Wednesday, August 12, 1931: Dow 140.16 +5.90 (4.4%)

Assorted historical stuff:

Floods in China cause over $50M in damage; 4M homes destroyed [note: those two numbers seem out of whack unless homes could be built for $12.50]. 23M people in "dire straits." Hupeh province most affected, with 18,000 square miles under water. Drainage expected to take months, with many areas remaining submerged through next winter. Rainfall over past month, unprecedented in 61 years, was cause of the flooding. Nat'l govt. to float $20M relief loan.

British Premier MacDonald "hurried back" from his holiday in Scotland to meet with his cabinet; dissension is reported on severe austerity measures recommended by the Economy Committee, particularly restriction of those eligible for the dole; this was seen as conflicting with "campaign promises to increase social services."

"Jobless actors in Germany have found a profitable side line. Their job is to mingle with crowds in cafes and places where politics are talked and boost fascism. Hitler is said to believe that with their smooth manners, good diction and persuasive tongues, actors make first-class spellbinders."

Editorial on remarks of Judge Cardozo from his decision in the case of Dr. William “Horse Doctor” Doyle. [Note: Doyle was in fact a horse doctor, taking care of NY City's fire department horses, but was also politically well-connected. As a result, the motorization of the city's fire departments, which might have impoverished a lesser man, was taken in stride by Doyle. He became a fixer for builders seeking permits from the city's Board of Standards. By 1930, aged 60, he had accumulated the astonishing total of nine children and the even more astonishing total of over a million dollars. At that point, Doyle became involved in an investigation started by crusading Republican D.A. Charles Tuttle targeting the Tammany machine. Refusing to testify, he was jailed for contempt. Cardozo found that Doyle himself could be compelled to testify with a grant of immunity, but that alleged conspirators couldn't.] Sees decision as reflecting fundamental principle that “rights of the individual are to be protected against ... tyranny at the hands of the 'majority.' Upon that principle ... depends all our liberties.”

Leading US banks by deposits as of June 30 remained Chase Nat'l.($1.90B), Nat'l City ($1.46B), and Guaranty Trust of NY ($1.35B); these were the only banks over $1B; there were 11 banks over $500M.

New England potato crop estimated at 55.9M bushels [note: at an average weight of 54 pounds/bushel, and 3/4 pound per potato, this is about 4B potatoes].

Reminiscence from H. Alloway of E. Berry Wall, a former denizen of the financial district who was once known as King of the Dudes. "Cheery, gracious, fellowshipping soul was Berry, his ultra ways with fashion putting him at the fore of the town's freakish dressers. Given to canes, curio-brimmed top hats, collars that choked, sparkling socks, gloves that shouted, waistcoats that were rainbows ... of such was the attire of the Kingdom of Berry. He adorned brokerage offices by day; and Delmonico's, clubs, roof gardens ... by night. Everybody loved him. Only the market treated him carelessly. But he was the good loser, perfect." One fine day, Berry sailed for Paris to stay; occasional visits back here have shown him grown into a dignified old age. However, unlike many Wall Street stories, this one has a happy ending - Berry is now a rich man again. It seems he inherited a substantial sum but "not quite what's requisite to maintain ... an entourage." He turned to the stock market to augment his wealth, but, with the wisdom of experience, adopted the short side. The results were most fortunate; he went short of a line of NYSE shares at one or two hundred points higher than they are today.

Market commentary:

Market wrap: Following further selling of rail shares in early irregular trading, major industrials led a general recovery across the whole market. Extensive short-covering developed in the favorite bear targets; rally gathered momentum and trading increased as the session progressed, with the ticker running a few minutes behind in the final hour; industrial leaders including Steel and Can showed substantial gains while leading rails and trading favorites including Auburn and Case rallied sensationally; "retreat of the bears took on the aspect of a rout." Session ended with "buoyant tone." Bond trading more active, prices irregular; European issues rallied sharply, led by Hungarian. S. American bonds irregular. US govts. slightly higher. Rail bonds remained under pressure, with selling extending to some of the highest-grade issues. Industrial and speculative bonds rallied along with stocks. Commodities were weak in spite of the stock rally; cotton and most grains were down moderately while corn fell sharply to post-1901 lows.

Conservative observers believe that yesterday's rally, because of its vigor, is likely to carry for at least part of today's session; advise clients with long positions to sell stocks into the recovery, believing they can be replaced at lower levels later.

Market has shown some encouraging indications recently; industrials have stayed in a narrow range in spite of discouraging business news and decline in rails, and the decline in rails itself has come on very low volume. However, many market observers remain cautious, pointing out that with rails hovering near their bear-market lows, a further decline in that section could "subject the whole list to a severe test." It's also noted that industrials similarly stayed in a narrow range in the first half of April, only to resume their decline.

Reassuring front-page article on high likelihood of AT&T's dividend being maintained.

Companies said to be doing well include Drug Inc. and Woolworth.

A number of economists now contend that wage cuts in basic industries and the rails must come before "a base will be reached from which it will be possible to start moderately constructive activities in the stock market. ... Quite a few market interests are still of the opinion that wage cuts will mark one of the last steps in the readjustment which has been brought about by the business depression."

Editorial arguing in favor of rail rate increase. “The railroad industry is not an 'ordinary' industry in that it is 'regulated' in such a way that it cannot accumulate enough flesh and fat in good times to carry it through a prolonged season of bad times.”

Economic news and individual company reports:

Reichsbank cut discount rate to 10% from 15%, as "anticipated in view of the passing of at least the worst phases of the financial crisis." Rates on call money and bankers' acceptances are about 9%; further reductions in money rates anticipated "owing to the satisfactory banking situation." Reichsbank gold drain has completely stopped, and note cover ratio is up to 40% vs. 35.8% on July 15. Particular satisfaction expressed over lack of currency hoarding by the public, enabling the Reichsbank to keep circulation down and avoid currency inflation. "Steady improvement in the situation" is now expected, "though it is freely admitted that full return to normal is still a matter of some time." Next step will be reopening of stock market; reports from Berlin indicate this may happen Monday.

Bankers' committee on the German short-term credit situation is now studying the Hungarian situation, "which is said to be the most pressing at the moment." Hungarian govt. and banks attempting to stop capital flight; efforts being made to raise a $25M loan.

Sterling strengthened again; sentiment improved by cut in German discount rate and fall in cotton price, (since Britain buys a large amount of US cotton in the fall). NY bankers feel “the fall period should pass with little or no strain on sterling from the US”.

Consul F. Warren reports that "while it will take Colombia several years to emerge from its economic troubles, leading Colombians have expressed determination that their country shall not default its obligations"; notes that "throughout the political unsettlement in S. America, Colombia has remained undisturbed."

While no state has yet followed Okahoma's example of declaring martial law to close down oil production, Texas Gov. Sterling has now threatened similar action if the Legislature doesn't enact an effective oil law, and a Kansas official has also threatened to close all wells; such action appears to be drawing increasing support. Gasoline shortages are developing in the midcontinent area; prices are firmer. Texas Legislature adopts Woodul law regulating oil and gas pipelines; some operators interpret the law as having effect of curtailing oil and gas production if properly enforced. Refineries ran at 66.7% in week ended Aug. 1; stocks of gasoline fell 861,000 barrels to 35.881M. Crude oil production in week was 2.556M barrels/day, up 54,900 from prev. week and up 75,200 from a year ago; increase again due to East Texas area, which rose 56,500 barrels/day to a new high of 654,200 while production in Oklahoma and California was little changed.

Mississippi Gov. Bilbo's suggestion that cotton farmers "pick two rows of cotton and leave the third" decried as "nonsense" by La. Agric. Comm. Wilcox: "What farmer, after plowing, planting, fertilizing and cultivating, would abandon one-third of his crop when it is waiting to be taken off the ground?"

NY Supt. of Banks Broderick files application to pay Bank of US depositors 30% dividend. Remaining Bank of US assets will be reduced to cash as quickly as possible; time to do so is uncertain since a large portion is in real estate, speculative real estate securities, and loans. Several institutions have looked into possible reorganizations of the Bank, but all plans so far have fallen through "for one or another reason." State Bank of Omaha, largest state bank in Nebraska, closed; deposits of $2.7M; bank pres. Schantz blames closing on adverse publicity given to Nebraska banks, says depositors will be paid in full.

Some ICC commissioners apparently doubt whether finding of a financial emergency for the railroads would in itself authorize them to grant a rate increase. Rail freight loadings for week ended Aug. 1 were 757,293, up 15,541 from prev. week, down 17.6% from 1930 week, and down 31.5% from 1929.

Amer. Machinist reports upturn in the machine tool market in some districts; others are "marking time, though good prospects are cropping up."

Latest bank statements showed reversal of bank security purchasing in previous week, as holdings of US govts. fell $16M and other securities fell $36M. "All other" loans rose $52M, but this was attributed to buying of acceptances (short-term bills) rather than an increase in commercial borrowing.

BLS reports overall US cost of living in July was down 6.5% from Dec. 1930; food prices down 13.8%, fuel and light 5.5%, clothing 4.6%, rent 3.1%.

Unit (cooperative) development in Kettleman Hills field of Calif. seen reducing huge wastage of natural gas (waste estimated at 221B cubic feet last year, or more than a third of total gas production of 617B).

Companies reporting decent earnings: First Nat'l. Stores, Interstate Dept. Stores, Equitable Office Bldg.

Report from Paris:

"Broadway showmen, sipping their tea - or what have you? at Ciro's or the Ritz," are wondering at the hold exerted on the French public by the great Tour de France. "For no revue, however bizarre of costume or bereft of it ... ever thrilled the French public as do these bicycle races where news is awaited as eagerly at vantage points in Paris as ever a crowd in Times Square ... watched the score in a world series game." These bicycle contests, now being revived with such enthusiasm, are "as old as the two wheeled chariot" - the first long-distance race was from Paris to Rouen in 1868; winner was an Englishman named Moore who covered the 79 miles in 10 hours 25 minutes on the high-seated machine of the time, known as a "bone shaker." Motorcycles have also become very popular in France, introducing many couples to the joys of the open road. "The sidecar as used in America is seldom seen. The lady sits behind the gentleman, looking thoroughly uncomfortable and supremely happy."

Jokes:

Merchant - Look here, you've been owing me this bill for a year. I'll meet you halfway. I'm ready to forget half of what you owe me. Debtor - Fine; I'll meet you halfway. I'll forget the other half.

Old Man Jones on how wars start - "Things that a fellow thinks don't amount to a darn will sometimes pile up a mountain of trouble. Why, just the other night my wife was working over a crossword puzzle, and she looked up and said 'What's a female sheep?' And I said 'Ewe.' And there was another big war on."