comedy in London features a skit in which "an American visitor to a night club is made much of and pointed out as ... almost extinct."

The Mexican army reportedly pays little attention to deserters since recruits are easily had and most rejoin the service anyway. Most of the shifts occur when soldiers are assigned hard labor such as building roads; another cause is transfer of officers, since loyal troops desert and reenlist at the officer's new location.

Life Magazine notes that gifts to Vassar in the past year were about a third of a million dollars, while at Harvard they were $14.5M. "Women are supposed to control the spending of 85% of the nation's income. When are they going to insist that the education of girls is worth at least as much as the education of boys?"

"Flapperism dates back at least 3,000 years" according to the contents of a prehistoric grave recently excavated near Egtveed, Denmark by the archaeologist Thomsen. Relics in the grave revealed that "girls of 3,000 years ago bobbed their hair, wore short skirts that barely came to their knees [note: gasp!], used rouge and lipstick of a sort, and donned flashing ornaments to lure the attention of members of the opposite sex."

NY City's black population increased 115% in the decade vs. 21% for the white population. Most NY'ers under 34 are US-born, most over 34 foreign-born.

Richard T. Campbell, veteran floor supervisor of the NY Stock Exchange, given 3 month leave of absence after completion of 50 years' continuous service.

Market commentary:

Market wrap: Stock traders again appeared to be in "watchful waiting" mode regarding the European situation; prices dragged lower on trading that, for most of the day, was the "in the smallest volume for some time past." A brief rally took place in the final hour on news France had notified the BIS it doesn't expect Germany to make reparations payments Wednesday, making the Hoover plan immediately effective; however, gains didn't hold and trading again turned dull. Bond trading showed only a moderate total volume, but foreign issues broke severely with all but the highest grade issues carried into new low territory in a series of sharp breaks; losses of five to 15 points were numerous. German bonds led the plunge, but the reaction extended to other European and to Asian issues, while the S. American group "showed wide losses in an almost unbroken wave of liquidation." Domestic issues were quiet and irregular, with the list showing many moderate losses. Commodities soft; wheat fell to new season lows for the sixth straight session; other grains narrowly mixed; cotton slightly lower. Copper held at 7 3/4 - 8 cents; with consumers covered for months ahead, buying is light in spite of record low price.

Conservative observers less cheerful than a week ago, as market action has not encouraged public participation. Advise remaining on sidelines, while admitting market has shown good resistance to recent foreign developments. Most interests believe reaction to Q2 earnings will indicate what to expect in near future.

Professional traders were "conspicuously absent in the market" as most preferred to wait for actual news developments rather than let speculation run ahead; "disappointments of the last two weeks in debt negotiations were factors contributing to this mental attitude." "Several important operators" remain on the sidelines; optimists are awaiting the publication of Q2 earnings reports before buying, while pessimists are still inclined to look for lower prices, believing industrial improvement this fall will not be as strong as anticipated.

Krueger & Toll certificates were pressured, falling as low as 18 1/8 or 2 points below Monday's close; International Match was also lower; these companies hold substantial foreign govt. obligations and so are suffering from foreign uncertainty.

IBM is one of the companies that reported higher earnings in 1930, and "interests close to" the company say results have continued to improve in the first half; outlook for immediate future considered bright. NCR has lost some advocates on concerns over foreign sales due to disturbed conditions. General Foods is growing more popular with investors; first-half earnings were slightly down but revenue is stable and the company is seen doing well in depression years.

"With oil prices down to almost an irreducible minimum, fundamental conditions in the industry are such as to favor improvement, although it still is problematical as to how soon betterment will develop. ... There is no question of the ability of the great majority of the well-managed and conservatively operated oil organizations to emerge from the current situation with their physical assets intact and their liquid condition sound." Leather and shoe shares have been more active, based on improvement in the industry. Hide prices last week rose to a new yearly high of 11 cents/pound vs. a low of 6 1/2. Shoe production has gained substantially in recent months, with May above the 1930 level. Shoe prices have been declining until recently but manufacturers have now warned retailers a price rise may be near.

Volume is now being closely watched, with bulls attaching some significance to recent tendency of volume to dry up on reactions. In the past, volume has frequently indicated the next trend, "but this is not a sure sign by any means."

Editorial: Wisconsin, "laboratory of law and social control," has passed a state law regulating sale of fixed investment trusts [similar to ETFs] that goes well beyond the NYSE policy of enforcing full disclosure. It includes arithmetic limits for charges and prohibits some dividend-related practices. Most strikingly, it also makes the state securities commission responsible for setting a "reasonable price" for trust shares based on earnings of the underlying securities and other relevant facts. If other states adopt similar laws this could lead to absurdities such as arbitrage operations across state lines. "It may seriously be questioned whether any state tribunals are competent to assume the function of security price-fixing." The NYSE approach of "searching publicity and a reserved and continuing power of criticism" should lead to "a more practical and effective standardization."

C. Classen, Farmers Nat'l of Omaha pres., points out encouraging factors in farm situation; notes about 60% of farms are owned clear of mortgages and only 20% of remainder are giving trouble, meaning 92% of farms are "managed well enough to weather depression, low prices, drought and political foot-balling." Says farming, like any other business, responds to good management. A. Legge, Int'l Harvester pres. and former Farm Board chair., says farm income currently down, but "looking ahead, I cannot see any industry which has a better future than the great basic industry of agriculture." Believes solution to farm problems lies in collective regulation of production and distribution; process is under way and definite progress is being made. Charges "noisy criticism" of govt. efforts to aid farmers comes largely from a small number who would profit "if the farmer really did become a serf or a peasant."

"Profligate" British "dole" seen likely to undo Labor govt. The unemployment fund deficit is mounting at 1M pounds sterling a week; "at the same time, the annual budget is carrying an appropriation of nearly 40M pounds a year to pay doles to those persons who should by all actuarial tests have ceased to receive benefits from insurance long ago." "Finance has more than once proved the Achilles heel of Democracy as ex-Premier Baldwin warned ..."

Letter to the editor arguing that "high wage theory" of maintaining demand is counterproductive since it leads to substitution of "capital investment and ingenuity of management for the high-priced labor," and to switching to lower-priced alternatives.

G. Putnam, Incorporated Investors pres., says due to widespread stock ownership by people who have better things to do ("are primarily concerned with their regular occupations"), the market has apparently switched from anticipating changes in business to reacting after they take place.

Economic news and individual company reports:

Encouraging signs have appeared that the Fed. Reserve policy of buying govt. bonds to increase volume of credit outstanding is meeting with some success. In week ended July 8, "all other" (commercial) loans increased, against the usual seasonal trend, and holdings of non-govt. securities rose $61M, the first significant increase since Apr. 22; it had been hoped the Reserve policy would "cause member banks to invest more boldly in non-govt. bonds, since such investments would tend to distribute credit where it was most needed and would also help the bond market."

The electric industry is now the fifth largest in the US, with total fixed capital of $9.5B invested. Earnings and operations have been relatively stable in spite of the severe depression of the past 18 months; despite very low industrial production, total sales of electricity are running only a few percent below the record highs of 1929. As a result, securities of the leading electric utility and holding companies are highly regarded and the better companies have little difficulty in financing themselves on favorable terms. French electric industry has continued to show gains in earnings although the depression "began in earnest for France during the second half of 1930."

Sales and earnings of leading department stores including R.H. Macy and Federated are holding up fairly well this year considering business conditions; in most cases unit sales are up but dollar sales are down due to lower selling prices. Business in June showed encouraging upturn after a poor May. Earnings for the full year are hard to predict since 75% or more are made in the fourth quarter.

New securities listed on the NYSE in June were $314.0M vs. $236.1M in May and $783.8M in June 1930, of which bonds were $279.4M vs. $214.3M and $122.2M and stocks $34.5M vs. $21.8M and $661.6M.

Refineries ran at 65.9% in week ended July 11 vs. 63.8% prev. week; stocks of gasoline fell 1.356M barrels to 38.342M (decline prev. week was 2.170M). Crude oil production in week was 2.545M barrels/day, up 62,150 from prev. week and up 13,850 from a year ago. East Texas oil area seen dominating the oil situation for some time due to low drilling costs and huge size; the latter makes curtailment more difficult. Texas Legislature convened in special session Tuesday; Gov. Sterling urged enactment of laws to conserve oil, gas, water, minerals and soil of the state; urged action to prevent further depletion of the soil, which has deteriorated badly in some sections. Major West Coast oil cos. took one of their "most decisive and cooperative moves" to stabilize retail gasoline prices by placing distribution under tight control, with no price concessions and retail prices dictated by the companies.

Rail freight loadings for holiday week ended July 4 were 667,879, down 91,411 from prev. week, down 15.6% from 1930 week, and down 26.6% from 1929; decrease from previous years would have been greater if not for July 4 falling on Saturday this year. Interesting Q&A with T. Woodlock responding to a number of rather heavy-breathing accusatory questions about the railroads from a reader.

Machine tool market seasonally softer in past week; there's hope for a pickup in the fall but some centers aren't expected to show real upturn until 1932.

Sen. George of Georgia joins Democratic colleagues urging Pres. Hoover to lower tariffs using flexible provision of law.

Corn crop is in excellent condition; depending on weather over the next six weeks, a near-record crop over 3B bushels may develop. Agriculture Dept. reports index of farm wages July 1 was 123 vs. 127 in April and 160 a year ago; lowest level in 15 years. Return to the farmer on rye is about 10 cents/bushel (price at Chicago is 31 cents, minus 10 cents shipping, and minus other charges). At estimated yield of six bushels/acre, return per acre is about 60 cents.

Russian grain outlook doesn't appear very promising; condition of crops is reported average or below average in most sections.

Fourteen major industrial lines in Japan are operating under agreements to curtail production. There are now 132 industrial guilds in Japan; these are “district organizations of small manufacturers of similar products who band together to eliminate competition, standardize production,” etc.

Johns Hopkins Univ. of Law survey of 527 cases finds about average of about 70% of judgements awarded in civil cases goes to pay cost of litigation.

Earnings reports: AT&T Q2 $2.38/share vs. $2.77; half $4.89 vs. $5.72. Colgate-Palmolive-Peet half $1.69/share vs. $1.66. Western Union Q2 $2.93/share vs. $3.05; half $4.15 vs. $4.81. Otis Elevator Q2 $.64/share vs. $.66; half $1.33 vs. $1.49. Lincoln Printing half $2.15/share vs. $2.12. Dresser Mfg. half $2.12/share vs. $2.14. Sweets Co. of America half $.72/share vs. $.45.

Companies reporting decent earnings: Colgate-Palmolive-Peet, Otis Elevator, Dresser Mfg. (pipe fittings and couplings), Lincoln Printing (largest financial printer), May Radio & Television, Sweets Co. of America.


After a successful season as co-producer and star of You Said It, Lou Holtz returns to the Palace this week to resume his popular role as "master of ceremonies and perpetrator of comical nonsense." He brings Lyda Roberti, the comedienne from You Said It, who sings hits from the show and "renders in her own intriguing manner one of the 'hot' numbers recently made famous by Cab Calloway." Mr. Holtz is on and off the stage throughout the largely comic show, "introducing acts, pointing the spotlight at ... notables in the audience, adding his personal word to the applause ..., telling Jewish jokes, enacting sketches ... and even distributing ice cream to the favored few in the front rows of the orchestra.


Farmer's Wife - Dear, tomorrow is our 10th wedding anniversary. Shall I kill the turkey? Farmer - No, let him live. He didn't have anything to do with it.

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