July 20, 2010

Monday, July 20, 1931: Dow 142.42 -0.19 (0.1%)

Germany special:

Pres. Hoover is now reportedly devoting almost all his time to study of the international situation; Washington authorities believe German stability and improved int'l understanding are essential to economic recovery. "When Pres. Hoover made his moratorium proposal with almost unanimous public support, the US definitely abandoned its policy of isolation for one of cooperation." New policy "strengthens Hoover considerably." It had been hoped that the moratorium alone would alleviate Germany's problems; instead, a crisis developed "very much faster than anyone anticipated"; with Germany "on the brink," the US had no choice but to "see the job through"; failure would have been likely to "plunge the world deeper into economic depression" while "even a partial success will avoid this." Some in Washington may still say the US will avoid getting involved in European political questions, but economics and politics are so interwoven that this is impossible.

Pending outcome of negotiations, German govt. will continue banking restrictions this week with some modifications, allowing banks to pay out up to 100 marks per day on personal checks and 20 from savings accounts. Sentiment is calm, with no lines outside banks. "Banking opinion everywhere is opposed to inflation at all costs and the prospect is for a long period of business contraction and falling prices." Decree that appeared Saturday requires all taxpayers to fully declare investments abroad, providing amnesty for previous false declarations but "heavy punishment for future violations." Return of some of the German capital held abroad would be very helpful, since it's estimated to amount to about double the $1B that Germany has lost through capital flight in the past year (largely short-term foreign loans). Stock market will remain closed.

Chancellor Breuning and Foreign Min. Curtius are in Paris conferring with officials of four countries before general meeting of ministers in London Monday; powers involved are the US, Britain, France and Italy; Japan and Belgium have observers. US is represented by Sec. of State Stimson and Treasury Sec. Mellon.

Pres. von Hindenburg issued strict press censorship decree to combat radical press and "prevent uneasiness during the week-end international conferences"; newspapers must insert govt. statements without comment and on pages and using type size specified by govt. Five German political parties, including three in the cabinet, issued demand that Chancellor Breuning reject "humiliating political demands"; stated that any govt. accepting demands for abandonment of Austrian customs union or delay in building "pocket battleships" would be immediately overthrown.

Breuning and French Premier Laval issue statements in Paris. Breuning says glad to discuss questions of interest to both countries; "We hope the conversations in Paris will permit us to solve our problems, convincing the French of our sincere desire to cooperate for peace. We wish to collaborate with France because the well-being of Europe and the prosperity of the world depend upon it." Notes unexpected urgency of talks; "Perhaps this new aspect of our trip has an advantage, because it brings many countries together with mutual confidence, enabling us to overcome the crisis with goodwill on all sides." Laval stressed France had not prepared a list of conditions to be imposed in return for a loan; "on the contrary, he insisted that Germany knows the French political desires and said the German statesmen were likely voluntarily to offer the continuation of the present German military, political and frontier status for the period of the loan."

Marks continued recovery, though remaining below gold export points. Bank of England lost 1.2M sterling in gold, mostly to France; sterling is recovering against francs but still below the gold export point. Money continues to flow into Switzerland, as witnessed by gain in Swiss francs.

Week in review:

News and market movements were dominated by developments in the German credit situation. Sunday brought closing of the Darmstadter Bank, one of Berlin's largest, with deposits of about $570M at end of 1930; this heightened the crisis until it became necessary to close all German banks and the Berlin stock market; a "demoralized situation" developed in marks and also affected other European currencies; sterling dipped to its lowest level since April 1925. A calmer attitude set in Thursday after announcement of German measures including raising discount rate and controlling foreign currency exports; banks reopened without disturbance, marks and sterling rose, and prospects of a loan to Germany appeared better. Interested powers are consulting in Paris and will meet in London Monday.

Stocks fluctuated along with developments in the crisis; prices worked lower early in the week and fell sharply across the list Wednesday. Improvement set in Thursday as nervousness over foreign developments subsided; however, volume fell off as the week drew to a close as traders appeared unsure on final settlement of the foreign crisis and on US business prospects.

Steel production continued decline to 31% and some irregularity appeared in prices. However, feeling persists that this month will mark bottom in production and the usual upturn will take place in August.

Bond trading followed German developments; in first part of the week aggressive liquidation brought record lows in "virtually all European obligations of other than gilt-edged quality"; German 5 1/2's fell to 54 1/2, and weaker European and S. American bonds fell up to 15 points. A recovery developed after more positive foreign developments; the German 5 1/2's rallied about 10 points, and other European issues improved. In addition to the European crisis, the S. American list was upset by Chile's announcement of a temporary moratorium on debt service. By contrast with the foreign list, domestic bonds moved narrowly and trading was in relatively moderate volume; high-grade issues ended the week slightly lower.

Fed. Reserve continued its recent policy of buying govt. securities to expand available credit, adding $10M in the week for a total of $79M since June 24; effectiveness of policy was indicated by $211M rise in NY City bank loans and investments since June 17, of which $188M was "all other" (commercial) loans. Money market very quiet due to foreign uncertainty, but lower rates are expected when the foreign situation calms down since demand is very strong.

Grains declined early in the week, hitting new season lows for corn and wheat; July wheat hit 50 1/4 cents, lowest price for any future since the Board of Trade was organized in 1848. A substantial rally followed starting in midweek. Cotton fluctuated in parallel with the stock market, declining moderately until midweek and then recovering. Weather was very favorable over most of the belt. A spurt in textile activity in the second half of June was not maintained. The cotton trade is concerned about the price outlook.

Assorted historical stuff:

Commerce Dept. denies charges of falsified and suppressed figures made by Dr. R. Hall, former asst. chief of finance and investment division; asks Amer. Economic Assoc. to report on soundness of methods used in disputed reports. Editorial: The Hall case, like the previous one involving the Interior Dept. and oil-shale lands, appears to be a case of an official "exalting his personal judgement to the plane of absolute truth" and representing his rejection on a debatable point as evidence of bad faith. These claims must "be taken with a liberal grain of salt. Grand opera stars have no monopoly of temperament." On the other hand, govt. departments often invite a full investigation only after pronouncing judgement against the author of the charges and firing him or forcing a resignation. This is a natural form of self-defense but far from what "the country has a right to expect of high govt. functionaries. To put it mildly, it falls short of that sportsmanship which even political officeholders cannot ignore." Fair investigation should be come first rather than "trying the case" in secret and handing the newspapers the verdict. It's impossible that "Cabinet members ... can desire that the public mistakenly see the govt. departments as a group of mutual admiration societies, in which loyalty to the chief outweighs the public interest."

World Peace Foundation estimates military spending worldwide totalled about $4.158B in 1930, $100M over 1929. Biggest spenders: US $707M; Russia $579M; France $467M; Britain $465M; Italy $249M; Japan $237M; India $212M; Germany $172M; Spain $113M; China $94M.

Gov. General of the Phillippines Dwight F. Davis "program for progressive economic measures doomed in insular Legislature as result of antagonism inspired by his speech suggesting more economics and less politics." [Note: also founded the Davis Cup tennis tournament.]

A&P says public pays for anti-chain store tax in form of higher living costs; sees historical parallel in attacks on mass production as enemy of public interest.

The US Public Health Service reports modern science has increased the average lifespan from 48 to 58 years over the past two decades, thanks mostly to concentrated fights against diphtheria, smallpox, typhoid fever, yellow fever, bubonic plague, and scarlet fever. Loss of life from rabies and measles has also been successfully attacked. However, for lifespan to be increased further, science must now tackle cancer, heart disease and tuberculosis.

General Foods' Birdseye quick-freezing process "has passed from the laboratory stage and is now a commercial certainty." General Foods acquired 51% of New England-based Birdseye for $10M in May 1929; it's now producing 92 varieties of fish, meat, vegetables and fruit with more added each week.

Germans have developed a method of protecting vegetable gardens from frost using "artificial fog," produced by dripping sulfur trioxide and acid on drums of "unslacked lime" upwind of the garden. The resulting heavy mist forms a "protective blanket over the grounds." [Note: and makes the vegetables deliciously tart!]

Norman Clyde of the Sierra Mountain Club recently became the first to make the descent from the highest point in the US (summit of Mt. Whitney, 14,501 feet) to the lowest (a point in Death Valley 276 feet below sea level) in one daylight trip, taking 7 hours.

Mrs. Herbert Hoover will christen two new liners of the United Fruit Company on Aug. 15 with water from nine Caribbean countries held in two ancient Mayan vases, 1,500 years old. [Note: I hope this wasn't the usual christening where you break the bottle on the ship's side ...]

Annual movie industry payroll in Hollywood is $85M, but not much of it "trickles into the pockets" of the extras. Of 17,541 registered extras, only an average of 807 were used each day, with maximum pay of $15/day. "These figures apparently do not discourage new recruits from going to Hollywood in search of a career."

Radio City site cleared for construction of new 68-story building to start Aug. 1.

Market commentary:

Market wrap: Stocks opened weakly but trading quickly turned very dull after the initial selling was absorbed. A moderate rally set in as reports arrived that German Chancellor Breuning and Foreign Min Curtius had begun meeting with French officials, but trading remained very slow. Bond trading featured continued improvement in German issues on apparent optimism regarding current negotiations; almost entire German list extended previous gains; other European and S. American bonds generally higher; US govts. slightly higher; domestic list showed firm tone, with many modest increases. Commodities mixed; wheat lower; corn firm; cotton slightly higher. Copper sold at 8 cents; foreign buying continued heavier. Silver up 1/8 cent to 28.

NYSE volume Saturday was 380,450 shares, the smallest 2-hour session since Aug. 2, 1930.

Some market observers more cautious; indications seen that usual increase in industrial activity in anticipation of fall business revival has been delayed by foreign uncertainty. Given delay in European stabilization, directors of major companies may be more cautious about maintaining dividends in upcoming meetings.

Considerable switching recently reported between railroad stocks based on expected earnings; one popular move has been from Pennsylvania to Chesapeake.

Technically, rally from June 2 - June 27, in recovering only about 50% of previous decline, "did not show sufficient follow-through on the upside to differentiate it from other intermediate recoveries since the bear market started." In turn, Wednesday's lows are considered an important technical level, since they gave up about half the ground gained in the June rally; if these levels are "substantially penetrated," bears would probably make "concerted efforts" to test solidity of the lows reached June 2. On the other hand, if Wednesday's lows aren't "violated in the immediate future" the market will probably settle into a narrow trading range, laying the ground for an eventual advance to discount fall business improvement. In any case, "considerable confidence still exists that the lows of June 2 will stand as the bottom of the bear market." World powers are working toward solution of German problems, which would clear up a great deal of nervousness; liquidated state of the stock market makes it unlikely that forced selling seen in April and May will reappear.

Market was technically weakened last week by lack of short covering; shorts had largely been driven out in the post-Hoover plan rally, as bullish operators sought out bear targets to run prices up and force covering. [Note: But on July 10 they said short interest was increasing ...]

Market observers discouraged by renewed commodity price weakness over past week; any recovery in commodities seen likely to quickly help stocks.

Opinion in "some financial quarters" is that "oil situation may be approaching a climax"; conditions are reaching the point where it may be possible to reduce consumption below production.

Although recent reports from basic industries including steel, oil and copper have been discouraging, there have been some favorable economic news reports, including: a year-over-year rise in electric output for the week ended July 11; better retail sales; and improvement in shoe industry.

Many industrialists point out that almost all industries have reached a point of operating "hand-to-mouth"; "while this might last for some time, the next important turn must of a necessity be upwards." "Trade activities are at such a low rate that some acceleration in the autumn months appears imperative to care for consumptive requirements."

Economic news and individual company reports:

Editorial: Foreign trade figures continue their drastic decline; exports in June were $187M, down 37% from 1930 and imports $176M, down 30%. The decline for Canada, our best customer, was even worse; its US imports in May were down about 40% from 1930. "This can be attributed to the Canadian reprisal tariff." Canada has followed that tariff with a trade agreement with Australia which will mean reduced US exports to both of those "good customers. In view of these developments, it would seem advisable for the US to bestir itself and find out just why customers are leaving us. While trade is slipping away, it is not advisable to sit still and blame everything on the depression."

July auto production of about 218,000 units expected, down 14.4% from June, with Ford at 60,000-75,000, Chevrolet at 75,000, and Plymouth 25,000. Chrysler Corp. reportedly increased production schedule of the Plymouth for July from 7,500 to 15,000, and then to as many as possible. Ford is reportedly testing out the new Plymouth car to determine desirability of its "floating power" principle of suspending the motor on its axis; the cars have also been seen running day and night at the GM proving ground at Milford, Mich. A Chrysler official says they are unlikely to license the patented system to others.

Editorial by T. Woodlock replying to writer from Iowa who says he is made "just plain crazy" by Woodlock's attack on govt. subsidies of inland canals; writer contends that govt. support for rails was much greater. Woodlock sets writer straight in no uncertain terms. Federal spending on Mississippi-Ohio waterways alone has been over $500M as of end of 1930. By contrast, total land grants to rails were 132M acres valued at less than $260M, the great majority of which rails quickly sold at lower prices to attract settlers. In addition, govt. receives a perpetual discount on transportation with value of about $7M annually. Cash grants to rails have been almost fully repaid. Writer's opinion is "direct consequence of the 'propaganda' ceaselessly distributed by govt. officials throughout the country." and also "a good example of the 'Gim-me' school of thought" all too common "when it is question of public monies." ICC hearings continued. F. Dick of Roosevelt & Sons compared flight of capital from rail securities to the German capital flight crisis, says few rails able to do financing normally in current conditions. H. Scandrett described drastic cuts made in passenger train service by Western rails to achieve "the maximum economy in their operation."

Fisher's wholesale commodity index fell to 60.8 vs. 70.4 prev. week, the second straight decline following the rise produced by the Hoover plan; this was only 0.1 above the postwar bottom made June 12. BLS reports wholesale index of 550 commodities in June was 70.0 vs. 71.3 in May and 86.8 in June 1930; farm products were down 2 1/2% from May. W. Lageman says gradual rise in sugar since Chadbourne plan (for curtailment of production) is positive, since a sharp reaction would be harmful after years of continual declines. Calls for end to high protective sugar tariffs to stimulate consumption.
East Texas oil
area saw 82 new wells completed in week ended July 15; production was 408,786 barrels/day, up 27,243 from prev. week.

Youngstown district steel production will be down 4% to 34% this week.

General rains throughout Canada in the past 20 days have improved conditions somewhat, though the great majority of places need more, some very badly. Overall effect of rains has created a fairly ample animal feed supply, but hasn't generally improved wheat condition. Farmers in drought area of N. Dakota are planting large acreages of barley, oats and millet in effort to raise forage crops to carry their livestock over the winter.

Canadian Senate adds tariff changes to those already proposed in PM Bennett's June 1 budget; duties to be increased on coal, electric refrigerators, street rollers, artificial silk, etc. Canada plans tariff changes which will raise prices of weekly magazines selling for 5 cents in the US to 25 cents in Canada. Uruguay committee appointed to find ways of balancing budget proposes 48% tax on all imported goods that can be locally produced. Ecuador bans imports of petroleum.

Panama Fin. Min. Jimenez says Panama has no thought of suspending payments on debts.

California peach growers, despite potential 1931 peach pack of 17M cases, will limit output to 9M; canners have also set up $1.5M fund to buy surplus and pay for uprooting of trees.

NY Title & Mortgage was granted foreclosure for $3M mortgage on Hampshire House, Central Park South apt. building.

Dresser Mfg. (pipe fittings and couplings) stock, in spite of earnings in the first half that almost matched those in 1930 and a satisfactory outlook, is selling at about 5 times earnings and yields about 10%.

Earnings reports: Westinghouse Q2 $.33/share vs. $1.43; half ($.70) vs. $3.13. Commonwealth Edison Q2 $2.67/share vs. $2.66; year ending June $11.08 vs. $12.08. Peoples Gas Light & Coke Q2 $2.70/share vs. $2.96; year ending June $10.78 vs. $11.29. US Pipe & Foundry half $.92 vs. $1.76.

Companies reporting decent earnings: Commonwealth Edison, Peoples Gas Light & Coke.

Report from Paris:

Interesting report on three-day festival celebrating Bastille Day in Paris. "Whole families flock to the streets; sidewalk cafes, parks and public squares teem with carnival throngs. ... Jazz bands have been commandeered to play their 'hottest' tunes in the more important public squares," while "before half the cafes of Paris, insecure looking bandstands have been improvised," holding three-piece orchestras. "Paris dances to their rollicking melodies ... all trip and sway, packing the street with joy. And two solemn-faced policemen hold back traffic until the wheezing accordion has sounded its last merry chord. Traffic moves while dancers rest; and halts again when the dance is on." The quartier fair in each arrondisement (city ward) is a popular rendezvous for tired dancers, with narrow lanes winding past half a mile of gaudy booths. Giant roulette wheels offer a gamble for "sugar or chocolate - both luxuries in France"; merry-go-rounds step lively to the latest Broadway tunes. One booth offers a Coney-Island style contest in which "solemn-faced" men hold fishing poles baited with a ring that they try to slip over the necks of an array of bottles; unlike in Coney Island, the bottles contain Burgundy, Bordeaux, Champagne and Moselle, tempting even some "fishermen" from the US.


Husband, Back From Fishing Trip - What do you think of these beauties? Wife - You needn't try to deceive me. Mrs. Smith saw you in the fish store. Husband - I know she did. I caught so many I had to sell some.

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