August 20, 2010

Thursday, August 20, 1931: Dow 141.72 +0.46 (0.3%)

Assorted historical stuff:

Oklahoma and Texas oil shutdown is causing shortages at refineries; maximum oil price offered at Oklahoma remained at 52 cents/barrel, but some “overtures” were made including promise of 77 cents from Morgan Petroleum. Oklahoma Gov. Murray was not receptive - “'Tell those oil men to offer $1 a barrel and we'll talk business,' he snapped” when the offer was made. Texas Gov. Sterling pleased with “results already accomplished” by shutdown. No difficulties reported in closing down East Texas fields by martial law.

Toledo banking conditions reportedly returning to normal; banks that have remained open report deposits larger than a week ago, and were "swamped" with deposits on Wednesday. It's hoped "the recently closed banks can be taken over by some out-of-town bank and the $82M in deposits made available." Mayor Jackson proposed $750,000 bond issue to provide food for the needy.

Pres. Hoover appointed AT&T pres. W. Gifford to set up an organization to cooperate with nat'l., state and local agencies and take charge of “activities arising out of unemployment this winter.” Pennsylvania Gov. Pinchot urged Pres. Hoover to immediately call extra session of Congress to provide relief for the unemployed; says over 900,000 are unemployed in his state. Rep. Patman (D, Texas) telegraphed Congressmen in 23 states inviting them to convene Sept. 14 “in a rump session of Congress to persuade Pres. Hoover to summon a special session to deal with national economic conditions.”

Editorial by T. Woodlock approvingly quoting the Macmillan Committee (British govt.) report on Finance and Industry. "A severe fall in prices upsets the entire balance of every kind of money settlement." Social consequences are severe, raising "delicate issues of equity between different classes. ... A study of history would, we believe, confirm ... that it is in the changes in the level of prices, and in the consequential alteration in the position of debtors and creditors, entrepeneurs and workers, peasants and the tax gatherer, that the main secret of social trouble is to be found." Events of the past decade were extraordinary from this point of view; violent inflation "was sufficient in the immediate post-war period to destroy over a large part of Europe all rational economic calculation and all orderly social and economic development." This was followed by a period of stability and economic progress. Now we have a "violent down-turn of prices the effects of which upon political and social stability have already been very great. The problems thus raised transcend in importance any others of our time ..." Instability in prices attributed to consequences of the war; rapid technological changes in industry and agriculture, and "destruction of the balance" between industries; rigidity of wage scales; and "violent changes resulting from speculation in NY and elsewhere." [Note: curiously absent is the concept that debt might have built up to unsustainable levels, apart from war debts.]

France and Russia were reportedly negotiating a non-aggression treaty seen as a “long step toward peace in Europe,” but reports differed on whether agreement had been reached.

"Detroit and NY capitalists" are preparing plans for a Detroit rapid transit system to cost as much as $200M and include 44 miles of subways and elevated lines.

N.L. Amster reports still more progress in NY City transit unification talks.

Panama Canal capacity seen becoming inadequate within 30 years at current rate of traffic increase.

Germany special:

Bankers committee meeting in Basel reached agreement on extension of short-term credits to Germany. Total such credits estimated at 7.3B marks vs. earlier estimates of 5B; credits are to be prolonged for 6 months. Separate total of 750M in foreign mark deposits is to be repaid in installments, 25% immediately and 15% a month thereafter. Only reference to reparations in the report is "exceedingly discreet and vague," to wit: "We believe that it is necessary before the end of the period of prolongation of credits that the governments give the world certainty that international political relations shall be established on the base of mutual confidence. Nevertheless, we desire to recall that the German problem is part of a broader problem which affects more than one country in the world." [Note: Diplomacy is the art of constructing sentences that mean everything to everybody.]

Germany was disappointed at results of the Basel meeting, particularly the unfreezing of 750M in foreign mark deposits, which could put the Reichsbank's gold holdings below the amount required to back currency in circulation. The committee was criticized for “devoting its attentions to a large number of minor points while ignoring the fundamental question of safeguarding the German gold reserves.” The Reichsbank's position is gradually worsening as, despite a large trade surplus, foreign currency obtained from exports isn't being offered to the Reichsbank while it continues to lose small amounts through payment for imports. Currency circulation remains high due to continued withdrawals from savings banks. Postponement of stock exchange reopening to Sept. attributed to "new wave of pessimism" which also makes further cut in Reichsbank's 10% rate impossible for the near future. Bankof Rhine Province to reopen with almost $80M in aid from the Reichsbank and German govt.

French financial circles were satisfied with the Basel agreement, since it was interpreted as a victory for the "French standpoint against the reopening of the entire reparations question" and limited "discussions to the technical field only." The French were "especially pleased over the committee's insistence on the difficulty of conversion of short-term into long-term credits in the absence of a Franco-German political rapprochement." NY bankers, on the other hand, interpreted the report as suggesting a cut in reparations and international debts, and approved of this suggestion, as well as of the agreement to extend short-term credits. They generally agree a new settlement for reparations is needed before the Hoover one-year debt holiday ends. Washington opinion is now general that a permanent scaling down and conversion of reparations into normal bonds is needed for "permanent German stability"; the report was interpreted as recommending this revision. Public opinion in the US and France is against such a move, but it's believed "the Hoover moratorium went a long way" to change US public opinion on the subject, and the bankers' report may be another step in this direction.

Market commentary:

Market wrap: Leading shares opened firmly, with oils again the outstanding strong spot. Irregularity developed in the morning, with selling in spots including NY Central and GM. However, setbacks didn't spread across the general list, and trading then turned sluggish and featureless. Rail bonds again suffered liquidation, with both high- and second-grade bonds hitting new yearly lows. Utility bonds were steady while industrials fell slightly. Corn and cotton fell to new season lows.

Bulls encouraged by lower volume on market reactions; “it was figured that the failure to bring out active selling while the market was consolidating its position was a technical indication of considerable significance.”

Incipient interest of the public in the stock market, as indicated by growing inquiries to brokers, was apparently discouraged by the Toledo banking troubles.

US govt. bonds have moved in a narrow range for several months, but maintained a firm tone in face of a generally “drooping” bond market; all issues offered this year are trading at a premium.

Freight car loadings report was disappointing. Anticipated August improvement has failed to materialize. Reports from NY Central and Pennsylvania (report freight loadings a week ahead of other rails) indicate further decline next week.

A “market interest” who has just returned from the Midwest reports little evidence of business improvement; believes any recovery in the fall will be seasonal and minor. While business has shown encouraging stability for the past three months, “the great working and consuming class has experienced such a depletion of financial reserves that the length of the depression lessens rather than increases the chances for a rapid recovery.”

Economic news and individual company reports:

Weekly steel reviews moderately optimistic: “There is nothing, yet, to indicate a genuinely virile recovery, and the improvement is spread rather thinly, but for two weeks now the steel markets have borne the earmarks of the usual fall upturn.” Production is up slightly, while inquiries from construction, pipeline and rail indicate prospect of increased demand; automotive demand holding up better than expected. Steel production for week ended Monday was 33% vs. a little under 32% previous week, a little under 31% two weeks ago, 54 1/2% in 1930, and 90% in 1929.

US foreign trade showed signs of stabilizing in July. Imports, at about $175M, increased $1.5M from June; exports, at $183M, decreased $4.2M. Exports were lowest since Sept. 1914, and imports lowest since Sept. 1916. Some observers believed “increasing stability ... indicates that the low point has likely been reached.” Editorial: With US tariffs higher than ever, exports are down to prewar levels. “Trade is not one-sided. We cannot sell unless we are willing to buy ... the days of extreme nationalism are gone and ... all countries are bound together by the ties of commerce.”

Canada will reportedly establish drastic new import duties on foreign radio sets, hats, hams, and bacon.

Nat'l Elec. Light Assoc. tells Pres. Hoover US utilities will spend about $600M on new construction in 1931, vs. $915M in 1930; much of the decline is due to lower material prices.

Number of US trucks registered in 1930 were 3.481M, up 101,085 from 1929, up 366,940 from 1928, and compared to a total of 20,000 in 1911. However, trucks still carry a relatively small percentage of US freight traffic, estimated at less than 2% for 1928.

Both Japan and Burma, the two largest rice exporters, have almost withdrawn from the export market due to short crops. This has sharply increased rice prices in Asian markets and is seen increasing chances for large Chinese wheat purchases from the Farm Board.

International zinc cartel declared effective Aug. 1; represents 97% of world production outside US.

World production of silver in the first half was 87.0M ounces, down 20.1% from 1930.

Companies reporting decent earnings: Davenport Hosiery Mills, Perfect Circle (automotive piston rings), Tung-Sol Lamp Works.


Mother - When that bad boy threw rocks at you, why didn't you come and tell me instead of throwing them back at him? Willie - Why, what good would that do? You couldn't hit the broad side of a barn!

Husband - When I came home last night a man tried to hold me up. Wife - Usually when you come home in that condition it takes two to hold you up.

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