Wednesday, May 13, 1931: Dow 150.24 -1.32 (0.9%)

Assorted historical stuff:

[Note: The Kreditanstalt failure is often cited as one of the Depression's major turning points. These points seem to have been somewhat less cut and dried if you were actually living through them.] Osterreichische Kreditanstalt, largest bank in Eastern Europe, admits losses of 140M schillings and is bailed out by combined 160M schilling ($23M) infusion from Austrian govt. (100M), Austrian Nat’l Bank (30M), and “a Rothschild” (30M); bank has total assets of 2B schillings. “Prompt intervention of the Austrian govt.” saved the bank; foreign shareholders will lose about 25% of par value of their shares, but “foreign credits are not in any danger as the bank is liquid.” Austrian govt. controls the bank and therefore much of Austrian industry. Austrian currency dropped but bonds were steady. Berlin stocks were down sharply due to intimate relations with Vienna, with losses averaging 4%-8%. However, “in Berlin financial circles the opinion is expressed that the worst of the crisis has been passed and banking cooperation between Berlin and Vienna is expected.” Stocks in Paris and other major European exchanges also broke sharply. London bankers were shocked at the news, since it was thought “the position had been cleared up when the Boden Kreditanstalt was taken over some time ago.” Nevertheless, considering strength of board of directors, frank revelation of current losses, and prompt action taken, “confidence in London was not shaken and no credits were withdrawn.”

London Daily Herald predicts “financial sensation of tremendous importance” in near future, when public prosecutor will act against world-famous businessman concerning publication of documents about a group of large companies.

Editorial: Real crux of current economic problems is continuation of war psychology in Europe. The world wants long-term credit, but it can’t get it from the two countries in a position to supply it. US investors don't believe it's safe to make long-term loans because of danger of a renewal of fighting. French investors won't make them cause they believe “security of France against attack by her ancient enemy is still unassured.” The French response has been in two directions; the first - military preparedness - is only partly effective, and the second - the continued attempt to keep Germany “economically and militarily helpless” - makes things worse. The situation represents “democracy's first contact with what is perhaps its greatest single problem, that of making peace after a war.” Tariffs and debts are secondary to this problem, and can be dealt with when the war problem is solved. It’s been said that world history can be told in six words: "Peace, Prosperity, Pride, War, Poverty, Peace"; let's hope history runs true to form and the current poverty “may be the harbinger of peace.”

E. Thompson, Lord Mayor of Liverpool, reports Pres. Hoover in recent conversation expressed belief present financial situation is “mental.” Pres. Hoover proposes abandoning 20-30 army posts for savings and greater efficiency; 13 have been abandoned in the past 2 years.

Miss Ida Tarbell, biographer of US Steel head Elbert “Judge” Gary, predicts unemployment and not Prohibition will be main issue of 1932 Presidential campaign.

Another hard-hitting expose by T. Woodlock alleging that the [govt.-owned] Toronto Hydro-Electric System is overcharging for electricity used by operators of the streetcar system that it’s supposed to supply at cost. Charges favoring of home users and other large customers at expense of the streetcar system.

Beauty parlor workers’ union of greater NY calls strike of 1,500 members asking $16 minimum weekly wage, 50-hour week.

Railroad safety has improved to such an extent that insurance companies now estimate odds a passenger will safely complete a 40 mile journey at 11M to one.

Reports from the Antarctic tell of a new electrical harpoon that shocks whales to death, use yielded 11,000 barrels of whale oil to the Anglo-Norwegian whaling fleet in the first week of operations.

Mt. Vernon residents annoyed by thousands of starlings nesting in trees have solved the problem by stringing electric lights in the tree tops.

Institute for Mortuary Research responds to April 27 story implying undertakers were optimistic due to 8% rise in mortality in Q1; says mortality generally rises and falls together with prosperity, so undertakers were optimistic because rise in mortality indicated prosperity for country as a whole, not just themselves. However, “optimism, such as it was, may have been premature” since mortality in April is back to level with 1930.

War of 1812 recently returned to the limelight after discovery on Walpole Island, Canada of remains believed to be of Tecumseh, great Shawnee chief who led his fighters against US troops. Identification was made through fracture of left leg that Tecumseh was known to have suffered in a youthful buffalo hunt.

Market commentary:

Market wrap: Stocks were unsettled in the morning by heavy pressure on rails following poor NY Central earnings report; latter broke to post-1923 low, and other leading rails fell sharply; selling spread to various industrial issues, though these were supported when they approached recent lows. Trading turned sluggish in midday as market settled into narrow range; mild improvement took place toward the close. Strength in highest-grade bonds continued following successful NY City sale, but lower-grade weakened; US govts. strong with most at new highs; highest-grade corp. strong but other parts of the list diverged, with sharp declines in some sections including lower-grade rails; foreign list mixed with sharp break in Argentine govts. and weakness in Brazilian and German issues. Commodities mixed; grains up substantially under leadership of corn; cotton down moderately. Some sales of copper continued at 9 cents; producers holding at 9 1/2 cents; quiet buying outlook seen over next week. Lead and zinc unchanged at longtime lows. Cocoa down to another record low.

Bull pools are reportedly becoming more cautious after several recent operations proved unprofitable; it's been difficult to attract a following even among traders, and pools have had trouble finding buyers after completing their accumulation of shares. Some oil shares came under pressure due to dividend doubts; Texas Corp. reached record low. However, most recent industry statistics show slight improvement due to East Texas production curtailment.

American Can has been a popular recent bear target, based on rumors of lower earnings and and high inventories at canners; can industry interests admit some unfavorable factors but say it’s too early to tell about prospects for the year; co. only publishes results annually. Loew’s is favored by amusement interests who point out their conservatism in buying new theaters, and say “many of the unsatisfactory situations” reported for other amusement cos. don’t apply to Loew’s. Bethlehem Steel has been better supported than US Steel over the past few weeks, holding 5 to 9 points above its 1931 low.

Market seen likely to become more selective during dull periods, “due to the tendency among prospective buyers to study the affairs of the various companies before taking long positions.” [Note: That’s crazy talk!] When the market has a technical rally, “doubtful issues” are likely to rise sharply because of short positions, but are also likely to reverse as soon as covering is completed. Optimists see greater selectivity as a positive sign; as bear market draws to a close, the issues with more solid dividends and earnings prospects will turn up first. A compilation of 140 stocks reveals that only 2 held above their previous bear market low during the late-1930 break, while 87 have held above their bear market lows in the most recent decline, indicating greater resistance to general selling pressure.

Many interests expect continued improvement in the bond market due to lower short term money rates; a number of brokers have been compiling lists of bonds for customers, indicating increased public interest.

Fed. Reserve seen using “all of their available weapons to keep money as cheap as possible for a long period - at present levels ... or at even lower charges if necessary” to accomplish objective of reviving longer-term capital markets and sending gold abroad; period of at least 4-5 months is anticipated. Recent heavy withdrawals of funds from NY by out-of-town banks encouraged hopes of flow of funds into security markets; while this will begin with high-grade bonds it should then move into high-grade stocks with safe yields; the average dividend yield on the Dow industrials now is 4 3/4% above that on 90-day time money vs. only 1% at the bottom of the 1919-21 bear market.

Despite initial positive reaction from fixed investment trusts [similar to ETFs] on new NYSE rules, implementation will be complex and may take months.

Inquiring Investor question concerns National Distillers (medicinal whiskey); reader wants to know if large Q1 earnings are due to exceptional circumstance. Reply is that outlook is satisfactory for continued good earnings in Q2, particularly since recent Prohibition rulings allow dentists and chiropractors to issue prescriptions.

Prince of Wales urges British industrialists to pool ideas to maintain S. American trade position; sees depression worse than at start of his S. American trip.

Weekly banks statements showed discouraging drops in “all other” loans and holdings of non-govt. securities; “all other” loans are lowest at this time of year since 1923; “liquidation of loans and investments still seems to be the order of the day.” Decline in demand deposits is normal seasonally.

S. Logan, Canadian Bank of Commerce GM, sees mixed picture but overall, “some degree of stability ... evidenced by reports from various sources ... and by ... the govt’s latest employment report” showing first-quarter decline not as sharp as in 1930. Future will depend largely on summer and fall agricultural conditions.

Economic news and individual company reports:

Automotive production so far in May is continuing at a slightly higher pace than April; it now seems likely total May output will exceed April, when US and Canada output was 348,909 cars and trucks. So far, nothing indicates a downturn in output; production at parts makers continues as high or higher than April, and dealer inventories of Chevrolets are down in spite of large April production increase. Hopes are increasing that current pace will be maintained into June.

Rail freight loadings for week ended May 2 were 775,291 up 16,019 from prev. week, down 17.7% from 1930 week, and down 26.2% from 1929. NY Central reported net loss of $144,913 for Q1 vs. income of $8.5M in 1930, the first time the consolidated system failed to cover fixed charges in a first quarter. Revenues were $99.3M vs. $123.2M; management cut expenses as far as possible, reducing operating costs by $18.1M, but were unable to keep pace with revenue decline; results in April indicate continued poor earnings. Southern Pacific seen likely to cut dividends after discouraging results so far this year.

NY City 4-year $52M bond issue a smashing success; awarded to Nat'l City syndicate at interest basis of 2.997%, lowest in city history, vs. 3.866% for similar issue in 1928; resold in 10 minutes at yield of 2.87%. Call money returned from 1% to 1 1/2% due to technical factors as NY Clearing House banks left their demand deposit rates at 1%.

S.W. Straus reports April construction permits in 561 leading cities were $172.3M, down 16% from 1930 but up 7% from Mar. vs. usual decline of 2.7%.

Refineries ran at 65.1% in week ended May 9; stocks of gasoline rose 197,000 barrels to 45.810M. Crude oil production in week was 2.469M barrels/day, down 6,400 from prev. week and down 126,450 from a year ago.

American Machinist reports machine tool trade remains dull, sales now mainly to govts. However, prices steady and scattered indications of higher activity.

Pres. Hoover reports out of $67M appropriated for various types of farm relief loans, $47M has been loaned to 318,000 individuals; it’s believed loaning operations are almost complete. Of $45M for seed loans $39M has been loaned; out of $10M for “agricultural rehabilitation” $5.140M; out of $10M for Agricultural Credit Corp. $471,000. Farm Board chair. Stone seen opposing proposed plans for 1931 wheat surplus involving having farmers hold 25%-30% of crops on their farm, or delivering it to govt. agency for sale in export markets.

Another breakdown of US tax data for 1929 [see also Apr. 16]. 4.035M individual tax returns, of which 2.465M owed tax; total individual net income $24.5B; 75.98% of returns reported income under $5,000, total income about $8.3B; 21.49% reported $5,000-$25,000, total $8.1B; 2.53% reported over $25,000, total $8.1B. 495,757 corporate tax returns, of which 53% were profitable, total net $10.3B, and 47% unprofitable, total loss $2.7B.

Russia raises prices 50% on food, liquor, and almost all basic commodities. Commissar of Finance Grinko has already stated there will be no additional circulation of currency in 1931; steps seen as indication authorities have awakened to inflation and are taking action for stabilization.

British Board of Trade reports April imports 70.0M pounds vs. 70.7M in Mar. and 83.9M in Apr. 1930; exports 32.5M vs. 34.0M and 46.9M. Registered British unemployed May 4 were 2.530M vs. 2.520M on Apr. 27 and 1.712M on May 5, 1930.

French govt. imposes system of export licenses on nitrogen fertilizers and other chemicals to protect French industry developed since the war.

Francs continued to strengthen, while sterling weakened; report of Bank of France selling foreign currency unsubstantiated.

Refined copper inventories in N. and S. America at end of April were 367,921 tons vs. 354,205 in Mar., first increase in six months; production of refined copper was 100,501 vs. 102,058 in Mar. and 124,531 in Apr. 1930; shipments 86,785 vs. 111,482 and 79,213.

Editorial on lawsuit by NJ interests asking ICC for abolition of “free lighterage” in port of NY (by which rail freight arriving at port of NY is delivered to any waterfront destination in the “lighterage zone” without extra charge). In asking for extra charges for delivery to NY City as opposed to NJ, these interests are upsetting a longtime principle of rate unity and threatening to damage the whole area in return for a relatively small gain for NJ industry. Former Gov. Alfred E. Smith testifies for NY in the ICC lighterage hearing.

NY State factory employment declined 0.9% in April after rising 1.5% in Mar. and 1.4% in Feb.; payrolls dropped 2.7%; decline largely seasonal.

Westinghouse says all salaried employees earning over $200/month will take a month's unpaid vacation this year; A. Robertson, chair., said action was taken as retrenchment measure fairer than forced vacation for laborers.

Companies reporting decent earnings: Sweets Co. of America.

At the galleries:

This is the time of year when dealers and collectors prepare for their annual journey to Europe in search of “finds, bargains, and knowledge.” This year has seen “a curtailment in buying power not equaled in many seasons past”; nevertheless, “even to hint at the possibility of the foregoing this annual pilgrimage for the large majority of men prominent in the fields of art, would be sacrilege.”

The Brownell-Lambertson Galleries are showing a dining room, after their successful recent presentation of a modern living room. Furniture designed by Hammond Kroll uses a great variety of woods; dining table is English cypress with pewter base supported by four pink glass rods; chairs are ayous wood with blue suede upholstery; cabinets are of Macassar ebony, boxwood, and French walnut; other room appointments include white porcelain figures, a chiffon glass bowl, a hand wrought silver bowl, a rose marble nude, an Orrefors crystal bowl with a frieze of nudes, a clock of Baccarat crystal, tall vases of Swedish glass, a batik, a 3/4-length nude, and a group of miniatures. Most modern note in the room is struck by two glazed Chinese pottery horses, though oddly enough they date from the Tang Dynasty (618-907 AD).

Vaudeville:

Appearing at the Palace: Harriet Hoctor offers “an entirely new dancing act, ... original in conception and graceful and precise in execution.” Finest number is performed to Schubert's Dei Krahe - “Miss Hoctor floats across the stage, against a lighted background, clad in a flowing black gown and moving her arms in slow imitation of the wings of the raven. This creation transcends the usual scope of the ballet, elevating this dance form to a plane of great artistic expression.” Another number called “Rumango” combines “certain elements of Spanish dancing with the ballet technique.” Also featured is the “usual dazzling array of terrifying slapstick” by Clayton, Jackson and Durante.

Movie:

Hell Bound - Another gangster character study along the lines of Little Caesar; although not up to its high standard, is still exciting and interesting. Gang leader Nick Cotrelli falls in love with musical comedy actress whom his men pick up in a case of mistaken identity. Love triangle forms when doctor the gang kidnaps to take care of the actress also becomes enamored. Bittersweet resolution comes as Nick is “taken for a ride” by his enemies; “one imagines, after the first sadness of Nick's death has passed, she will be happy with the doctor.”

Joke:

Diner Customer - It looks like the flood out there. Waitress - Like what? Customer - Like the flood. You've read of the flood, and how the ark landed on Mount Ararat, haven't you? Waitress - No, sir. I haven't seen a newspaper for three days.