Monday, September 21, 1931: Dow 111.74 -3.34 (2.9%)

Assorted historical stuff:

Editorial: While Americans are confident in men like W. Gifford and O. Young as the leaders of unemployment relief, “it is devoutly to be hoped that soon they will be able to speak out upon their plans in more easily understandable terms than they have yet used. ... to the skeptical, ... frequent use of overwhelming verbiage will present too tempting an opportunity to declare that the President's Organization expects to feed the hungry this winter with mouth-filling phrases.” While we are convinced Mr. Young has a solid basis for his statement that “there will be no suffering,” failure to candidly inform the public may “incalculably delay and hinder” the organization's task of relief. “The season for grandiose pronunciamentoes, accompanied by group pictures on the White House lawn, is about over.”

“Sentiment in Toledo is better than at any time since the bank failures.” It's reported that least one of the closed banks may reopen reasonably soon. “But the city is not without its humorous incidents. On a big sign in front of a restaurant on Huron Street, this writer noted the following: 'For God's Sake Eat Here or We'll Both Starve.'” Plan being considered in Kansas City to distribute 10,000 - 25,000 free loaves of bread daily; flour to be donated by mills and grain cos.

[Note: Strangely Unfamiliar Dept.] Sen. Reed (R, Pa.) advocates “very heavy” inheritance tax to allow cutting other taxes; says “a man should not be allowed to leave his son and other ablebodied relatives complete immunity from work.” NY Gov. Roosevelt and state Republican leaders reach compromise on unemployment relief measure.

US Atty. Gen. Mitchell charges states are abdicating some of their proper functions and asking Federal govt. to assume them.

Washington report: American Legion convention opening today in Detroit will be watched closely for its attitude on further veterans' payments. A campaign for full payment of service certificates has been waged since the last Congress passed the 50% loan program. Total face value of certificates is $3.565B, but $843M was loaned on the 50% program; together with earlier loans and payouts, this leaves a total of about $2.250B that would have to be paid out now to redeem all the outstanding bonus certificates. Administration is strongly opposed to full payment, as are some more conservative elements in veterans' organizations. Current “cry of cheap money” is not unexpected by Washingron officials, though it's interesting that “compared with the cheap money protagonists of the last century, even the most radical of the present day appear as conservative economists.”

1931 was an unusually active year for state legislatures, with 44 of 48 meeting in regular session. However, barring special sessions, the “legislative stages ... now will be dark” in all but 9 states for the next two years.

Fighting reported between Japanese and Chinese soldiers in Mukden, Manchuria. However, Washington believes the main issue is protection by Japan of its economic interests in Manchuria (total Japanese investment there estimated at $1B); “the Sino-Japanese dispute in Manchuria does not include a quarrel over sovereignty. Japan recognizes China's ownership of the province.” Sec. of State Stimson says State Dept. carefully following news, but fighting thus far doesn't appear to violate Kellogg pact [prohibited use of war except in self-defence; signed by US, Japan, Britain, France, Germany, etc.] although “the occasion may lead to something calling for invocation of the Kellogg pact.”

British House of Commons approves 10% cut in dole after sharp attacks from Labor. “Semi-mutiny” by the British Navy demonstrates the current high level of opposition to the govt.'s budget cuts.

Austrian austerity program, “outlined ... preliminary to granting international credits,” will involve severe govt. spending cuts. Sir A. Salter of the League of Nations will probably be appointed “temporary supervisor of Austria's finances.”

Editorial by T. Woodlock arguing that German reparations, in spite of amounting to only $7.50 annually per capita, are too heavy due to other factors including additional debt payments, current inability to borrow, and tariffs; “no doubt $7.50 ... is a little sum in itself, but a little, if too much to carry, is too much!”

Washington, DC will soon have the world's largest gas station to handle the traffic along Constitution Ave.; it will be 335 feet long and stand 6 stories high.

Farmers and merchants of Lewis County, Wash. dined on a huge omelet fried in an 8-foot skillet at their annual picnic. It required 10,000 eggs; to grease the skillet, the chef fastened large slabs of bacon to his feet and skated about.

Editorial calling for a moratorium on “steamer deck” interviews by returning “bankers, statesmen and other notorieties in which they tell us 'what I saw in Europe.' The trouble with all these is that those returning travelers who might have something interesting and important to say never say anything interesting or important, and those who have nothing interesting or important to say, say a great deal.” [Note: this is apparently a response to the statement by former Ambassador J. Gerard reported on Sept. 18, charging that Germany was “making money out of bankruptcy.”]

Market commentary:

Market wrap: Stocks suffered “steady liquidation” in the Saturday session on unusually heavy volume; however, “the decline was orderly,” probably due to low level of brokers' loans. Heavy selling in the final half-hour produced many new lows; “the kind of stocks under liquidation indicated that shares were coming out of boxes.” US govt. bonds steady while all other classes fell sharply, with many new record lows. Rail group again “disturbed” as all grades declined. High-grade utilities succumbed to the downtrend but showed smaller losses. Convertibles fell along with stocks. Foreign govts. came under heavy liquidation; British 5 1/2's, 1937 dropped 8 1/4 points to 93; German Int'l 5 1/2's fell 2 points to 38; French and Italian issues slightly lower; S. American issues pressured with many new lows. Grains sharply lower in spite of run of bullish crop news, including unprecedented drought in Southwest. Cotton fell to new season lows, hitting lowest levels in 32 years. Egg and potato futures hit new lows.

Dow industrial average closed at a new bear market low; there were no new yearly highs and 320 new lows. Dow industrials are at the lowest level since 1925, and the rails the lowest since 1897. US Steel hit a new post-1921 low. Volume of 2.438M shares was highest for a 2-hour session since Apr. 1930.

Considerable forced liquidation reported in the past week by individuals to pay off called loans.

Recent weakness in bank stocks has led to rumors of dividend cuts, though “leading banking quarters” say most important banks are still earning their dividends. Insurance stocks fell sharply Friday and Saturday. After holding firm for a long time, Woolworth succumbed to liquidation last week; no change in co. affairs to account for the decline.

M. Holland of the Nat'l. Research Council urged industrial cos. to more extensively use scientific research in order to stimulate industry and hasten recovery.

Opportunity seen in good bonds due to “hysteria of the moment resulting from the workings of mass psychology.” Bonds also expected to benefit from relaxation of rules requiring nat'l banks to write off all bond losses, which is expected to check one of the main sources of recent liquidation.

Nervousness over British situation came to the fore; as one banker put it, it's no longer a question of companies but countries, “and the situation must be one for govts. rather than individuals to take in hand.” Fears expressed by British leaders on stability of sterling have caused concern. Prospect of new general election has dispelled most of good feeling from formation of coalition govt.; uncertainty has caused heavy withdrawal of capital from England; this in turn has caused considerable nervousness that the recent $400M US-French credit may be exhausted in supporting sterling. “However, the combined financial intelligence of Great Britain, as well as of the US and France, is currently devoting its energy toward a solution of the English difficulties.”

Week in review:

Stocks worked steadily lower, picking up momentum later in the week; heavy foreign selling of US shares reported. Friday saw most severe market breaks since early June. Dow industrials fell to a new bear market low, confirming earlier signal by the rails “that another phase of the primary downward” bear market movement had started; utilities also hit a new bear market low. Lowest levels in many years hit by majors including Steel, GE, and GM.

Bond market “disturbed.” Railroad bonds sagged in both the high and second-grade departments. Convertibles sharply lower along with stocks. Industrial bonds soft, though oils held most of recent gains. Public utilities declined, varying from modest losses in AT&T and NY Edison to sharp reaction in Utilities Light & Power. Foreign bonds reactionary, with liquidation turning “acute” toward end of week; drops of 5 - 10 points frequent; record lows hit in German issues; most S. American bonds suffered severe declines. Among the few bright spots were a firm tone in US govts. and sale of NY State bonds at record low yield.

Stock decline attributed mainly to fears of another financial crisis in Britain, particularly after some British leaders expressed nervousness regarding stability of sterling. Domestic factors also were unfavorable, including absence of seasonal business improvement and further dividend cuts. Decline of trade was dramatically demonstrated by August US figures showing first deficit since May 1929; this was attributed to curtailment of foreign buying in US markets by credit difficulties abroad. Steel output recovered part of previous week's loss as rail and pipeline buying improved. However, automotive demand continues to disappoint, showing no signs of expected renewal, and rail inquiries are well below the normal seasonal increase. “More rumblings” heard of pending steel wage cuts; it's believed this question will be tackled before end of the month, and it's “generally agreed that a cut of 10% to 15% must take place.”

Sterling fell on Friday and Saturday, with forward months particularly weak; decline attributed to nervousness over possible return to power by Labor, flight of both foreign and domestic capital, and further gold losses by Bank of England. Holland took several large gold shipments from England, as well as a shipment of $550,000 from NY Friday, the first to Amsterdam in several years.

Stocks in Paris experienced a bad week, “requiring banking support Thursday and Friday to prevent panicky conditions.” Stocks in Berlin suffered considerable losses on the week, though turnover was light.

Money markets dull; Fed. Reserve statements showed small decline in currency circulation, possibly marking “an end, at least for the time being, of the spectacular hoarding of currency that has marked the past weeks.” Monetary gold holdings rose to a new record high of $5.015B. Acceptances outstanding fell during August to the lowest level in 3 years.

Grain prices showed better resistance, with wheat moving slightly up and corn fairly steady. However, cotton sagged steadily to new 32-year lows even as “various proposals to remedy the cotton situation were being considered”; Oct. cotton fell below 6 1/2 cents. Copper fell to new record low of 7 cents/pound, 2 cents below the record previous to 1931.

Economic news and individual company reports:

British Treasury reportedly withdrew its support peg in sterling Saturday after several weeks of maintaining it. It was also reported that the recent US credit was substantially drawn on that day, after two previous drawings of 20%. Speculators rushing to short sterling found NY banks refusing to accept their orders. However, sterling still broke sharply to $4.84 1/2 before support from NY banks rallied it to $4.85 at the close. Forward quotes are at discounts as high as 3 cents/month, with 90-day delivery at $4.75. Bank of England shipped 907,543 sterling in gold bars to Holland. Support for sterling in Paris has caused heavy selling of francs in markets where sterling isn't being supported; francs weaker against other European currencies and gold exports from France possible.

French Fin. Min. Flandin blasts speculators against sterling; “it is necessary for the world to understand how detrimental ... this assault is”; warns of possible “universal disaster” if British lose confidence; says French Treasury “already has intervened and will not hesitate to intervene again. It is in our interest that the pound remain as international money par excellence, guaranteed against all sorts of fluctuations.” Notes that speculators can short sterling without risk since losses are limited by gold parity. J.M. Keynes criticizes British govt.'s economic policy; says only 3 lines of policy now worthwhile. First and mildest is restriction of imports; second is “getting off gold parity without allowing the slide to go too far”; third is int'l. conference to give “gold standard countries their last opportunity, one that means business of a most definite kind, quite different from any conference ever held hitherto.”

Commerce Dept. reports European unemployment, after reaching record levels over the winter, had a disappointing spring recovery, leaving the June level at a record for that time of year. Even higher unemployment is expected this winter.

Treasury deficit for July 1 - Sept. 17 was $349.2M vs. $116.2M in 1930; income tax receipts were $243.7M vs. $335.3M; however, customs receipts rose to $92.0M vs. $77.2M.

Texas Railroad Commission cuts allowable production per well in East Texas to 185 barrels/day; this is expected to cut the area's production to about 370,000 barrels/day from 425,000. Oil prices strengthened, with almost all major buyers paying 68 cents/barrel. Radical actions in form of martial law shutdown in East Texas and Oklahoma oil fields were unprecedented. However, they are believed to have improved oil company results for the third quarter from the “demoralized” condition prevailing previously, with “production running riot in East Texas” and midcontinent oil prices falling as low as 10 - 22 cents/barrel.

BLS reports employment in Aug. fell 0.3% from July; wholesale commodity price index 70.2 in Aug., up from 70.0 in July but down from 84.0 in Aug. 1930; index of retail food prices in 51 cities 119.7 on Aug. 15 vs. 119.0 on July 15 and 143.7 on Aug. 15, 1930.

ICC will hear final oral arguments in 15% freight rate increase case today; decision likely in mid-October.

French govt. takes control of the French Line (France's leading shipper), increases annual subsidy to 30M francs from 4M.

Brazil says will stop making interest payments on external debt pending negotiations with creditors.

1931 Commerce Yearbook reports 1930 output of manufacturing industries about 19% under the record set in 1929, 13% less than the 1925-29 average, but 43% over 1921; sharpest decline was in auto production.

Fisher's wholesale commodity index rose 0.1 to 69.0, following three weeks of stability at postwar low of 68.9.

Ford Motor Co. has started placing orders for car parts again; other cos. also getting under way. Dealer sentiment improved, though buyers are reportedly delaying due to interest in upcoming new models; this will be “of inestimable value in 1932 sales,” but “temporarily has created an unfortunate situation.”

Movie:

The Mad Parade - Paramount film, at the NY and Brooklyn Paramount Theatres. “Paramount's much-touted film about the women's side of war, with an all-female cast, has finally arrived”; concerns a group of nine women working at a canteen during the war. While it's “a novelty to see a group of women ... workers facing the horrors of war unaided by men,” who are only indirectly referred to in dialogue, the result is “far less dramatic than the war atmosphere” in which the film is set. Too much of the film is devoted to a bitter struggle between two of the women; both eventually meet death, one through a hand grenade thrown by her enemy and the other in a heroic mission to get relief for her comrades trapped on the battlefield. “When the film is not dragging along slowly between bursts of temperament and shells, it is offering panoramic pictures of the horrors of war, or presenting long-winded sentimental tirades.”