July 9, 2010

Thursday, July 9, 1931: Dow 143.83 -2.09 (1.4%)

Assorted historical stuff:

Editorial arguing against proposal by "prominent political leader of a Southern state" to make the Hoover plan conditional on German purchase of cotton and wheat from the US. "If there is anything calculated to give the US the appearance of a mean little money grabber, it would be just such an effort ... The one great thing now is not alone to give Germany a breathing spell but to help her get on her feet permanently, and to bring to an end the economic war that is costing the world so much distress. The initial step has been taken unimpeded by narrow partisanship. If the remaining steps can be taken in the same way ... with no strings in the hand that is held out to the world, the US will accomplish something for the ... world that cannot be measured in terms of wheat and cotton."

Joint order from Stalin, Premier Viacheslas, and Politbureau head Ordjonikidze makes effective the new "Stalin economic era" giving higher pay to better qualified and more productive workers. Order mentions "extremely unsatisfactory fulfillment of coal production in the Don Basin" and makes shocking reference to possible failure of Five-Year Plan. 25 of the most capable Communist leaders will be dispatched to the Don basin to personally help direct the reorganization.

Editorial by T. Woodlock: World faces a looming conflict between two seemingly irresistible forces. First, of course, is that "gold is the only substance in which man at present reposes that kind of universal confidence which makes anything money." The second is that credit is an essential part of the economy, and that stable prices are needed for the credit system to function properly (general price decreases hurt debtors since money becomes more valuable, while price increases hurt creditors). In our current situation we're faced with very heavy debts that are already largely impossible to pay off, while the value of money seems to be inexorably rising; this will generate demands for "cheap money" or "inflation" from debtors (who are now largely farmers and entrepeneurs - corporate and individual - with borrowed capital, while creditors are largely the "middle class" with bank deposits, insurance policies, bonds, etc). In 1896-1900, the gold standard was saved less by arguments for sound money than by discovery of the Rand gold mines; no such help seems likely now, "and a battle sooner or later seems to be looming."

Of 66 nations invited by the US to adhere to the Kellogg treaty for the renunciation of war, only six have so far failed to sign; all six are in South America.

Treasury Sec. Mellon arrived at Cap Ferrat from Paris; admitted Sec. of State Stimson might visit him on his way north from Italy but said "it will not be of great importance" and that he was only there for his health and to see his family. He appeared "extremely tired after his work in Paris and was coughing considerably."

MIT announces invention of “'mechanical brain,' a calculating machine using light rays ... intended to serve scientists ... as an adding machine does bankers.”

Elevators in the newest skyscrapers have reduced the role of the operator to a minimum. When the up or down buttons are pressed on any floor of the new RCA building, the command is automatically transmitted to the next car to pass the floor; an automatic mechanism not only stops the car at exactly the right level, avoiding the need to watch your step, but also opens the doors! The operator is reduced to simply seeing passengers are safely in or out before doors are closed.

A shipment of 256 Canadian horses destined for the horse meat trade in France landed recently at Le Havre, the first of weekly shipments to be made through the summer. Apart from the advantage of cheapness, horse meat is believed free of tuberculosis, and so is used extensively in several hospitals.

Over 3,000 feet above the floor of Death Valley, the former "boom town" of Ryan, California has joined the ranks of "ghost cities." Created when borax was discovered nearby, it's now down to a single inhabitant who plans to leave as soon as the narrow gauge railway tracks to Death Valley Junction are torn up.

An interesting letter from Thomas Jefferson to a Gen. Muhlenberg, duty collector at Philadelphia: "Mons. d'Yrujo, the Spanish minister here, has been so kind as to spare me 200 bottles of champagne, part of a large parcel imported for his own use and consequently privileged from duty; but it would be improper for me to take the benefit of that." Encloses check for $22.50 to pay duty, but mentions that if payment "could be done without mentioning my name, it would avoid ill-intended observations."

Market commentary:

Market wrap: Stock market suffered further heavy selling for most of the day, as "considerable liquidation came into leading stocks"; negative factors included disturbing news from Spain and Germany and, on the domestic front, lower steel production and copper prices; "a slump in the grain market did not help." A rally in the final hour recovered substantial ground but left leading shares below Tuesday's close. Bond market recovered somewhat from early weakness but remained unsettled; foreign issues reflected "uncertainty in the bank situations at various centers," with many showing "varying losses on the day"; US govts. and highest-grade utility and rail issues were firm, while "dominant tone in other ... issues was soft." Commodities weak almost across the board; wheat fell substantially to new season and post-1895 lows while other grains were soft; cotton down very sharply following govt. weather and acreage reports, with all 1931 months falling below 10 cents. Rubber, silk, cocoa, hides, sugar and coffee lower. Copper sold at 8 cents; buying continued small; producers ask 8 1/2; price outlook seen poor as production curtailment is unlikely. Silver fell 3/4 cent to 28 5/8.

Conservative observers continue advising clients with long positions to use stop orders for protection; others are advised to remain on sidelines until market conclusively demonstrates resistance.

US Steel was pressured on lower production and anticipated lower unfilled orders report; other leading industrials also sold off. US Steel dividend is subject of considerable speculation, though nothing has come from "authoritative quarters." Copper shares were pressured on price decline. GM was well supported on June retail sales showing improvement vs. 1930. Kreuger & Toll is rumored likely to obtain the match monopoly in Colombia in return for a $20M loan. Int'l Nickel business reportedly improving, 1931 earnings estimate may be revised up.

Some traders have tried to take advantage of sharp movements in more speculative bonds; for example, Int'l Great Northern RR "adjustment 6s" have fluctuated between a high of 65 and a low of 37 this year.

Dow theory students believe nothing has happened to take back the bullish indication given by simultaneous new recovery highs in both the rail and industrial averages on June 12 and again on June 27. After rising 35 points from 121.70 on June 2 to 156.93 on June 27, the industrials closed Wednesday at 143.83, down 13 points from the rally high. "This retracement was less than the market was entitled to on technical grounds. Hence, analysts feel that further setbacks could be seen without destroying the prospect that the general list was preparing the groundwork for a further advance to discount autumn business improvement."

Bears have taken advantage of public surprise at market decline after agreement on the Hoover plan, though "professionals" had expected it. Operators from "the same group of bearish professionals who had been prominent in the raiding tactics of April and May" launched aggressive drives on Steel, Can, Case, and other shares that had attracted public followings in June; bears were "successful in forcing sweeping breaks" in those issues. However, Danforth [former major bear turned bull] interests began accumulating shares in Steel and Case late Tuesday, remaining convinced the "long-pull trend" is now upward.

Despite recent reaction, record low 2.93% ratio of loans to total value of listed stocks indicates that stocks "are held strongly" and "only a gradual improvement in trade would be necessary to start the market upward. But no one is willing to predict definitely when this change for the better will come."

Upcoming earnings reports are expected to produce "sorry showings from many important industrial companies" based on activity in past 3 months. Economists will be paying more attention to evidence of cost cuts, which should be reflected in the reports.

C. Gray, Union Pacific RR pres., returns from tour of Plains states; believes trend in business is upward; indications point to slow but steady improvement.

C. Schwab says moratorium “will help considerably, not only as an economic stimulus but by way of fostering more friendly feelings between peoples.”

Economic news and individual company reports:

German Pres. Von Hindenburg issued emergency levy on all important German businesses putting a total of 500M marks ($119M) in guarantees at disposal of Reichsbank to protect German credit. Idea for guarantee originated with Ruhr industrials but was adopted by Reichsbank; it was "underwritten in a few hours under pressure." Guarantee was greeted by a late rally in Berlin stocks though Wall Street bears took a more negative view. Withdrawals of foreign currency from Reichsbank gold reserves fell to 25M marks from 40M Tuesday and 75M Monday. Dr. H. Luther will go to London soon to negotiate a large loan for the Reichsbank. German unemployment June 30 was 3.962M vs. 4.067M May 31, 4.389M Apr. 30, 4.772M Mar. 30, and 2.636M June 30, 1930.

Following failure of a major Barcelona bank, trading was temporarily suspended on the Barcelona Stock Exchange and the Bank of Spain raised discount rates. Finance Dept. of Switzerland and other Geneva banks will support Bank of Geneva, which is suffering from run by depositors. British rate cut now seen unlikely in near future due to continued financial difficulties in Germany. However, "opinion is generally held that the worst is over and that with further international aid to the Reichsbank difficulties will be surmounted." Foreign currencies were mostly lower on concerns over the German situation, while Swiss francs and guilders moved higher, possibly due to German capital flight. Many London banks are involved in Nordwolle [large German wool firm in difficulties], but losses are “widely spread and have been grossly exaggerated.”

Detroit, in attempt to cut cost of relief operations and maintain credit, will transfer almost 1,000 homeless men to the Wayne County Infirmary from city rooming houses. Bankers have warned drastically spending cuts are needed to maintain financial rating. Detroit must raise $62.4M to meet short-term obligations due in Sept.; spending in the last few months has been supported largely through short-term loans used to meet payrolls and other current requirements, such as a $5M advance by Henry Ford last week. Chicago School Board's plan for payment in scrip hits snag due to legal opinion by Corporation Counsel Sexton. Orlando will vote Aug. 18 on three proposals to sell or mortgage the city utility plant. NJ State Receivership Commission, supervising affairs of North Bergen, denies request of closed Steneck Trust of Hoboken to guarantee payment of $5M in North Bergen notes.

Steel production for holiday week ended Monday was about 23% vs. 33 1/2% prev. week, 35% two weeks ago, 48% in 1930, and 78 1/2% in 1929. It's unlikely that the rate this week will return to the pre-holiday level. US Steel report of unfilled orders as of June 30 will be published at noon Friday; expected to show decrease due to new business in June falling below even the low 37%-38% average level of operations in that month. Weekly steel reviews somewhat optimistic in spite of production decline; belief gaining ground that July will see a bottom in steel demand. Steel production in June fell to a daily average of 79,843 tons, lowest since July 1924 with exception of last Dec.; in past, such extremely low levels “have almost invariably been followed within a short time by fairly decided gains.” Continued improvement in scrap markets was also encouraging. However, demand from consumers is dull; auto output will fall to about 200,000 units in July, and rail buying appears slower, though construction is still fairly active.

Some strong spots in the automotive industry: GM June retail sales were 103,303 units, up 6% from June 1930; Q2 sales were 371,139, down only 2.5% from 1930. Studebaker Q2 sales were 18,037 cars, up 9.5% from 1930; first-half sales also exceeded 1930. Auburn Automobile Q2 earnings were $11.05/share vs. $1.06 in Q1 and $4.25 in Q2 1930.

Rail freight loadings for week ended June 27 were 759,290, up 20,174 from prev. week, down 18.9% from 1930 week, and down 30.7% from 1929.

US electric output for week ended July 4 was 1,576 GWHr, down 2.8% from 1930, vs. a 3.9% decline prev. week and 4.6% two weeks ago.

East Texas oil situation has broken down severely; production is topping allowed quota by 100,000 barrels/day; "ten-cent crude oil is now a reality" throughout Texas, and "in East Texas the crude goes practically for what it will bring." Humble Oil cut official buying prices in the East Texas field and further price cuts are expected in the midcontinent fields and other areas East of California. Gasoline in storage at refineries fell over 2M barrels due to Fourth of July demands. US crude oil production for week ended July 4 was 2.483M barrels/day, up 40,550 from prev. week and down 99,000 from a year ago.

Total known security loans (more comprehensive total than brokers' loans) have declined continuously for 14 months and are now $7.085B vs. $13.205B on Sept. 30, 1929. Current level is $133M below that at end of 1926 in spite of $20B increase in stock and bond values since; there are "sound grounds for believing that security loan liquidation has very nearly run its course."

Commerce Dept. reports US net capital exports in 1930 of $733M vs. $306M in 1929, $944M in 1928, and average near $450M in 1922-29. Only $290M of total was for long terms. Gold flowed into the US during 1930 in face of increased capital exports and lower trade surplus.While movements of goods were greatly curtailed, receipts from interest, bond redemptions, etc. reached a record of $1.3B. “Foreigners last year made an 'unparalleled' use of their opportunity to repay their debts to Americans ... at discounts.” Tourist spending abroad fell to $811M from record $868M in 1929, though number of tourists reached a new record.

USDA estimates cotton acreage July 1 at 41.5M acres, down 10% from 1930.

Bureau of Agric. Economics sees 1931 Russian wheat crop somewhat smaller than 1930, even though acreage has been increased; reports on conditions, though very incomplete, indicate lower yields. British govt. has reportedly decided to extend up to 10M pound 2 1/2-year credit to Russia to buy British-made heavy agricultural and industrial machinery.

Mexican consumption of gasoline has increased steadily from 106.0M liters in 1925 to 326.5M in 1930.

US exports of rubber footwear in the first four months were down 53% to 1.3M pairs as cheap foreign footwear took a severe toll, particularly Japanese exports.

NY City Transit Commission continued to meet with IRT and BMT representatives; substantial progress has reportedly been made, and a revised transit unification plan will probably be ready by July 21 when the commission is scheduled to resume hearings. NY City now constructing 31 school buildings at cost of $20.3M.

Companies reporting decent earnings: Auburn Automobile.


Laughing Sinners - MGM film, starring Joan Crawford, at the Capitol. "Torch Song, Kenyon Nicholson's play about the psychological associations between religion and sex," has been adapted into effective romantic melodrama by toning down the viewpoint of the original play and concentrating on simple and forceful narration. Joan Crawford has never acted better than in the role of Bunny Stevens, "dance hall blues singer who changes her name to Ivy and her occupation to street-corner soul-saving when her lover jilts her to marry a wealthy woman." Clark Gable departs from his customary gangster roles to give a strong performance as a Salvation Army man who saves Bunny from suicide. Neil Hamilton is "much better than usual" as the lover.


Wife - Don't you know that stuff you're drinking is slow poison? Husband - That's all right; I'm in no hurry.


  1. This comment has been removed by a blog administrator.

  2. One thing I'm wondering about is if/when Freddie Hayek will get some WSJ mentions. I can't find any using a search of the blog archives. We've had a few about Keynes recently, and from reading a Hayek bio I saw that he joined the London School of Economics in 1931, so maybe a Keynes v Hayek show-down will make an appearance.

    Paul Krugman just linked to a Keynes v Hayek special from 1932.

  3. David - Good find, thanks. Hayek has escaped mention here so far. I seem to recall that the two (Keynes and Hayek) were good friends.