July 8, 2010

Wednesday, July 8, 1931: Dow 145.92 -6.88 (4.5%)

Germany special:

German govt. response to US-French agreement on Hoover plan expresses joy, "spiritual relief and hope for improvement"; acknowledges sacrifices by creditor nations, particularly "American people's most high-hearted decision." Pres. Von Hindenburg telegraphed thanks to people of the US, hopes for a "new era of peaceful and confident cooperation."

French govt. and press stress that France has made honorable compromise with the US, particularly in maintaining in principle the continuity of the Young Plan [reparations]; note impossibility of US isolating itself from rest of the world; say further negotiations should be in "spirit for reestablishment of international confidence ... we took our share of sacrifice, now others must take theirs." French public reaction is largely indifferent; there's no enthusiasm about the "gift made to Germany," nor any expectation she will use it to "put her financial house in order"; French are generally convinced "latest sacrifice is not the last that will have to be made to Germany." Editorial: France's perceived sacrifice in the reparations moratorium is not just a monetary one; many "French people, for perfectly understandable reasons, ... live in fear of a powerful Germany"; French citizens had hoped, roughly speaking, for "military security ... through economic repression of Germany."However, "one cannot 'sacrifice' something which one never had and never could obtain"; what Germany can give is determined not by abstractions such as war guilt but by "what the German nation is willing and able to do in preference to political revolution at home."

German govt. stresses that though "some hardships may be alleviated" by reparations holiday, "Germany will in no wise be relieved from its economic ... distress" and "may not relax her immense efforts to economize." Relief will be applied to consolidating position of govt. finances; this will ease credit markets and benefit German business; have assured US that govt. spending won't increase. Long-term financial problem is still acute; crux of the problem is converting short-term credits that can and have been withdrawn on a large scale to longer-term loans. "The question that remains ... is whether a year's postponement of reparations will be sufficient ... to balance the German budget, take care of unemployment, quiet down social unrest of the Hitlerites and Communists and thus restore foreign confidence ... to a degree which will induce foreign capital to refund short-term loans on a long-term basis."

Hoover Plan announcement, together with $100M central bank credit, enabled Germany to tide over a crisis that "might otherwise have developed into revolutionary chaos" and even to "a general breakdown of European credit with a moratorium on all private debts." As US-French negotiations dragged on, the German crisis again became acute due to large withdrawals of foreign credit. However, "it is confidently hoped that agreement on the debt postponement will reverse the immediate situation."

Marks rose slightly; German capital flight continued, but at a substantially lower rate; "cessation of the flight of capital is not looked for until confidence is completely restored but it is stated that a gradual dwindling of the efflux can be expected." Reichsbank credit of $100M from central banks will reportedly be renewed. Stocks in Berlin were higher.

German exporters and industrialists are outspokenly disappointed with Russia; renewal of economic troubles blamed on Soviet "trickery." After negotiation of credit guarantees by Reich for up to 70% of goods bought in Germany, Russian orders have only come to 50M-60M marks vs. 300M promised; breakdown blamed on Soviet dumping of goods in German markets at 25% or more below production costs [note: I don't quite follow that].

Over 100,000 posters addressed to "Mothers of Men" were recently posted in Paris and Berlin; printed in "flaming red letters," they said that if women had the of courage to oppose "the criminal maneuvers that are leading Europe rapidly to a new and greater catastrophe, there will be no war."

Germany's first real skyscraper to be built on grounds of the Zeiss Optical Works in Jena. At 280 feet and 24 stories, it will be the tallest office building in Europe.

Assorted historical stuff:

Hoover plan drew more praise from business leaders: E. Webster of Stone & Webster - "should have a very beneficial effect on the market, and on business in general." W. Bucklin, Nat'l Shawmut Bank pres. - "an extremely constructive step." H. Bancroft, Wall St. Journal pres. - "the finest piece of constructive work accomplished in the world for a great many years."

Washington report: Acceptance of Hoover plan seen marking start of important worldwide political and economic changes; “economic revival ... is confidently hoped for.” If the apparent improvement in prices and sentiment brought by the plan “proves merely an interlude, high Washington officials will be deeply disappointed. ... It is pointed out that much smaller events have marked the turn of past depressions.” It's generally believed the subject of debt and reparations will need to be revisited with an eye to permanent solution; disarmament may also enter the picture, though many are skeptical of its prospects. Pres. Hoover has made a radical change from the isolationist policies of the past decade and become a world figure; this, together with economic revival, is likely to “strengthen him immensely” and shake up the Democratic Presidential race, weakening Roosevelt and strengthening Owen Young. While the plan will increase the deficit by $265M, there's “little disposition to endanger a revival by increasing taxes.” Treasury experts from interested powers will meet to work out details of Hoover plan; State Dept. foresees little difficulty, though opinion here is that it may take months to settle all points.

Editorial by T. Woodlock: It's natural that in the face of worldwide crisis, South American debts have received little US attention. This region largely depends on raw materials for income and is, like other debtors the world over, facing severe difficulties. The US view is generally ignorant and condescending, with many thinking “revolution” and “repudiation” are all we can expect. In the first place, “revolution” has a different meaning in S. America, being a more or less customary way of changing parties in power. The US also doesn't appreciate efforts some countries are making to meet obligations, and has a feeling of superiority that's quite unfounded, since “in almost every one of the S. American countries there is a class of cultivated men for whom the history of the civilized world, its traditions ... mean much. ... How many Americans know that a book was printed in Mexico City a hundred years before Harvard was founded and that there was a flourishing university there to receive it? ... A liberal dose of intellectual humility" is in order so that we can understand S. American customs, ideas, and politics; we can start by "dropping the word 'Nordic' from our conversation book. After all, there were a few brave men before Agamemnon, and it is not strictly true that the world's civilization began at Plymouth Rock."

NY Gov. Roosevelt says local govts. account for half of $12B annual US taxes; sees simplification and reduction of local govt. as only hope for lower taxes. Gov. Roosevelt sees possible solution of agricultural problem in "factory-farmer"; tells of experiments in placing industrial plants in rural sections, with "a business program planned to utilize the farmer's time when his crop has been harvested."

Editorial: Commerce Dept. report of 35.805M cars registered worldwide on Jan. 1 vs. 35.128M in 1930 and 32.029M in 1929 shows cars continue to gain despite the depression (world production was 4.109M). In the US, there were 4.59 people per car on Jan. 1 vs. 4.87 in 1930, while the rest of the world had 200 per car vs. 216 in 1930. "There is a great potentiality in markets which are yet practically untouched. Depression may cause a temporary decrease in purchases, but the automobile is its own advertising agency. Wherever it is used its value becomes apparent and further demand is stimulated. ... Every automobile placed in China or other undeveloped countries is a pioneer for American business; it not only creates a demand for more automobiles but is opening the way for business of every kind. What we wish to see is a world on wheels; looking into the future its day seems near at hand."

One European nation consumes more tobacco per capita than the US, making talk of saturation premature - the Netherlands, at 6.27 lbs. per capita in 1930 vs. 5.84 in the US. In consumption of cigarettes alone, US was also second, this time to Britain (998 in the US vs. 1,033 in Britain - 1,000 cigarettes = 2.2 pounds).

Natural gas seen entering period of growth similar similar to that of electric industry in the past decade. In 1930, industry produced and sold 1.940 trillion cu ft, up 1.2% from 1929, which in turn was up 22% from 1928. Transportation of nat. gas is relatively cheap, and it's displacing other fuels due to significant savings made possible by its use. One of fastest-growing uses is as fuel to generate electric power.

Century Pacific Air Lines, a new entry in the air transport field, ignites West Coast fare war by posting fares considerably below those of existing air lines; Los Angeles to San Francisco is $18.95 one way, and Los Angeles to San Diego $4.95.

The US Navy is auctioning off 1,000 binoculars, telescopes, and sextants loaned to it by individuals during the World War for which it couldn't track down the owners. Of 52,000 instruments received in response to a nationwide appeal, 32,000 were found usable.

Scientists have discovered in the waxlike coating of the humble apple a resinous, water-repellant substance, ursolic acid, "whose existence and potentialities have been for ages unsuspected." Added to paint, it may broaden the apple's function from keeping the doctor away to keeping water away from the woodwork.

Dr. Edward G. Acheson dead at 75 - discoverer of artificial graphite and carborundum [silicon carbide, second-hardest surface next to diamond - still made by method he developed].

Dr. Eugene L. Fisk, medical director of Life Extension Institute, dead at 64.

John D. Rockefeller celebrates 92nd birthday today; day will be spent as usual except for family gathering at dinner. Mr. Rockefeller says he's in excellent health, thanks many friends for "kindly regard" and wishes "all the world a large measure of health and contentment which are the basis of real happiness."

Market commentary:

Market wrap: "Yesterday was the one occasion in a long time when the stock market acted as a majority of traders and others anticipated." Stocks initially were strong following overnight announcement of agreement on Hoover debt plan. Declining tendencies spread toward end of first hour and picked up momentum toward noon; major industrials including Steel and Can suffered extensive setbacks; issues including J.I. Case and Westinghouse in which short interests had been squeezed last week broke badly; rails were under severe pressure; volume increased over Monday. Selling slackened in late afternoon, but slight rallies gave way to another selling wave that swept across the market in the last hour; close was weak. Bonds fell on heavy volume after opening higher on debt agreement; foreign list irregular, with price movements mixed; US govts. dull and slightly lower; corp. high-grade steady to slightly lower while second-grade trended down and speculative issues showed marked declines. Commodities mixed; grains steady to slightly lower; cotton down substantially after losing early rally. Copper buying remained close to a standstill, some metal available at 8 1/4 cents with producers holding at 9. Silver fell 3/4 cent to 28 5/8.

Conservative observers point to their anticipation last week of selloff on the good news and advice to reduce long positions. Clients who maintained long positions are now advised to use stop-loss orders for protection; buying isn't recommended until "the market has proven its ability to resist selling."

"Experienced trading circles" not surprised by selling on the news of debt agreement, since news was expected and had been discounted by the recovery of almost 25% from June lows. Interests who took advantage of initial bulge to sell believed process of recovery would be "slow and tedious," offering opportunities to reacquire shares at lower prices during the summer; uncertainty over upcoming earnings reports was also a factor. "However, the best opinion continues to be that the lows of the bear market have seen, and that setbacks on poor reports ... will not endanger the resistance levels established on June 2."

Most authorities now anticipate a period of dullness in the market rather than a resumption of the downtrend; worldwide sentiment has been improved by the Hoover plan, and further measures are expected in order to ensure ample credit supply to debtor countries. Many standard stocks now offer attractive dividend yields, and investment accumulation seems likely to come in response to further market reaction.

Coca-Cola sales have improved along with warm weather; "interests familiar with the company's affairs" expect net of $12/share this year vs. $11.15 last. J.I. Case was pressured after reports Danforth interests who had been conducting bull operations had liquidated a considerable amount of holdings. Savage Arms has been subject of numerous positive rumors, all denied by official sources; market interests believe stock is subject of pool activity. US Pipe & Foundry hasn't benefitted from cheap money to the extent expected as many municipalities are having difficulty financing construction projects.

Many in the financial district expect additional bullish news out of Washington in coming months, including relief for railroads and aid to farmers, many of whom are "almost prostrate." However, in both cases actions may not be decided upon until fall.

Industry is now in midst of typical midsummer slack period, with "little likelihood of any material change" in basic lines. However, "because the rates of operations in steel and other industries are so low, the reductions in activities in the coming months will be smaller" than in previous years.

T. Chadbourne says believes international sugar agreement will restore industry to normal, also restoring "many millions of people to prosperous and happy conditions in place of ... privation and suffering." Approves of Hoover plan "but one swallow does not make a summer, and constructive measures will have to be piled one upon the other if the capitalistic structure of society under which you and I and our forbears have lived is to justify itself." Blames Cuba's plight on tariff barriers erected against its main (sugar) industry "by its self-appointed guardian, the US."

Lawrence Stern & Co. finds large majority of security dealers now optimistic on immediate outlook for both bond and stock markets, a striking reversal from pessimistic forecasts of recent months. Parsly Bros. reports yield spread between high-grade and second-grade bonds as wide as any time in the past 30 years; note that in the past, second-grade bonds bought during periods of stress have yielded investors the best profits.

Economic news and individual company reports:

Commerce Dept. report, issued before final agreement on debt plan, finds sentiment improved in several countries and actual business "stimulated in several regions" including Britain, Italy, Hungary, Czecho-Slovakia and Japan; conditions worsened in Egypt and Canada.

Bank of Cataluna in Spain, with deposits of about $34M, suspends payments, creating difficult situation throughout the province; other banks report heavy withdrawals. Rise of 1/2% expected in Bank of Spain discount rate (now 6%) due to increasing circulation and heavy credit demands. Hungarian National Bank appealed to Bank of England and BIS due to disturbances caused by Hungarian General Credit Bank problems, which were in turn caused by the Amstelbank losses [which were in turn caused by the Creditanstalt]. Hungarian gold reserves are now $30M, vs. foreign loans at private banks of $100M. Situation reportedly relieved by $20M credit at BIS and issue of 5M pounds sterling treasury notes; "liquidity of all Hungarian banks is now assured."

Coral Gables, Fl. bondholders committee reports enactment of legislation needed to solve debt problem, as well as election of Mayor believed to be committed to debt refunding plan that fully recognizes rights of bondholders; asks deposit of all outstanding bonds with committee.

Last week's Fed. Reserve member bank report showed $151M increase in loans countrywide, though bulk was in NY City banks. Encouragingly, $108M of the increase was in "all other" (commercial) loans. It will probably take several weeks to tell definitively whether increased credit being released by the Fed. Reserve through purchase of govt. bonds is being used by the country at large. Banks sold substantial amounts of non-govt. securities; holdings were down $43M in the week ended July 1 and $241M since Apr. 29. Midyear Chicago bank statements show deposits of $2.500B vs. $2.615B on Mar. 25, decline of 4% [Note: location of bank crisis starting in June].

Standard Oil of NJ cut retail gasoline prices 1 cent/ gallon throughout territory; Standard Oil of Ohio cut prices in some sections; further cuts expected. Chicago wholesale gasoline prices are steady at 2 5/8 - 2 7/8 cents/gallon but East Coast prices have been falling for some time and are now at 5 1/4 - 5 1/2.

American Machinist reports automotive sales a strong point in machine tool market, buying by Chevrolet and Chrysler; conditions otherwise remain slow.

Eastern rail executives again report "very substantial progress" in consolidation talks; another meeting planned in near future.

New England Council reports index of general business activity in New England continues steady rise since start of year, during which it has improved from 29% below normal to 10.6% below normal.

West Virginia Mine Workers called strike in Kanawha County coal fields; about 23,000 responded to call.

British House of Commons passes new coal bill maintaining status quo in industry and staving off danger of strike in mining districts.

Canadian prairie provinces report some beneficial rain, though serious drought damage remains.

Japanese silk interests concerned over large surplus of raw silk in storage; silk was stored last year in unsuccessful govt.-backed effort to support prices.

North Atlantic Steamship Conference to be held in Paris today; 10%-20% cut in first-class transatlantic passenger fares expected.

Retail sales reports: J.C. Penney - June $14.8M, down 6.3%; half $77.4M, down 10.5%. National Tea - June $6.3M, down 5.8% from 1930; half $38.7M, down 10.3%. Walgreen - June $4.8M, up 11.5%; half $27.2M, up 4.9%. F. & W. Grand-Silver Stores - June $3.1M, down 2.2%; half $16.7M, down 0.2%.


The Black Camel - A Fox film, at the Roxy. Features "Warner Oland again delivering himself of shrewd Chinese aphorisms while hunting clews as Charlie Chan, the Honolulu detective." Contains "the requisite amount of suspense and ... an unexpected climax." Film takes place three years after murder of Hollywood actor; suspects gather in Honolulu to be examined by Charlie Chan; two more murders ensue. Cast included Bela Lugosi playing a "mystic in his accustomed mysterious manner," and Victor Varconi as "the most suspicious subordinate character."


Smith bought a parrot, which he was assured was a good talker. A month later, he returned indignantly to the store. "What's the matter with the parrot?" asked the dealer. "W-w-why," replied Smith, "the d-d-darn b-b-bird s-s-stutters!"

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