August 6, 2010

Thursday, August 6, 1931: Dow 134.10 -2.40 (1.8%)

Assorted historical stuff:

The unemployment situation is "readily admitted" to be "one of the disturbing elements at present. ... A number of reliable authorities in industry" have expressed fears about conditions in the coming winter. While some expect a seasonal improvement in fall, this may only be temporary and slack conditions may "rule during the cold winter." There's increasing discussion of a Federal dole system; it's known govt. authorities are opposed to this and believe "relief should be left in the control of states and cities." However, "what will happen when Congress reconvenes ... cannot be forecast."

Editorial: AFL Pres. Green recently made some intemperate remarks threatening "a 'revolt' of unemployed labor unless the economic order is swiftly reorganized and brought into health." He shouldn't be held "too strictly to account for his words. ... There are times we are all apt to yield to excited rhetoric, especially when it is a question of food and shelter for our fellow citizens. Fortunately we are all agreed that whatever the cost and whatever the inconvenience to any or all of us no one will lack these necessaries in the coming winter. That is one of the few things on which there is no dispute" [note: strangely unfamiliar.] However, relief should be undertaken without mixing it up with the separate issue of reorganizing the economy. Unemployment is a worldwide phenomenon, caused by falling commodity prices and automation; these will take time to address, and we must avoid the temptation of quick miracle cures. In particular, gigantic schemes of public works requiring large increases in the national debt aren't advisable; "far better that the funds necessary to take care of the needy people provided in any other way - and, above all, by local civic units and not by the federal government. ... A good rule ... would be 'millions for relief - but easy on experimentation!' Otherwise, as the Germans put it, we may 'throw the baby out with the bathwater.' And, by the way, it is not a bad example that the Germans are setting us by their behavior in these days of sore trial for Germany."

Metropolitan Life Ins. Co. reports US death rate in second quarter was 8.9 per thousand, lowest for any Q2 on record.

Agriculture Dept. reports grasshoppers ravaging crops in Nebraska and South Dakota have now reached the flying stage, making control difficult.

Wrangling continues on NY City mass transit unification; series of conferences is being held and it's now hoped a plan acceptable to the Transit Commission, the Board of Transportation, and the private transit companies (IRT and BMT) can be completed by Aug. 15 and hearings can be started in late Aug.

Car designers have gone back to nature, using the raindrop as inspiration for a new streamlined design claimed to offer a minimum of resistance to air pressure. The new design promises benefits including: allowing a car to travel faster and further on a given amount of gas; lighter weight, making braking easier; and a low center of gravity, making the car hug the ground more closely and providing a smoother and safer ride.

Phrenology, in spite of having "no scientific basis," is still advocated by "charlatans" who maintain they "can read character or tell a man's future from the bumps on his head." Police departments in many cities are "driving away those 'phrenologists' who solicit fees for services."

Trouble almost everywhere but Germany special:

Reopening of German private banks “almost sensationally tranquil, in contrast to the renewal of panic which had been feared by some bankers.” Several hundred policemen stationed near Berlin banks were idle, with no crowds or disorders to control. A tour of banks showed not only absence of the anticipated run, but almost universal excess of deposits over withdrawals, even at the Darmstadter bank (closed July 13) and the Dresdner (provided with govt. aid). Savings banks are expected to reopen Monday, and an early cut in the discount rate is hoped for. “Govt. authorities and big bankers were both astonished and overjoyed”; some credited Chancellor Breuning's speech Tuesday calling for German's to help themselves. “Experts were agreed that Wednesday appeared to mark the end of the banking crisis, although fundamental economic perplexities and political uncertainty persisted.”

Germany continued to rigidly control foreign currency transactions pending agreement on extension of foreign short-term credits. Foreign currency was also “being refused generally for new imports under pressure from protectionist adherents.” A strong campaign has started to permit “the import trade to shrink naturally under economic pressure.” Recent US proposals to sell large amounts of surplus wheat and cotton to Germany on credit have drawn strong opposition both from Southern Senators and from cotton importers in Germany objecting to paying above-market price.

US banks are practically agreed on Luther plan for extending their short-term credits to Germany, though a few minor technical points remain to be ironed out; banks denied reports of trouble reaching agreement; said meetings had been in a cooperative spirit and most satisfactory. According to the plan, German firms will still have to repay credits as they mature, by paying marks into the Reichsbank, but the proceeds will not be sent abroad but be reloanable for import purposes. How long this arrangement will last is uncertain; this will depend on results of the BIS committee investigating German credit.

Sterling fell sharply, apparently due to a rumor that much of the $250M US-French credit to the Bank of England had already been used. This was followed by a partial recovery on apparent concerted action by French banks. The credit was reportedly only "used to a small extent" by the Bank of England, but much heavier use is expected today to support sterling. The break in sterling "was a shock to French bankers as it was believed that the psychological effect of the" Bank of England credit has been lost; a renewed flight of deposits from London is now feared. Sterling fell below the gold export point vs. several major currencies, but Bank of England didn't report any unusual gold losses. Bank of Switzerland figures revealed huge inflow of gold in July; total gold rose to 1.164B Swiss francs from 840M starting the month.

Spanish pesetas fell sharply to $.0877, after falling below 9 cents yesterday for the first time since the Republican govt. took power. Political future there seen "darkly clouded, with the threat of a definite break between Catalonia and the present govt." General strike planned Thursday in Seville; all unions there, "seat of recurrent labor uprisings, frequently violent," have indicated they will join in.

Premier Lang says unless New South Wales (state in Australia) is loaned $2.5M immediately, there won't be enough money to meet civil payrolls today.

Run on Banco Nacional de Mexico broken Tuesday and normal business resumed after bank paid long lines of depositors about 10M pesos in a day and a half; other banks have also resumed normal business.

24-hour Cuban general strike ends; called in sympathy with street car men's strike against wage cuts; three street cars bombed by striking motormen, causing property damage but no major injuries; union leaders indicated another general strike might be called if street car men's demands aren't met.

Unrest spread in Poland after "drastic measures" were adopted to relieve the financial crisis. Most cities suspended payments to employees and contractors. Govt. officials reportedly hope for a loan from France to tide the govt. over the increasing emergency.

Hungarian Parliament passes emergency financial powers bill. Chase Nat'l Bank representative is working on agreement with Hungarian banks to renew all short-term credits and to establish a central corporation to examine collateral; French, Swiss and NY banks are on board but some Hungarian banks are balking at supervision by the corporation.

Home Savings & Loan of Youngstown, the second-largest bank of its kind in Ohio, with total deposits of $36.3M, limited withdrawal amounts to $50 after a run; restriction due to illiquidity of real estate loans; pres. J. McKay said condition of the institution is "fundamentally sound."

NY State Supt. of Banks Broderick closed three small uptown banks with combined deposits about $15M, due to "non-liquid condition and depreciation in the value of their assets." Liquidation will start immediately, and liquidating dividends are expected in 90 days.

Market commentary:

Market wrap: Stocks "put up a good fight" considering discouraging domestic economic news including lower car loadings, steel production, and commodity prices. An initial accumulation of selling brought good-sized declines in early trading, but trading then turned dull and prices steadied; some rallying in afternoon failed to recapture the earlier declines; late trading again turned irregular with AT&T and Can under pressure. Bond trading moderately active; foreign list reactionary with German and S. American issues weak; domestic corp. list featured weakness in rails, oils and convertibles; US govts. steady.

Technical analysis indicates downtrend since June 27 is intact. Ominously, a "double top" was formed in early May and late June at about 156 on the Dow; even more ominously, a second double top was formed about 10 points lower on July 10 and July 21; even still more ominously, the rail average has confirmed the downtrend. The rails now appear headed for a test of the June 2 bear market lows, and this will provide a clue to the outlook for the whole market. If the June 2 lows fail to hold for the leading rails, "the possibility will be suggested that the market as a whole is confronted with an extension of the major decline that has been underway since Sept. 3, 1929."

Editorial by T. Woodlock: Report by W. LaRoe, prominent lawyer, that attempts to prove rails are in strong financial condition is in the final analysis irrelevant. The important verdict is that of the security market, which rails need to raise capital. This market has already spoken; bonds of many large rails are selling to yield 6% or more, and preferred stocks 10% or more; this while securities of unquestioned safety are selling at very low yields. Recently, one large rail almost went into bankruptcy over a refinancing operation involving less than $10M. "From the judgement of that market, there is no appeal - not even to the Supreme Court."

H. Rivitz, Industrial Rayon pres., says "things are definitely looking up in the rayon industry, and the demand is increasing encouragingly."

While nothing has yet been officially said about wage cuts in the steel industry, "it is the confident view in responsible quarters that some action will be taken in the not distant future." There's no doubt industry leaders would like to maintain wage rates, but recent earnings make clear the need for further major cost cuts; it's believed cost of labor must be seriously considered soon. Many believe "a steel wage cut would be viewed as optimistic by interests in the stock market."

Washington officials skeptical on Oklahoma Gov. Murray's drastic action shutting down state oil wells until buyers offer a $1/barrel price. It's pointed out this is similar to Farm Board efforts to reduce production and set prices for wheat and cotton; one difficulty is that there are other sources of supply not subject to control.

Economic news and individual company reports:

Commodities broke sharply, with several new record lows. Wheat futures in the Chicago market hit new record lows for all active months; cash wheat dropped to the lowest since May 1852; in the Liverpool market, wheat hit the lowest prices since 1592 [note: holy crap!]. Other grains and cotton also weakened; Dec. corn hit a post-1906 low while oats hit post-1900 lows and cotton sagged to post-1915 lows. Rubber hit new record lows. Hides fell sharply. Copper fell to 7 1/2 - 7 3/4 cents/pound, though little was available at the record low price of 7 1/2. Value of the last cotton crop estimated at $693M, about half the value of the previous crop and lowest in over 15 years; average price for that crop 9.57 cents/pound.

Weekly steel reports quite discouraging. Rise in output reported a week ago proved abortive. Automotive and rail demand low; construction bookings declined; scrap markets mixed; machine tool trade poorest in years. Finished prices were steady. "The industry is not only resigned to another exceedingly dull month but is even more reluctant ... to estimate the scope of seasonal improvement in Sept." Steel production for week ended Monday was below 31% vs. 33% previous week, a little over 31% two weeks ago, 58% in 1930, and 94% in 1929. Almost all of the decrease was at smaller independents.

Pres. Hoover's emergency employment committee reports slight upward trend of employment in NY City; situation in rest of the country generally unchanged.

Only 1/2% of US manufacturing plants employ over 1,000 workers. However, these plants employ almost 25% of manufacturing workers.

The US Consul General in Hankow, China reports a customs transit tax, called the "likin," is imposed on every shipment of goods as it moves through each city and province in China; the accumulation of "likin" charges frequently comes to many times the original value of the goods, and is all paid by the consumer.

Proclamation increasing duty on men's sewed straw hats, made by Pres. Coolidge in 1926, held unconstitutional by US Customs Court.

Earnings reports: United Light & Power year ended June $1.54 vs. $2.40. Amer. Water Works & Electric year ended June $2.72 vs. $3.82. Standard Oil of Calif. Q2 $.10/share vs. $.80; half $.43 vs. $1.53. Remington Rand Q2 ($.31)/share vs. $.30. Anaconda Wire & Cable Q2 $.28/share vs. $.31; half $.66 vs. $.45. Syracuse Washing Machine half $.43 vs. $.19. C.I.T. half $1.26 vs. $1.53.

Companies reporting decent earnings: Anaconda Wire & Cable. Syracuse Washing Machine, Alaska Juneau Gold Mining.


The Public Defender - RKO-Pathe film, at the Mayfair. A "good old-fashioned movie melodrama." Richard Dix stars in the title role, turning "combination private detective and outlaw" to get the evidence to prove his sweetheart's father innocent of "the machinations leading to the failure of the trust company of which he was secretary-treasurer." Aided by two experts in crime (ably played by Paul Hurst and Boris Karloff), he "plans each action in his scheme so that it works like a clock." Gaining entry to the homes of the company directors in "strange ways," he takes the evidence he needs and "leaves a mysterious card, labelled 'The Reckoner.'" In the end, he not only manages to prove the directors' guilt, but [fortunately] manages to clear himself of a murder charge as well.


Editor - So, what did the eminent statesman have to say? Reporter - Nothing. Editor - Well, try and keep it down to two columns.

Mrs. Murphy - It was terrible. There were 27 Swedes and an Irishman killed in the wreck. Mrs. Grogan - Terrible indeed. The poor man!

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