Friday, May 1, 1931: Dow 151.19. +7.58 (5.3%)

Assorted historical stuff:

Editorial: Businessmen should be responsible and stop joining "college economists" and "maverick politicians" in their talk of "failure of the capitalist system" and "challenge to the existing order." It's precisely because most businessmen do carry on with "energy and an abiding faith that what has availed in adversity before will avail again that the country is assuredly weathering the storm." This isn't a call for "manufactured optimism" or for ignoring ideas from those "who know what they are talking about and honestly seek the common good." However, the loudest challenges now are coming from "from those who only have a dangerous half-knowledge ... or those who have their own private reasons for beating the air."

Editorial by T. Woodlock: Inequality of wealth began along with civilization, along with resulting discontent that has varied in intensity. However, starting with the French Revolution and culminating in the War, this discontent became a “permanent social force” and political power passed to the majority “unprivileged class.” This is likely to lead to some redistribution of wealth, which raises hard questions. As a moral matter, it's clear that industries shouldn't exist unless they provide “at least a decent human life” for workers. Also clear is the right to own property, but not extending to owning “superfluities as against another's grave necessity.” As a practical matter, material rewards are useful in our society as incentives for the gifted in business and industry to excel, and as capital for investment. It might help to shift the discussion from “heated generalities” to considering specifically what is the largest income and wealth that an individual can safely be permitted. [Note: not sure if he's serious or if this is a rhetorical device arguing against limits on wealth.]

Letter from a country banker responding to “veiled criticism”: A customer sent in an application for his veterans' bonus loan 2 months ago and has been waiting patiently since. In the meantime, he has to make payments on a Federal farm loan, so we lent him $50 on his unsecured note to prevent foreclosure. This would no doubt be considered bad business by your newspaper, but please let the writer know what you would do. [Note: I'm pretty sure what Goldman Sachs would do ...]

Editorial: Compulsory retirement at 70 was subject of two recent news items - US Steel adopted it, while NY State exempted the Governor's appointees so that William G. Rice (74) could stay in office. Some form of compulsory retirement is probably needed, but making it universal at 65 or 70 deprives the state or private enterprise of many able and willing workers. Examples could be given where men over 80 continued to do valuable and unique work; Judge Gary headed US Steel itself until nearly 80, and Justice Holmes at 90 is certainly a valuable member of the Supreme Court. The question may be better handled by a retirement board that judges cases on an individual basis.

Pravda reports Soviet spring sowing "quite unsatisfactory." Plan called for early sowing to be done by May 1, but only 10.4% of plan accomplished in Ukraine and 23.8% in North Caucasus. Cotton sowing especially poor.

Dr. H. Luther, Reichsbank pres., says chief cause of worldwide depression is maldistribution of gold due to reparations and war debt payments; "political payments form a constantly disruptive element in normal international economic relations."

Romanian King Carol denies he's planning establishment of dictatorship.

Several South Chinese provinces proclaim independence from Nationalist govt. of Chiang-Kai-Shek; announce establishment of "provisional revolutionary govt. of South China."

NY City keeps a daily record of air pollution in the form of dust particles suspended in the air. Using scientific instruments it is possible to count the number of dust particles in a small air sample, and extrapolate to the number of tons of dirt suspended per cubic mile of air over the city. Last year June had the dirtiest air, (daily average of 5.75 tons of dirt/cubic mile), and Dec. the cleanest, (2.65 tons). Ordinarily 8 am is the dirtiest time of day and noon-2 pm the cleanest.

Beware Hawaiian waters. The Prudential Insurance Co. reports 500 drownings in the "paradise of swimmers" in the past 11 years, more than double the rate for the U.S. as a whole.

Aviation Corp. of the Americas changes name to Pan American Airways.

An enterprising restaurant chain recently tried a new direct mail campaign. Having procured a list of the names and home addresses of a number of Wall Street men, they sent out letters in "chaste white envelopes almost of wedding invitation elegance." After a personal salutation the letter somewhat startlingly continues: "Do you like your eggs poached or scrambled? Or, do you prefer cereal? ..." No word as to success of the campaign.

"Trained monkeys are now used by Chicago burglars to squeeze through transoms ... and open locked doors from the inside, thus demonstrating the uplifting power of evolution."

A retirement home for members of the Canadian Royal Northwest Mounted Police is being built in Calgary and will open this summer. The fund for the home was started by former "Mountie" George A. Allen now residing in London. Currently, Seattle is a popular place for retired veterans of this service.

Market commentary:

Market wrap: Stocks opened tentatively firmer, with bears staging a cautious retreat in the first hour. Bears attempted to regroup about 11, staging a vigorous drive on American Can and briefly pressuring AT&T; however, selling didn't spread and covering resumed in late morning. Bear retreat turned urgent after another rumor of a Fed. rediscount rate cut after the close; this was later refuted, but many bears were unwilling to keep their position over the Fed. Reserve meeting; short covering increased in volume and rally became vigorous in the afternoon, with "sharp recoil" in US Steel and leading shares rising rapidly. Bond trading more active, prices improved across the list; highest-grade issues were near 1931 highs, while lower-grade reversed recent weakness. Commodities mixed; grains up sharply, corn especially strong; cotton touched new post-1915 low but then recovered some ground. Some copper sold at 9 3/8 cents; zinc hit new low at 3.35 cents; crude rubber mixed after touching new lows. Silver down 1/2 cent to 28 on Chinese revolt.

Market observers recommended using the technical rally to reduce long positions; advised use of stop-loss orders to protect accounts, raising limits on rallies.

While most brokers make it a matter of policy not to recommend short selling, and therefore not to discuss when to cover, one broker recently was unable to resist quoting the observation from "Amos & Andy" that "even Rome didn't burn down in a day."

Rally believed to be technical (due to short covering), with "no evidence of important support" or "long-pull buying in volume." The more successful bear operators reportedly were selling again during the afternoon rally. Long-term investors have apparently been discouraged by recent market action. Those die-hards who are taking a long-term view are advising "great discrimination in making buying selections." Even when the market turns, they believe that many stocks won't share in the upturn.

Among the pet traditions being broken by this market is that stocks with an increasing number of shareholders will eventually go up. US Steel as of close of Q1 had 149,122 common stockholders, up over 35% in 18 months, and brokers' holdings are down to a record low 14.73% of shares; however, the stock is down over 146 points from its 1929 peak of 261 3/4.

Royal Dutch sold off on dividend rumors; NY Central is drawing talk of another dividend cut later this year; Commonwealth & Southern dividend cut has caused increased concern that depression may be affecting earnings at utilities, which have been relatively resilient up to now. Companies selling below net quick assets include Bayuk Cigars and the 90-year old Yale & Towne.

Wall Street interested by intimations at the Chamber of Commerce meeting that next Congress will tackle antitrust modification; both business and the Street attribute a large part of current economic ills to the "antiquated Sherman act."

Demand for high-grade bonds and preferred stocks, even at low yields, indicates investors are "seeking assurance of a steady income on their funds" due to increasing uncertainty of dividends on common stocks. Municipal bonds continue in strong demand, though spread between "gilt-edged" and lesser-known communities is wide; NY State bonds due in 10 years yield 3.35%, while lesser-known city bonds yield 4%-5%. National City defends Land Bank bonds as safer than public perception; point out over 80% of farm loans made by Federal Land Banks came after farm land had already been substantially deflated (1922 or later).

Observers believe silver market stabilizing, statistical situation better; production expected to decline about 35% in 1931.

L. Anderson, Second Int'l Securities pres., says investment trusts [similar to mutual funds] becoming established on permanent basis in US in spite of current indifference. As in England during the 90's, struggle for survival is resulting in “more conservative practices as regards reserves, investment supervision, realistic income statements, and sensible dividend policies.”

23 representative rails are selling for an average price of 67 7/8 as of Apr. 29, down from 78 3/8 at end of March; earnings for year ended March 31 averaged $6.01/share; 21 of 23 are paying dividends but only 12 earned the dividends in year ended March 31.

"Inquiring Investor" has a favorable capsule review of Kreuger & Toll [Ivar Kreuger's company, collapsed in March 1932]. Controls Swedish Match, which in turn controls International Match; basic match business works by simple process of loaning money to countries in return for match monopolies, thus receiving interest income on loan and steady operating income from protected match business. Also has interest in huge Grangeborg mining property, controls a number of large European banks, has extensive real estate holdings, and has a sizable telephone business through recent L.M. Ericsson acquisition. Earnings have been maintained through the Depression; future seems well assured, since industry is stable and management capable and aggressive.

Economic news and individual company reports:

E. Vogel of C.I.T. defends installment selling as not contributing to depression any more than other modern business methods such as automation, advertising, and the Federal Reserve system. Method is "aid in good times and in bad times"; safety has been demonstrated by record of past 18 months; 95% of obligations on Oct. 31, 1929 were paid off within a year.

The NY State Banking Dept., caught shorthanded due to the crush of bank examinations since the unsettlement of last fall. has been temporarily borrowing employees from local banks to help out. The banks have been kind enough to lend their employees out for free. Bank of US prosecution rests case; defense to begin. Committee formed for customers of failed West & Co. to enable accounts to be transferred to other brokers, avoiding “endless litigation and expense.”

NY Banking Superintendent Broderick warns savings banks to be prepared for possible heavy withdrawals by buying more short-term govt. bonds.

Fed. Reserve of NY annual report says policy in 1930 probably less influential than in 1929; the Reserve System in 1928-29 took a number of vigorous steps to restrain excessive bank credit; these were reversed in 1930. However, easy money policy that normally might have led to sustained strength in bond market and hastened recovery was thwarted by “series of untoward events” including drought, banking difficulties, political disturbances abroad, and worldwide depression.

Money in circulation Apr. 29 was up $13M to $4.625B, total Reserve Bank credit outstanding up $25M to $936M. Member banks in NY City report brokers' loans down $114M to $1.730B; loans on securities to non-brokers up $22M to $1.735B.

Veterans' bonus loans now amount to $971M and total will exceed $1.1B.

Dow average of 8 iron and steel products was unchanged at $44.23, low for 1931, though some products not in the average declined. Steel scrap markets continued to weaken, though price declines were small.

Shifting of management of Continental Shares from Eaton-Otis interests to Cleveland bankers seen increasing chances of amicable settlement of Youngstown-Bethlehem merger dispute (Continental has large holdings of Youngstown). Continental will probably shift from holding company that attempts to affect managements of companies it invests in to a more hands-off investment trust.

D. Willard, B.&O. RR pres., says New England rails should form own group rather than being absorbed in Eastern rail consolidation.

D. Kelly, Nat'l Retail Dry Goods Assoc. pres., reports about 14% of all merchandise purchased at US department stores is returned by customers, amounting to $1.5B annually; this greatly increases retail prices.

First loan for new international mortgage bank Compagnie Centrale des Prets Fonciers, sponsored by French interests, successfully floated (for $5.6M).

Bank of England continues to add to gold reserves; in the past week, total increased 488,000 pounds sterling to 147.228M; movement of gold from France expected to further add to reserves.

Foreign currencies strengthened again; long-awaited Paris-to-London gold movement still believed imminent.

French steel production in March was 722,000 tons vs. 693,000 in Feb. and 848,000 in March 1930.

F. Sackett, US ambassador to Germany, says its position has improved in recent months and conditions look more hopeful. A. Arnhold, German banker, says conditions throughout Germany have definitely turned upward; optimism gradually increasing, although recovery will undoubtedly be slow.

Bethlehem Steel reports Q1 earnings 6 cents/share vs. $0.17 in Q4 and $2.60 in Q1 1930; cuts quarterly dividend to $1.00 from $1.50; sees both company and general business continuing roughly at present levels for near future, without pronounced pickup or falloff.

Decision against Radio Corp. in patent antitrust case may affect govt. suit against merger of radio operations in early 1930 by Radio, GE, and Westinghouse.

Bellanca Aircraft announces orders for two of its newest product, the "Airbus."

J. Harman, Handy & Harman (silver dealers) chair., retires on his 87th birthday after serving the company for 64 years.

Companies reporting decent earnings: United Gas Improvement, Bell Telephone of Pennsylvania, Irving Air Chute, Consolidated Cigar.

Film:

Born To Love - RKO-Pathe, starring Constance Bennett, at the Mayfair. "Histrionics seldom surpassed on stage or screen. Sentiment drips from the scenario like honey from the comb." Doris Kendall (Bennett) is a nurse at a British hospital during the war. She falls in love with a US soldier, Barry Craig. When Craig is reported missing she marries Sir Wilfred Drake to protect Craig's unborn child. Reappearance of Craig at the end of the war reignites Doris' love. Drake divorces Doris but keeps the child. After 2 years of lonely struggle Doris is granted a visit with her son, but he dies suddenly on the eve of her visit. After a night of anguish roaming the streets of London Doris arrives home to find Craig. She is now free to marry and go with him to America. Perhaps unfair to criticize the film for melodrama and overacting, since its purpose "is undoubtedly fully realized, namely, to set the feminine tear-glands operating overtime"; few spectators are likely to be disappointed in the lack of food for deep intellectual thought.

Doctor's Wives - Fox, starring Warner Baxter and Joan Bennett [sister to Constance], at the Roxy. Theme of the picture appears to be that attractive surgeons are so beset by the advances of female patients that their wives lead depressing lives [Note: thank goodness they don't make silly shows about that anymore!]. Occasional moments of inspiration but excessively maudlin and silly dialogue and melodramatic ending make the result unconvincing. Production quality good, particularly a convincing operating room with balcony observatory in which hero must perform epoch-making operation near end of the film.

Jokes:

"'When I was twenty, I made up my mind to get rich.' 'But you never became rich.' 'No, I decided it was a lot easier to change my mind.'"

"'I want to buy an alarm clock which will awaken the maid without disturbing the other members of the household.' 'Sorry, madam but that kind is not yet on the market. The only alarm clocks are those which awaken every one in the household except the maid.'"

"Mother - Why are you reading that book on the education of children? Son - To see if you are bringing me up properly."

"'Now,' she asked, 'is there any man in the audience who would let his wife be slandered and say nothing? If so, stand up.' A meek little man rose to his feet. The lecturer glared at him. 'Do you mean to say you would let your wife be slandered and say nothing?' she cried. 'Oh, I'm sorry,' he apologized. 'I thought you said slaughtered.'"