Monday, April 27, 1931: Dow 151.98 -3.78 (2.4%)

Assorted historical stuff:

[Strangely familiar dept.] Amer. Bankers Assoc. says banking situation should be corrected "within banking itself ... along lines of good bank management rather than through any drastic legislative measures." [Strangely reversed dept.] Points out severe problem of banks too small to succeed: during 1930, there were 1,345 bank suspensions with total deposits of $868M, so suspended banks had average deposits of $643,000; by contrast, US as a whole started 1930 with 24,630 banks with $55.3B deposits, or average of $2.245M deposits per bank. Many smaller banks, though good management, avoided problems by merging into larger units, but some "blindly hung on," leading to failure.

[That's crazy talk! dept.] Letter to the editor asking if the Journal, to be consistent, shouldn't favor relieving part of debts held by US citizens. Also presents intriguing proposal: “Would not legislation making the gold dollar one-half of the present weight and fineness accomplish the results you apparently endorse?”

Washington report: The Farm Board continues to maintain its actions were worth their considerable cost since they prevented a financial disaster. "Apparently the board is still set upon covering its past mistakes and concealing the facts about its past and present operations." A movement appears to be afoot to select Calvin Coolidge as the 1932 Republican candidate, and "it may have gone somewhat further than mere conversations." However, opinion here is almost universal that this won't happen, both because Coolidge wouldn't consider it and because Hoover shows no indication of withdrawing and it's unlikely the party would allow a nomination fight. Republican and Democratic party chairman are trading charges of "failing to tell the entire truth, which goes to show just how unbelieving and cynical politics can make hitherto trusting souls." At least the unemployment situation is being helped, considering the writers and delivery boys required.

Editorial: International money markets are in a "rather curious situation." After a period when France accumulated the second-largest gold reserves in the world, the trade balance is now turning against it. However, instead of flowing where it's needed, France's gold is perversely going "to New York, the last place in the world where any more gold is wanted." The Fed. Reserve would like to change this, but its tools are limited. Rediscount and bill rates are already at record or near-record lows (2% and less than 1 1/2%). Flotation of new foreign loans is a dubious prospect. "Maldistribution must continue to be a fact so long as the present static condition in the international money markets lasts."

Editorial: Brazil now adds to a long list of emergency remedies for its "chronic and recurrent malady - coffee." It started with "'valorization,' which is Portuguese for farm relief" between 1905-1914. The war relieved matters, but there was a relapse in 1923, which this time also put the Brazilian govt. in the coffee business as "nursemaid to the growing surplus." In April 1930, foreign bankers forced change to an "orderly liquidation" program for which they lent $97M (after loaning $300M to finance crops). Through it all, coffee prices declined, reaching a record low Apr. 16. Latest prescription is an export tax, with proceeds to be used to destroy some of the surplus. This has caused a rally in coffee, but in the end will prove to be "temporary economic adrenaline until another surplus accumulates." Producing a commodity and destroying it doesn't create wealth. Brazil should diversify (coffee is almost 80% of exports) and the govt. should withdraw from the coffee business.

Commerce Sec. Lamont, in reply to "numerous inquiries" on wage cuts, says: "I have canvassed the principal industries and find no movement to reduce the rates of wages. On the contrary, there is a desire to support the situation in every way."

Another very technical editorial by T. Woodlock registering bitter complaint on issues related to rail valuation and recapture of "excessive" profits (for more on this, see the Woodlock editorials from Mar. 2, Feb. 5, and Jan. 27).

Depression-proof dept: The Institute for Mortuary Research reports there were 417,611 US deaths in Q1, up 8%, over 1930; populous industrial regions are also spending more on funerals than last year. Recently, one car maker reported that its only profitable division last year was hearses and ambulances.

A well known restaurant chain is experimenting to see whether people order according to taste or price, particularly during depressions. After breakfast, every meal is 60 cents regardless of choice (meals include appetizer, main dish, and dessert). Statistics will be compiled to determine what people will order when price isn't a consideration. Incidentally, business at that restaurant increased 60% on the first day of the experiment.

In two years since smaller sized paper money went into circulation, counterfeiting has declined. The new design and paper make imitation difficult even for master counterfeiters. "Chief Moran of the Secret Service forsees the time when, with further improvements in the currency, anyone may detect a counterfeit at sight."

Oscar Bodenhausen of St. Joseph, Missouri started a "travel fund" 27 years ago to realize his dreams of seeing the world. Each night he would take any dimes he found in his pocket and add them to the fund. The total last fall reached $3,700. He has just returned from a seven month tour of the West Coast, Hawaii, Japan, China, the Philippines, India and Europe, with $350 left as seed money for his next fund.

Estimate of estate of Joe Leblang, "Broadway cut rate theatre ticket operator," reduced from $20M to $12M-$15M.

Considerable confusion has been caused by the "cabalistic letters" BYOL at the end of the invitation to the third annual outing of the Monday Long Table Syndicate (bond men's organization). None of the members was apparently able to decipher them, though Everett Bacon, former treasurer, cryptically observed "Some do and some don't. And those that don't stick closest to those that do."

Week in review:

Stocks sold off sharply; Dow industrial average hit a new bear market low, while the rail average declined to a post-1924 low. Selling attributed to poor earnings reports and discouraging business prospects; steel production and electric output declined, although March rail earnings appeared to improve and the steel decline seemed likely to level off. London stocks suffered a dismal week, but the Paris and Berlin markets rallied toward the week-end, largely wiping out earlier losses. Bond market featured strength in highest-grade issues, but readjustment in lower-grade. US govts. continued strong, and European steady. However, other areas provided excitement, with sharp break in Australian, Uruguayan, and Bolivian issues but rally in Brazilian. Corporate highest-grade issues steady, including utilities and highest-grade rails; NY traction issues firmed after Gov. Roosevelt signed unification bill; other corp. issues weak, particularly amusement, cement, and oil issues. Foreign currencies featured strength in sterling, weakness in franc; Fed. Reserve of NY cut bill rates to cut off gold shipments from France and influx of funds from the US and foreign centers; cut in rediscount rate seen possible; call money "went begging" at 1% most of week though official rate was 1 1/2%; US gold holdings hit new record. Grain prices sagged, with corn particularly weak; cotton fluctuated in a narrow range.

Market commentary:

Market wrap: Stocks were under pressure again in the short weekend session, with sharp breaks in weak spots including issues sponsored by the suspended Pynchon firm, various independent steel producers, and Goodyear; selling spread across the list to major industrials including Westinghouse and GE; only buying appeared to come from short covering; closing tone weak. Bond trading continued recent trend; US govts. and highest-grade corp. issues were strong while the general corp. list underwent continued "readjustment of prices"; foreign issues were mixed, with rallies in Uruguay issues after govt. announced dollar bonds in the US would be paid, but rest of the S. American group irregular. Commodities weak; grains down sharply, with part of selling attributed to closing of suspended Pynchon co. accounts; cotton down moderately. Copper buying remained quiet at 9 1/2 cents, with larger producers out of market. Some price shading of zinc reported below 30 year low of 3.50 cents. Coffee continued rally.

Dow industrial average closed at a new bear market low; there were 3 new yearly highs and 104 new lows.

Conservative observers extremely cautious; recommend sidelines, using rallies to reduce long holdings.

The Street felt a technical rally was long overdue, but now believed it would be postponed until "repercussions of the Pynchon suspension had been exhausted." On the other hand, some were relatively optimistic, seeing the suspension as "bad news out of the way." While the Bank of US failure in Dec. was followed by continued decline, "at present, the bear cycle is in a much different phase." Forced liquidation by margin accounts is at an end, and selling now seems to be from discouraged investors (as seen by brokers' and non-brokers' loans figures). This is similar to the bear market bottom in 1921; movements of the industrial and rail averages are also similar. On yet another hand, some still expect a “selling climax.”

While some believe new lows in the rail and industrial averages indicate still lower levels, it's clear “averages cannot continue in either direction indefinitely.”

Relatively stable brokers' loans in face of stock declines may be due to non-stock market factors including income tax payments and bond flotations.

Amer. States Public Service had a wild two-day ride, dropping from 19 to 3 on Friday after the suspension of its sponsor Pynchon & Co., but recovering to 9 on Saturday. Reported earnings in 1930 were $1.71/share, though company has large amount of debt. Texas Corp. has been weak on dividend doubts in "well-informed quarters." Vacuum Oil dropped to 43 1/4, lowest since 1925; stock is trading about 14 points below its exchange level in proposed merger with Standard Oil of NY, though court decisions on the merger have so far been favorable. Chicago & N. Western Rwy. is yielding 13% at current price, reflecting dividend doubts, though it has reported relatively good earnings. Paramount-Publix seen likely to cut dividend due to committment to rebuy stock at 80 that was given as payment for property in the past year.

A number of companies made reassuring statements on dividends, including Sherwin Williams, Electric Auto-Lite, and Bendix Aviation.

Prospects for Q2 automotive profits seen better after rise in April production that is expected to be maintained in May.

E. Lee, Pennsylvania RR VP, says railroad physical plant still most important and valuable means of transport, and likely to remain so indefinitely, but rail companies should be freed to provide any form of transportation service for which there is demand.

R. Leffingwell of J.P. Morgan attributes world depression to waste of life and wealth in the great war, to other consequences of the war in debts and transfers of sovereignty, and to ongoing tariff wars.

E.F. Hutton notes one market theory that became widely popular in 1928-29 but seems likely to lose many followers now is paying for earnings rather than dividends. In the bull market many stocks were bought at 12-20 times earnings, even though less than half of those earnings were distributed to the stockholders. The theory was that earnings that remained in the company would eventually benefit stockholders by being invested to increase future earnings and by being used to maintain dividends in poor times. It hasn't worked out that way; much of the surplus has been invested in unproductive assets or in "maintaining the corporations on a bull market basis as regards salaries, bonuses, wages, etc."; in many cases this has actually hurt rather than helped stockholder interests.

J. Raskob (GM exec., Democratic Nat'l Committee chair.) says believes bears are now overdoing things as bulls overstayed the market in 1929; corporations including GM and US Steel selling well below "real value ... We should be courageous now and not fearful. The time for fear was 1928 and 1929 ... Generally, on the business situation, I am thoroughly bullish. I believe we are practically through all the liquidation necessary to establish business on a real rock foundation." Believes wage cuts shouldn't be made now.

Economic news and individual company reports:

Treasury deficit through Apr. 22 was $801.2M, largest in peacetime history, though it hit $900M during the Civil War and several billion during the World War.

Federal grand jury investigating bankrupt Prince & Whitely brokerage to question partners next week.

Rep. Lewis of Palm Beach, Fl. introduces bill allowing defaulted local bonds to be used as legal tender for payment of local taxes.

Rates raised for transport of French gold to US; attributed to Anglo-US pressure on steamship cos., as further measure to keep French gold in Europe. US gold holdings still rising rapidly; gold imports this month total about $59M.

Fisher's wholesale commodity index continued decline to 74.0, vs. 74.6 prev. week and 90.2 a year ago; this was a new postwar low. Fairchild Composite Retail index reports 5% decline in retail prices from Jan. 1 - Apr. 1.

Youngstown district steel output to remain unchanged at 43% this week.

First 22 rails reporting March earnings showed a decline of 17.6% from 1930, a sharp improvement from the 51.8% decline reported by those roads in Feb.

Copper consumption held up relatively well in 1930; total of 958,850 tons was down 17% from 1929 and only 3 1/2% from 1928. However, the price picture was much less favorable, "all efforts to maintain the metal at a price that would assure a favorable margin of profit having failed." This was partly due to depletion of "invisible supplies" in the manufacturing system; because of this, decline in deliveries of copper for 1930 was a much higher 27% vs. 1929.

Air mail transported in Feb. was 642,484 pounds, up 15.3% from 1930; revenues were $1.294M, up 18.1%.

US wheat exports from July 1, 1930 to April 11, 1931 were 101.9M bushels vs. 125.5M a year earlier.

British markets anxiously awaiting Chancellor Snowden's budget speech, possible proposed tax increases; rise in income tax believed unlikely.

Manchester cotton market quiet; demand from India and China disappointing.

Uruguay instructs diplomats to arrange for suspension of amortization payments on bonds in order to balance budget.

NY State confronted with "increasingly serious financial situation" as it's now estimated state income tax receipts will decline 50% vs. earlier estimate of 40%, creating a shortfall of $5M. Gov. Roosevelt has so far cut about $7M from spending appropriated by the legislature, and it appears the state surplus will be about $1M; this isn't too secure considering chances of further revenue shortfalls. Unless situation improves, there's prospect of a new tax "to safeguard the state's depleted treasury"; what form this would take appears undecided, but increase in income tax seems unlikely.

Hearing on NY Central's request for 40% rise in commuter fares in and out of Grand Central continued.

Sears was profitable in Q1 in spite of sizeable sales decline. Montgomery Ward reported a Q1 loss as sales fell below expectations; ability to show profit for remainder of year will depend on sales, since expenses have been cut as far as possible.

Hershey Chocolate reported Q1 net of $2.95/share vs. $2.29; profit margin was a record 33% vs. 24% a year ago.

Joseph P. Kennedy resigns as chairman of Pathe Exchange (movies).

Companies reporting decent earnings: Hershey Chocolate, Consol. Gas of Baltimore, New Orleans Texas & Mexico Rwy., Sharp & Dohme (drugs), Bickford's (low priced restaurants), A.M. Byers (wrought-iron pipe), Bon Ami.

Theatre:

Brass Ankle - by DuBose Heyward (Porgy and Bess), with Alice Brady and Ben Smith, at Theatre Masque. Title refers to a "lost tribe" that originated during the Civil War when the father of a light-skinned black family was admitted to the desperate Confederate Army as a white man. Afterward, his family and their descendants were unwilling to return to black status, yet not accepted as white, and therefore lived as a 'tribe' apart. [Note: The above version of the origin of the Brass Ankles is apparently poetic license. They are one of a surprising number of small Southern populations that are of disputed racial origin, and, in the segregated South, often fought for and won a status intermediate between white and black, sometimes with their own schools and other institutions; another is the Melungeons.] The Leamers, Larry, Ruth and daughter June, live in a Southern town. Larry leads the town's segregation movement which is fighting to have the Jackson children expelled from school for being partly black. However, when a second child is born to the Leamers it is dark-skinned, it's discovered that Ruth herself is a Brass Ankle. Larry, despite his devotion to Ruth, can't recognize the child as his own. Ruth, in an attempt to preserve her husband and daughter's white status, claims the baby is a product of infidelity; enraged, Larry kills her and the baby. Larry and Ruth are depicted sympathetically, not responsible for the deep prejudice that creates their dilemma but victims of it; this is human tragedy on a personal, immediate level. Performances are excellent, and the writing powerful. However, while this is "the worthiest effort made on Broadway in a good while," it somehow falls short; "some strictly dramatic pulsation is absent." [Note: this play was also mentioned in The Afro-American, a black-run newspaper, on June 6 and Jul. 11; opinion there is that the play brings in the "thoroughly exploded theory of atavism" to explain a white couple having a black child instead of the "far more logical assumption" that the father is black; play is contrasted with the more realistic scenario and comic treatment of the subject of "race mixing" in the French film "Blanc et Noir."]

Film:

The Public Enemy - Warner Bros., with James Cagney, Edward Woods, Joan Blondell, and Jean Harlow, at the Strand. "A graphic picture of the rise of two city hoodlums from petty thievery to a commanding position in the beer-running racket of a contemporary metropolis." Cagney's portrayal as the tougher of the two "is strikingly real and filled out with a variety of convincing detail." Film "sketches the changes of city life from the saloon days of 1909 to the night club and speakeasy days of 1930 with an accurate knowledge of atmosphere ... presents not only a character study of two gangsters but a social study of a criminal system." Story is "intensely moving and often brutal ... an avowed preachment against gangsterism, a driving, dramatic attack upon an outstanding evil of contemporary American life." For this reason the climax is uncompromisingly gruesome and without "romantic glamor. The picture as a whole is worth anybody's while as entertainment or as sociological case material." [Note: launched Cagney to stardom; Woods was originally cast in the lead, but the roles were switched mid-production.]

Views of sports:

Account of the rip-roaring final match of the indoor (!) polo national open championship, in which Winston Guest's undefeated team "The Optimists" was upset by the "Los Nanduces" team organized by Lt. McD. Jones, US Army, in a thrilling come-from-behind 8-5 victory.

Poem by F. Caverly:

Now isn't it a funny thing That tips are all bologney?
I started once with that 'shoe string' To swell my patrimony.
When I was told some stock to buy -- Tip, hot as the equator --
I rushed right in and bought it high; That's what they told me later.
They told me next 'twas best to sell; Short, that's the market patter;
Good news came out my stock rose --- hell! To you it doesn't matter.
With just two ways for stocks to go -- Up or down, or rise or slump --
Why doesn't some one really know One in which the cat will jump?