Wednesday, July 22, 1931: Dow 146.70 +2.22 (1.5%)

Germany special:

Pres. Hoover proposes that banks and leading financial institutions worldwide maintain current short-term loans to Germany, that the Reichsbank keep strict control over foreign currency, and that a BIS committee be appointed to work out details of converting short-term loans to long-term and additional credit needs. Theory behind the proposal is that fundamental problem has been relieved by Hoover debt/reparations moratorium, but crisis has flared up due to heavy use of short-term foreign credit by Germany and to capital flight from within Germany; if these factors can be relieved, the emergency can be overcome. No new credit is contemplated until after the BIS committee studies details of the proposal. Sec. Stimson says "problems are becoming clarified. There are better prospects than ever for a successful solution."

Total outstanding short-term credits to Germany are about $1.2B, of which the US has about $600M and France $60M. Reports on reaction of US banks to new Hoover proposal are somewhat confusing. One report indicated willingness to cooperate, probably realizing that "to try to get money out of Germany now would accomplish nothing except to precipitate a crisis." Another was more skeptical, seeing the proposal as not marking any new development but merely official recognition of a policy NY City banks have already been following. Finally, it was observed that transfer of about $300M in NY City bank funds now loaned to Germany from current to long-term assets “would not be a step to be welcomed.” British bankers believe basic problem is excessive debt owed by Germany; before granting further loans, call for long-term extension of Hoover moratorium, or complete cancellation of debts if possible; this would reestablish confidence in Germany as a sound borrower. France rumored willing to replace German political guarantees with financial ones in exchange for long-term loan; also reportedly agreeable to new Hoover proposal.

German Fin. Min. Dietrich says by contrast with 1923 crisis, Germany now suffering from deflation due to loss of gold reserves to cover banknote circulation; for example France, with population a third smaller than Germany, has over twice the currency in circulation. Expressed hope for new era of French-German collaboration and said Germany is acting in good faith. Germany will give priority to paying private loans [I think this means bonds sold to private investors] rather than short-term foreign loans. Replies “diplomatically” to questions on French request for pledge that reparations will be resumed in a year (“to what extent payment of our political debts is possible in addition to our payments of the private debts cannot now be discussed”), on German attitude on suspension of “pocket battleship” (to avoid being left defenseless, Germany must take advantage of limited opportunities in Versailles Treaty), and on French request for 10-year “political truce” including pledge not to seek modification of Versailles Treaty (determined to pursue objectives only by peaceful means but can't state attitude on the request).

German inter-bank Clearing House began operations; transfers by bank clients between accounts at separate banks limited to 15,000 marks/day to protect less secure banks from complete loss of accounts to other banks.

The German crisis is causing all sorts of temporary hardships for individuals. People who are helping German relatives are scrambling to find sure ways to deliver funds to them; some are resorting to hand delivery through people living in neighboring countries or now leaving for Germany by ship. German lard imports, which had been running at 4M-5M pounds a week up to a month ago, were down to 263,000 pounds last week; lard is commonly used instead of butter in Germany, and is bought on a cash basis.

Heavy Bank of England gold losses continue; 2.8M pounds sterling was lost to Europe, making a total of 10M since the break in sterling a week ago, and London expects French withdrawal of 2M pounds daily for rest of week. Money rates rising in London and possibility again discussed of Bank of England rate increase. Strain attributed to conversion of sterling paid out by German banks into other currencies and to withdrawal of French balances. London banks “quietly preparing to meet any eventualities.”

Assorted historical stuff:

Over 100 injured by "bricks, chairs or fists" in free-for-all battle between members of United Mine Workers and National Miners' Union as group of almost 1,000 from the latter attempted to break up meeting of the former.500 striking miners, with their families, marched to Steubenville Ohio "demanding relief from starvation conditions in the mine fields. There were no disorders." Strike of 15,000 miners against the Pittston Co. believed averted by vote of the local unions. Editorial: In West Virginia, two miners recently were killed as they tried to abandon a strike and return to work; on the same say a member of the “insurgent” National Miners' Union was shot dead in Ohio when pickets collided with working miners. This continued the intermittent bloodshed of the past weeks in the “desperately 'sick' ... coal industry.” Notes study by the Russell Sage Foundation saying industry's can't be solved until both miners and operators are organized so as to be able to work together. However, mine operators have been wary of recent govt. efforts to draw them into conference on current labor troubles; this is likely due to fear of pressure to re-unionize mines while competitors in South remain non-union; in 1924, an agreement to maintain United Mine Workers wage scales led to heavy losses of business to Southern mines and also damaged the union, giving a foothold to the “apparently communist-inspired National union.” Operators should attend a conference but be given guarantees against a repeat of the 1924 episode.

Editorial by T. Woodlock: City-owned utilities should charge enough to give a fair return on investment; otherwise, consumers are favored at the expense of other taxpayers. "It is very important that, if we are going to have extensive experimentation in 'public' competition with 'private' clients, we have a proper 'ring' and proper rules with no favor to either contestant."

Argentine govt. sends batallion of infantry and several bombing planes to quell revolt at Corrientes.

Chilean cabinet resigns for second time in a month.

Assoc. Gas & Elec. has recently completed two large and unusual power projects: the Saluda Dam in S. Carolina that created the 78-sq mi Murray Lake, the world's largest man-made lake, with a 763B gallon capacity, and the Botocan plant 55 miles from Manila "in one of the wildest regions of the Philippines."

The US contributed $1.050M this year for an improved highway in the Panama Canal Zone, to be part of a highway extending from the Southern tip of South America to the Canadian border, and ultimately to the Northern edge of Alaska.

Michigan oil well fire that had blazed since Saturday afternoon finally extinguished using steam; fire took nine lives.

The Hoover debt moratorium plan cost Uncle Sam $7,000 in telephone bills, mostly for calls between Hoover and Sec. Mellon in Paris at $10/minute.

Miniature golf, that raging fad of last year, has passed from fashion with stunning speed, to the sorrow of thousands of course owners. Last year the wait to play was often hours at popular courses; now most courses only have one or two people playing.

NY Mayor Walker, marking start of work on the colossal $300M city sewage treatment plant, recalled happy days of his boyhood when, along with friends, he swam and caught fish off the metropolitan wharves, "that era of life giving way to pollutions not merely of the immediately local waters but of tides swinging far distances away."

NY Mayor Walker officially opens the Columbia Broadcasting Co.'s first nationwide television broadcast Tuesday; the station, W2XAB, "will give a daily sight and sound program beginning Wednesday."

Market commentary:

Market wrap: Stocks opened dull with narrow movements on report of adjournment of the London conference until afternoon. However, favorable foreign reports of a possible $1B German credit turned the market sharply upward about 11 o'clock; extensive advances came on relatively light volume, and new rally highs were reached in majors including Steel, AT&T, and NY Central. Setback came about noon on report of Hoover proposal that banks maintain current credits, which was taken to indicate possible delay in new loans. However, afternoon report of increased steel operations was followed by renewed buying and leading shares were firm in the last hour. Bond trading somewhat more active than yesterday but remained slow; German issues improved slightly while rest of the foreign and domestic lists generally quiet with narrow price movements. Commodities mixed; grains higher; cotton down sharply. Copper at 8 cents with buying small.

Conservative observers remain cautious; admit market has acted well in the past few days but not yet ready to recommend general buying. Advise using stops to protect long positions, moving limits up as the market gains.

Public interest in the market again appears negligible, and even the traders dominating the action are doing much less than usual. Many appear to be waiting for important foreign or domestic developments.

While some of the earnings reports so far have been better than predicted by the bears, the Street is waiting for statements of the larger industrials next week, particularly US Steel on Tuesday. Brokerage houses appears to be disfavoring rails at the moment; most advise clients to keep away until June reports are out of the way, warning liquidation could follow disappointing results. Sentiment on oil appeared better following news of lower crude oil production and price increase in Southwest. Good buying continues in Savage Arms, as rumors circulate on a new product in the near future. Bullish group active in du Pont; first-half earnings of $2.23/share vs. $2.71 considered excellent in view of low chemical prices.

"Chart students say an upward slant has appeared in the trend line. On three successive occasions, the lows were above the bottoms of the previous dips. This is considered significant. The trend line, of course, can change at almost any time." [Note: Of course.]

"Interests who have been furnishing bull leadership in the market since early June maintain an optimistic attitude regarding the market's immediate outlook." Believe German problems will be settled, providing "basis for rising stock prices over the next few weeks"; this will be followed by "a period of irregularity ... until autumn business prospects become more clearly defined."

J. Mooney, GM VP, says GM exports running about 25% behind 1930. Believes exports to Europe will never again reach volume of 1929 due to tariff protection and ability of foreign companies to develop their own markets; however, believes "this condition ... is only true of Europe and the rest of the world will continue to absorb ever-increasing numbers of our automobiles."

Editorial: Amount of new foreign bonds offered in the US in the first half, excluding refinancings, was about $208M vs. $660M in 1930. "There is no lack of money; in fact, its unemployment position matches that of labor, and it is ready to work for a lower wage than usual. ...It is desirable in every way that foreign conditions change for the better" so that foreign bonds can regain favor in the US.

Livingston & Co. note slowest trading on Monday since May 6, 1926; dull period then was followed by "one of the best ... markets Wall Street had ever seen." While not expecting a similar sensational upturn to develop now, believe current dullness "seemingly marks the end of heavy liquidation, unless something goes sadly wrong" and can be followed by fair improvement; note "signs that if the European situation can be ironed out, at least a seasonal improvement in business should start before the end of August." Several "well-posted observers" believe Hoover plan "only the first step in a series of attempts to improve sentiment and business."

Bureau of Agricultural Economics of the USDA finds "striking similarity between major business cycles of 1885-1894 and 1921-1930," suggesting "a revival in the near future similar to that of 1894-1895."

E. Grace, Bethlehem Steel pres., believes if business hasn't touched bottom it's certainly very close; however, sees nothing on the business horizon indicating an immediate uptrend beyond the purely seasonal one that should appear in the fall.

Economic news and individual company reports:

Banking reports indicated discouraging failure of banks outside NY City to make use of credit made available by Fed. Reserve expansion policy of buying govt. bonds. Commercial loans of out-of-town banks fell $20M, while investments in non-govt. securities fell $69M. "Expansion in these two items had been looked for as a possible signal that a change had taken place in banking psychology. Apparently, however, the prolonged uncertainties of the foreign situation, together with low business activity at home, have kept bankers in a frame of mind where deflation and liquidity are the prime considerations of policy." There's some question how long the Fed. Reserve will continue the expansion policy in view of the fact that banks outside NY City "appear reluctant to expand their commitments."

Continental Oil raised buying price for crude oil in Oklahoma, Kansas and N. Central Texas to 40 cents/barrel after widespread well shutdowns; this was the first advance since leading companies recently cut prices to record lows of 10 - 22 cents. Refineries ran at 67.8% in week ended July 11 vs. 65.9% prev. week; stocks of gasoline fell 965,000 barrels to 37.377M. Crude oil production in week was 2.447M barrels/day, down 97,850 from prev. week and down 53,300 from a year ago. Texas House continued its oil investigation; Texas Senate voted to open its own inquiry. Gasoline in Chicago wholesale market firm at 2 3/4 - 3 cents/gallon.

Steel production for week ended Monday was a little over 31% vs. 31% previous week, 32% two weeks ago, 57 1/2% in 1930, and 95% in 1929. This was the first upturn in four months.

BLS reports building permits issued in 344 cities in June totalled $105.4M, down 19.2% from May and down 35.9% from June 1930.

The ICC introduced its estimate of the reproduction cost of all US rails based on 1931 prices - $27.2B, or $21.6B less depreciation. Even using this valuation based on lower 1931 prices, rails are far short of the fair return specified by law of 5 3/4%, which would imply operating income of about $1.240B; the current estimate for 1931 is $600M. Youngstown District steel industry will oppose rail rate increase on grounds it will be extremely harmful to industry there.

New NYSE listings in the first half were $1.707B vs. 5.431B in 1930 and the record high of $8.056B in 1929; of these totals, bonds were $1.211B vs. $1.419 and $1.134B while stocks were $496M vs. $4.012B and $6.922B

F. Rentschler, United Aircraft & Transport pres., says general airplane replacement program by almost all air lines in the US can't be delayed beyond early part of next year since a large part of currently used planes and engines are almost "completely amortized and ready for replacement."

Federal grand jury at Baltimore indicts 58 corporations and individuals on conspiracy to divert industrial alcohol to bootlegging, including US Industrial Alcohol.

Nat'l Textile Workers Union, "affiliated with Trade Union Unity Council, which is supported by Communist party," calls strike in Patterson, NJ silk industry.

Sao Paolo, Brazil textile workers strike that started last week now involves 70,000 workers and almost every large mill in the district.

"Lord Kylsant, once the Napoleon of the shipping world, goes on trial at Old Bailey criminal court on charges of fraud."

"British govt. preparing to push British canned goods on British market in an attempt to supplant California canned fruits."

Canadian newsdealers plan organized protest against duty on US newspapers and magazines.

Nat'l Indust. Conf. Bd. survey of NY State tax system finds tax burden on real estate not disproportionate when compared to taxes of all kinds, including Federal. Rather than new taxes as favored by real estate interests, recommends reducing govt. costs by eliminating useless and wasteful duplication in local govts.

Gillette facing "many problems"; "it is no secret that when the Autostrop management assumed control after the merger last Nov., they took on a more difficult task than was originally anticipated." Earnings likely to remain depressed until Q4, when some improvement may be seen if general business revives.

Earnings reports: GE Q2 $.37/share vs. $.51; half $.75 vs. $1.01. IBM Q2 $2.82/share vs. $2.91; half $5.64 vs. $5.73. Lambert Q2 $1.95/share vs. $2.26; half $4.77 vs. $5.02. Hershey Chocolate Q2 $2.48/share vs. $2.16; half $5.43 vs. $4.36. Briggs & Stratton Q2 $.41/share vs. $1.07; half $1.06 vs. $2.07. BMT year ended June $8.09/share vs. $7.69. McKeesport Tin Plate half $4.23 vs. $5.04. Perfect Circle half $3.04 vs. $2.26. Union Carbide Q2 $.50/share vs. $.70; half $1.01 vs. $1.42. Monsanto Chemical Q2 $.97/share vs. $.80; half $1.56 vs. $1.51. City Ice & Fuel half $1.19 vs. $1.41. Waldorf System Q2 $.58/share vs. $.56; half $1.28 vs. $1.23.

Companies reporting decent earnings: IBM, Lambert (toiletries and medicinals), Hershey Chocolate, BMT, Perfect Circle (automotive piston rings), Monsanto Chemical, Waldorf System (restaurants).

Joke:

Wife - Isn't it dreadful about the pastor's son? I just heard he gave up the idea of being a minister and entered a well-known racing stable to be trained as a jockey. Husband - Well, he'll probably bring more people to repentance as a jockey than as a minister.