August 7, 2010

Friday, August 7, 1931: Dow 133.77 -0.33 (0.2%)

Germany special:

German bank reopening has proceeded very smoothly since Wednesday. "Elaborate police preparations made for the handling of large crowds were found to be unnecessary." Emergency supplies of bank notes provided to banks to enable them to meet all demands are now being returned to the Reichsbank. Bankers note encouraging rise in new deposits, while withdrawals are normal. Savings banks to reopen Saturday. Early reduction in the 15% discount rate is expected. Pres. Von Hindenburg issued decree giving govt. “closer regulatory control of financial institutions.” German security market remains closed, though some private transactions are taking place at prices 10% - 20% below those when the market closed on June 11. Main difficulty in reopening the market is likely low prices for mortgage bonds, of which savings banks have large holdings. However, a cut in the discount rate would help with this problem. Farm Board chair. Stone says has received offer from German govt. to buy surplus cotton on credit from the Board. Conditions not yet settled. Chancellor Breuning left Wednesday night for an official visit to Rome.

Editorial: On Sunday, Prussia will hold an election on whether to dissolve the Diet (state Parliament) and call new elections; only those in favor will vote, and a majority of voters is required. This election will, in effect, be a "round-up of Prussia's 'trouble makers'" together with the "normally reasonable ... driven by hard times into something approaching desperation." It will be no surprise if this adds up to a majority; the vote is being taken as Germany feels the depression in "concentrated form" and living standards have been tremendously pressured. "The political stability that the German people has shown since the election of Gen. Hindenburg as President is nothing short of remarkable"; he incarnates the "spirit of modern Germany" that can best be expressed by the single word Pflicht - duty. "That is the ruling thought in German life, and it was the one great contribution to the national spirit that was made by the German army. In these days it is yielding results that other nations may profitably observe ... There is, however, a limit to all things human, including human capacity to endure, and it is time to think of lessening the strain upon Germany's endurance - great as that endurance has been proven to be."

O. Sprague of Bank of England, now in Berlin advising the German govt., says things are proceeding well; further progress possible next week on foreign credits and reopening of savings banks. On bigger picture, “if Germany is weak financially I consider her strong economically. Costs of production are low and her plant is as good as any to be found in the world. That is a guarantee for the future.”

Assorted historical stuff:

Oklahoma Gov. Murray's carries out threat of declaring martial law and closing the oil wells of Oklahoma until purchasers pay $1/barrel. Almost all wells in the Oklahoma City field are closed; troops have moved into the Greater Seminole region to close down over 1,500 wells in that district. H. Sinclair, Sinclair Consolidated Oil chair., bitterly attacked Murray's action as absurd and unjust. Gov. Murray invited Texas Gov. Sterling to "join me by shutting down all flush wells in Texas"; Sterling declined, noting the Texas Legislature was working on a new conservation law. Editorial: While Gov. Murray does set an interesting example for the "dawdling, red tape-worshipping official" who never takes action, "admiration for him must stop there." His action is likely unconstitutional since "police power of a state extends only to protecting the health and safety of the public." It will also prove ineffective since overproduction in other areas will continue; the real solution is modification of the antitrust laws to allow cooperative production and conservation of vital resources. Gasoline in Chicago wholesale market began to reflect shortage of oil due to Oklahoma Gov. Murray's oil well shut down; price rose to 3 1/4 - 3 1/2 cents/gallon.

Pres. Hoover's Emergency Employment Committee urged young people to stay in school whenever possible and not compete for jobs with heads of families during the current depression. Chair. Croxton reported on a program designed to discourage students from giving up school.

US govt. turned over the departments of agriculture, public works, and sanitary services to the Haitian govt., "a further step in establishing a stable government in Haiti. Undersec. of State Castle could not say just when the remainder of the US Marines would be withdrawn from that country."

H. Morgenthau, former ambassador to Turkey, says world shouldn't disarm at present time "because of the menace of Russia and other backward nations which would overrun prosperous ones for natural resources and raw materials."

Increased use of pistols in robberies in England has resurrected that old British custom, the whipping post. A recent robbery of a railroad ticket office by 3 youths using empty pistols became a cause celebre in the press; in addition to imprisonment at hard labor, the court ordered "twenty lashes" for each culprit.

"Carrying coals to Newcastle" may soon be replaced by "bootlegging in Glasgow"; illegal stills have proliferated as a gallon of moonshine can be distilled for 10 cents and sold for $12.50. The practice is causing heavy losses of tax revenue; "as the product is often handled in gasoline cans, the trade is hard to check."

The old-fashioned "box car red" may soon be extinct as a color for railroad refrigeration cars; recent experiments by the Canadian Nat'l Rwys. show the temperature of a roof painted red is 10 degrees higher than one covered with aluminum paint.

Market commentary:

Market wrap: Following ominous signals given Tuesday by the rails and Wednesday by the industrials in breaking below previous resistance levels, further confirmation was given to the downtrend yesterday by widespread weak spots in many parts of the stock market. Rails continued under pressure, with NY Central hitting a new post-1921 low; Consolidated Gas led a decline in the major utilities; American Can hit a new yearly low and US Steel approached its bear market low; even GM and Johns-Manville sold off after declaring their regular dividends. While trading remained small, liquidation was reported by some brokers. Market turned somewhat firmer in afternoon. Bond trading featured rally in German issues and improvement in most of the European govt. list, while Polish issues fell sharply and S. American govts. were weak. US govts., public utility and highest-grade rail issues were steady while rest of the domestic list was generally weak; second-grade rails were under particular pressure, dropping to a new 1931 low.

Conservative observers now anticipate a technical rally may develop, but advise against trying to catch it.

Woolworth has been relatively well supported recently. Grand Union has drawn recommendations from several brokers. New Haven is one of the few rails to draw support from some interests; Bangor & Aroostook is another rail whose earnings are expected to hold relatively well.

Recent accumulation in stocks seems more selective, concentrating in lines that appear to be breaking away from the depression sooner than the usual market leaders. Groups that have been relatively steady include chain stores, beverage and drug stocks.

Once again, intensive analysis of the bear market of 1919-21, which has so far been quite similar to the current one, has “analysts ... closely watching the character of the support in the market” if the current downtrend carries stocks close to the June 2 lows (Dow industrials at 121.70 and rails 66.85). If either of the averages is able to hold above the June 2 low, “reasonable grounds would be afforded for the belief that the 1929-31” bear market was over.

Recent inability of rail shares to show "any inclination toward firmness" seen as most discouraging, considering past ability of rails to predict the general market.

Market appears to have turned its attention back to domestic developments, as successful reopening of German banks brought no positive response. Traders seem to be mostly short, and to react quickly to any piece of bad domestic news. Quite a few traders who have been picking up shares they believe sufficiently "deflated" have been selling shares of leading companies short as a hedge.

Atlas Utilities Corp., an investment trust [similar to mutual fund], has been pursuing an interesting strategy of buying control of other investment trusts and liquidating them [trusts have typically traded at large discounts to liquidating value as the public lost interest in them during the bear market]. It has absorbed 10 trusts and raised assets from $15M to over $48M.

Speculation on third-quarter earnings has already started. Some expect seasonal improvement next month due to current extreme dullness in many lines. However, the more conservative see "nothing on which to base the hope of any substantial improvement" and expect seasonal fall recovery to be later and weaker than usual.

Economic news and individual company reports:

Widespread commodity price declines continued Thursday, with wheat, corn, oats, rye, cotton and and rubber again selling down to new lows. Sept. wheat at 47 5/8 hit record low for any wheat future on the CBOT; cash wheat sold at lowest price since 1852; corn 1907; oats 1900; rye 1907; cotton 1915. Crude rubber hit record low of 5.30 cents. Wheat prices in British (Liverpool) market lowest since time of Queen Elizabeth [1592]; heavy Russian wheat shipments reported. Copper remained at record low of 7 1/2 - 7 3/4 cents/pound with buying small.

Detroit City Council approves refinancing of short-term debt into 1 to 5 year bonds as part of program worked out with NY and Detroit bankers for "effecting a permanent solution of Detroit's debt problems."

Soviet Commissariat of Finance announced successful sale of huge internal loan totalling 1.6B rubles (nominally about $800M), largely to city workers.

Pittsburgh coal operators reportedly discussed asking the Federal govt. to regulate the coal industry as a public utility. A spokesman for the operators noted that a few years ago this would have been denounced by operators as "Bolshevism. Now they are inclined to welcome it as the only way out."

Mexican Fin. Min. de Oca gave a rather obscure argument that Mexico's new monetary policy was “misunderstood” in the US; maintained that Mexico was not on the silver standard, but that silver pesos are still theoretically gold pesos; exchange rates will readjust to balance of trade and Mexico will buy gold when the time is right; at the same time, the new law has “deprived it [gold] of its monetary functions,” making it freely tradable merchandise. Withdrawals from Mexican banks almost stopped, but value of the silver peso fluctuated wildly; following a brief rise as high as 2.50 pesos/dollar on Tuesday during heavy demand for pesos, the pesos slumped to 3.50 - 4 on Wednesday; business community is waiting for a fixed rate to be set by the Bank of Mexico.

Sterling recovered part of Wednesday's losses, but Bank of England lost 2.5M sterling in gold to Holland and France. French banking houses blamed Wednesday's break in sterling on “English pride” as Bank of England failed to use US-French credit to support sterling.

Pesetas broke 1/4 cent to $.0849; international bankers “not at all satisfied with conditions in Spain”; general strikes in Seville and Algeciras threaten to spread.

Argentine pesos weak on concern over $50M loan maturing in NY Oct. 1.

Canadian weather in the Northern parts of all 3 prairie provinces changed violently, with temperatures dropping close to or below freezing (these are the provinces suffering from severe drought conditions).

Money in circulation Aug. 5 was up $68M to $4.848B, total Reserve Bank credit outstanding up $22M to $967M. Member banks in NY City report brokers' loans down $44M to $1.346B; loans on securities to non-brokers up $5M to $1.688B.

Class 1 rails in earned first-half net operating income of $238.6M, which gave an annual rate of return of 2.15% on their property investment, vs. 3.46% in 1930.

Nat'l Auto. Chamber of Commerce estimates July production in US and Canada at 221,485 cars and trucks vs. 256,297 in June and 275,721 in July 1930; first 7 months 1.856M vs. 2.585M.

Steel output averaged 33.97% in July, lowest level since Sept. 1921.

Earnings reports: Timken Roller Bearing Q2 $.48/share vs. $1.25; half $1.02 vs. $2.54. McQuay-Norris half $2.44 vs. $2.63. Safeway Stores half $2.61 vs. $2.15. National Dairy Products half $1.68 vs. $2.16.

Companies reporting decent earnings: McQuay-Norris (auto parts), Safeway Stores.

Report from Paris:

Another capsule history of black entertainers in Europe. Popularity dates from the war, when "soldiers on leave first heard these syncopated rhythms which seemed meant to make men forget." Many black musicians who had entered France during the war remained abroad, either staying in France or moving elsewhere in Europe. "Jazz and jazzy entertainment bore the label 'American,' and its popularity was immediate." Fashion for jazz in Europe waned somewhat as a more conservative style took hold and "Victorian manners ... restored a becoming femininity to an overly efficient sex." However, jazz was kept alive by the talkies and US tourists, as "night clubs of ... Montmarte ... found that the spender from across the seas was limbered both in limb and pocketbook by good old-fashioned jazz." Now, the Colonial Exposition in France has sparked a revival in popularity for black musicians, with its "flaming colors ... barbaric jewels and primitive costumes, wild savage dances, songs that rise in a crescendo of joy and end on a wailing note of despair, weird harmonies and intonations - and color, color everywhere." Even in these more conservative times, "there is still a large public ... for the strident voice of the 'blues' singer, who lifts her skirt and shuffles along - to the jazzy tunes of a jazzy band."


Teacher - Now, ten dimes make a dollar and ten cents make a dime. How many mills make a cent? Student, from prominent textile area - Not a damned one.

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