June 2, 2010

Tuesday, June 2, 1931: Dow 122.77 -5.69 (4.4%)

Assorted historical stuff:

Fed. Reserve of NY agrees to cooperate with other central banks and the BIS to support the Austrian Nat'l Bank through the purchase of Austrian commercial paper. Action is being taken to insure position of the Austrian central bank in the Creditanstalt crisis. Agreement said similar to those reached with other countries in the past. "Local bankers state that the granting of this credit removes much of the uncertainty which has hung over international markets in the past few days. Runs had developed on banks outside Austria in which Creditanstalt was interested, while the entire Viennese banking situation had caused a severe reaction on the Berlin Boerse which spread to other European stock exchanges. By this move, however, Austrian bankers are assured of sufficient assistance to prevent further possible trouble in that quarter."

Pres. Hoover's Memorial Day speech invokes hardship of the American Revolution; "The American people are going through another Valley Forge at this time". Difficulties are due to worldwide depression caused by greed, crop failure, "malign inheritances of the Great War and a storm of other world forces beyond our control." Effects have fallen heavily upon many not implicated in the causes; "many have lost the savings of a lifetime, many are unemployed, all know the misgivings of doubt and grave concern for the future." However "this, like a score of similar experiences in our history, is a passing trial." Solution will be in "the inventiveness, the resourcefulness, the initiative of every one of us." Hits siren song of legislative panaceas and govt. intervention: "We are still fighting this war of independence. We must not be misled by the claim that the source of all wisdom is in the government. ... the way to the nation's greatness is the path of self-reliance, independence and steadfastness ... Valley Forge met such a challenge ... in times and terms of war. Our test is to meet this challenge in times and terms of peace." Editorial: Pres. Hoover made some good points on the need to preserve individual freedom from “the deadening restraints of government” and to fight “special privileges and greed or domination by any group or class.” However, as he himself pointed out we're facing a world crisis. Therefore, we can't simply fall back on our own convictions and will; “there are other wills, ... other ideals in the world besides our own; without 'a decent respect to the opinions of mankind' the unshaken conviction that ours will prevail is headed for disappointment ... the US of 1778 is not and cannot be the US of 1931.”

C. Teague, Farm Board member, tells Pres. Hoover losses incurred were justified by benefits to farmers; important progress made in cooperative marketing. Submits resignation from Board; accepted by Pres. Hoover; no successor named. Editorial: The just-ended wheat stabilization efforts of the Farm Board left much wreckage behind, including heavy losses of money and of export markets. “There has been the expected eulogy from official sources, but there is no one in the markets to rise up and say as was said of King Duncan that 'after life's fitful fever he sleeps well.'”

Editorial by T. Woodlock listing poor rail trends over the past 20 years. Rails are on pace to earn about $600M in 1931 vs. $1.040B in 1916; payroll is about $732M higher. In 1920-29, cars and buses took about 1/3 of passenger traffic; trucks took over much small freight. However, main problem now is the depression "and we must assume that depression will pass some day. That the railroad industry is not passing into permanent desuetude is as certain as anything can be certain."

Over 2,000 more coal miners join strike in western Pennsylvania fields; demand higher wages and appointment of union man to check weights.

Following "unsatisfactory" attempt to burn surplus coffee in Santos, Brazil that caused objectionable odors, the Nat'l Coffee Defense Council of Brazil announced plans to destroy 40,000 sacks of coffee this week by throwing them in the ocean.

Argentina is looking for a solution for keeping track of roughly 32M cattle with thousands of owners; branding can be troublesome when ownership is changed.

Los Angeles 1931 budget for fiscal year starting July 1 estimated at $47.5M

Packard diesel-engine plane that set world non-refueling endurance [6,600 miles in 84 hours 33 minutes] used only 481 gallons of fuel.

An enterprising young unemployed New Yorker recently got the idea there was money to be made rehabilitating neckties. After starting out cleaning and pressing ties at 12 for $1, he now has so much business he's invested in a delivery car on whose sides are painted "Necktie Ambulance."

A new dining trend has started on the West Coast. A dozen restaurants have opened featuring a large circular bar with seating; in the center is a slowly revolving table with dishes in glass sections. Patrons remove all the items they want, including hot dishes, cooled salads, fruits and cakes, paying a fixed price per meal.

Market commentary:

Market wrap: Reaction in stocks picked up momentum, resulting in further substantial declines across the list, with market showing no ability to rally at any time. Selling orders accumulated over the Memorial Day weekend, resulting in weakness from the open; selling again converged on US Steel, which worked steadily lower into new bear market territory. Also unsettling was the rapid decline in major rails including NY Central, Atchison, and B.&O.; "disgusted liquidation of investment holdings was pouring into the market in a steady stream." Oil shares were also heavily pressured, led by Standard of NJ, following cuts in midcontinent oil buying prices. Decline picked up breadth and momentum as session progressed, volume heavy in the afternoon; the whole market was severely pressured in the final hour. Bonds moderately active; US govts. steady; foreign issues irregular with most European issues weaker while Argentine bonds rallied; domestic corp. bonds reactionary with many new lows. Commodities weak; grains down sharply with corn hitting post-1922 low; cotton down sharply to new post-1915 low. Copper buying quiet at 8 1/2 cents. Silver up 3/8 cent to 26 3/8.

Conservative observers extremely pessimistic, but also point out that a technical rally may begin at any time and therefore advise against going short.

Leading brokers report liquidation by long-term investors again in progress; there was no evidence of "support for the account of important financial or industrial interests"; demand appeared limited to short-covering. Brokers also report "customers are becoming disgusted with the action of the market." Some have made repeated attempts to pick the low point, only to eventually sell at a loss; many had protected accounts with stop-loss orders that were hit during reactions.

NYSE questionnaire "thus far apparently not at all curtailing short selling by outsiders." A number of interests believe a "selling climax" is necessary before the market changes direction; they considered the increase in volume during the afternoon a hopeful sign.

Pressure continued on stocks of some companies whose earnings have been resilient up to now. Major dairies have been pressured on fears of new competition and lower prices. Lambert (toiletries and medicinals) has sold off in spite of reporting Q1 earnings of $2.81/share vs. $2.76 in 1930; with an annual dividend of $8 and stock price of 61 1/2, yield is now over 13%.

Frazier, Jelke & Co. report severe decline in the value of 100 representative common stocks over past 3 months; total market value at end of May was $17.439B, down 14.2% in May, after declining 10.4% in April and 8.4% in March; total decline was $7.361B or 29.7%.

J. Johnston, British investment authority, says believes "in telling America brutal truth" that no permanent improvement will come in world conditions until international war debts are cancelled; suggests direct payment of reparations to the US to make it face reality [official US position is that reparations and war debts are not connected].

Sir J. Salter, dir. of League of Nations economic section, says decline in silver is not major cause of worldwide depression; existing proposals to solve silver problem including restricting govt. sales, loan to China, or bimetallic monetary system would be ineffective; conference that fails might be worse than none at all.

Russell, Miller & Co. attempt to introduce "a little variety into the long drawn out story of depressing news." Sales of the two large mail-order houses have been satisfactory recently. Some of the du Ponts have in the past few days bought large amounts of their own stock and GM. "Generally speaking the corporations dealing in consumer goods are receiving little tokens from time to time that there is a large body of submerged buying demand in this country that will not stay submerged very much longer."

W. Scobey of S.W. Straus & Co. cites 1907 depression to show prosperity can set in “after a period of deepest gloom ... unexpectedly and without warning.”

National City Bank reports irregular contraction in business activity during May, as usual in that month; however, "after allowance is made for seasonal influences it is not clear that the losses for the month have been abnormal."

William L. Cooper of the Commerce Dept. says recent improvements in several lines of trade and industry justify belief that first quarter of 1931 "has marked the turning point in the prolonged decline in business which commenced nearly two years ago." Comprehensive and reliable indexes of current business show a low point reached in Jan., from which each succeeding month has improved slightly, seasonally adjusted; index of factory production is up 11% from Jan. low.

Royal Bank of Canada says new analysis by NY Fed. proves feasibility of controlling general level of prices. Shows that trend of world production has been much more regular than generally believed; “Can it be that had the growth of credit paralleled the increase in volume of production and trade there would have been no substantial changes in the general price level, no major business cycles, no booms, no severe depressions?” This is a startling and important concept, offering hope that “social injustices inherent in all major changes in the general price level” can be avoided. Notes that gold standard countries must depend on central banks of US, France, and Britain for policy, since they control 75% of monetary gold; calls for aggressive policy to expand credit.

Dow industrial average closed at a new bear market low; there were no new yearly highs [!] and 335 new lows [!!].

Economic news and individual company reports:

Western rail executives pass resolution favoring request for general rate increase to yield about 10% more revenue; will confer with Eastern execs at later date. Railroad trainmen's union adopts resolution to provide work for about 11,000 idle trainmen by limiting working hours.

Standard Oil of Indiana reduces buying price for midcontinent crude 30 cents/barrel to 37 cents/barrel for gravity 40 and higher; says move made necessary by cuts in East Texas oil prices. US consumption of gasoline rose 6.4% in Q1 to 3.004B gallons, bucking the trend for most other commodities.

Fisher's wholesale commodity index hit another postwar low of 70.3 vs. 71.0 prev. week and 71.8 two weeks ago.

US gold imports in May were about $75M, heaviest of the year, and bringing total close to $4.8B; influx seen likely to continue and to cause further ease in money.

Fed. Reserve review for May: Recent cuts in bill buying rates haven't caused large increase in bill holdings of Reserve banks, but “access to Fed. Reserve credit has been facilitated somewhat.” Prices of highest-grade bonds rose gradually most of the month, and main European currencies strengthened moderately, apparently due to shift of funds abroad. However, lower-grade bonds showed no improvement and no withdrawal of funds from NY to rest of the US was seen.

US to offer $800M in 3 1/8% bonds running from 15-18 years dated June 15; seen as start of series of offerings to refinance short-term debt.

Dow average of 20 long-term city and state bonds is steadily approaching a 3.50% yield, though many long-term bonds of less highly rated issuers yield well over 4%, including San Francisco, Louisiana, Detroit, etc.

Foreign currency markets featured strength in French francs vs. dollars and sudden rise in Swiss francs.

Canadian report: Index of employment rose 2.5% to 102.2 in April vs. 111.4 a year earlier. Deficit for fiscal year ended March 31 was $75.2M; revenue of $356.2M was lowest in 10 years. Net debt as of March 31 was $2.262B.

Italian Fin. Min. Mosconi says internal bond issue to refinance $209M debt due in Nov. oversubscribed 75%; estimates fiscal year deficit $45M.

Nord Stern, second-largest German insurance co., omits dividend due to large investment losses. Daimler-Benz, largest German automaker, reports loss.

New Spanish currency restrictions reportedly forbid buying foreign securities and currencies; authorization of Exchange Office is needed to buy property abroad or to invest in foreign undertakings. Yugoslavia moves to stabilize dinar at 26.5 milligrams in conjuction with offering of 40-year 7% $40M stabilization loan. Mexican banks import US gold dollars as part of govt. plan to stabilize peso.

Argentine Fin. Min. Uriburu says govt. will continue to promptly service debt, and attempt to restore peso to parity. Peruvian Junta govt. suspends payments on all debt service until Dec. 31 due to lower revenue.

Chile raises duties on over 200 items including textiles and paints. Nicaragua raises import duties 12 1/2% for funds to repair earthquake damage.

World's leading oil producer in 1930 was Royal Dutch-Shell, with 12.0% of world output vs. 11.9% in 1929.

Chevrolet output of cars and trucks in May was 113,852 vs. 106,096 in Apr. and 113,187 in May 1930; this was the largest monthly output since July 1929.

Reo Motor Car Co. is introducing two new Reo Speedwagons.

Prices of California sardines up sharply; demand increasing and inventories low.

Companies reporting decent earnings: Brown Shoe, Holland Furnace.


Der Grosse Tenor - in German, at the Ufa Cosmopolitan. Emil Jannings gives a superb performance, "throwing off at least two decades of greasepaint age" and character roles [including the middle-aged professor ruined by Marlene Dietrich's character in The Blue Angel] to appear naturally as Albert Winkelmann, "high-living golden-voiced" Viennese opera star. Film follows him from heyday in Vienna to failure on South American tour "where he is leered at by a broken-down Russian tenor"; he then returns to his wife and farming life in Germany, where he recovers his voice and makes a triumphant return to Vienna.


"Census Taker - What does your husband do for a living? Housewife - He sells apples. Census Taker - I thought you said he was an evangelist. Housewife - Oh, that's his profession."

"'We are celebrating our maid's jubilee today.' 'Has she been with you 25 years?' 'No, she is the 25th we have had this year.'"

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