August 10, 2010

Monday, August 10, 1931: Dow 134.94 -0.19 (0.1%)

Assorted historical stuff:

German savings banks reopened after 4 weeks of drastic restrictions. Depositors lined up outside the banks and thronged at the counters; crowds were large but orderly. Negotiations on maintaining short-term foreign credits to Germany continued; "each group of bankers proposed different measures for safeguarding credits". Restrictions on foreign currency have been lifted for importers but remain on sending capital abroad for other reasons. Italian Premier Mussolini will visit Berlin in September. German govt. offered to buy 500,000 tons of US wheat on credit. Washington offered alternative to Farm Board sale of cotton in which Germany would buy direct from US growers.

Pres. Hoover issued detailed statement on preparations for relief efforts during the winter. For the past 3 weeks, the Administration has been studying "problems of unemployment and relief likely to confront us over the coming winter and the organization necessary to meet the situation. ... The problem, whatever it may be, will be met." With organized effort by local govt. and Federal authorities, “the problem was successfully handled last winter. We shall adapt organization methods in such manner as may be necessary for the coming winter.” Has been communicating with local govts., business and labor leaders. Study will take another month to complete. Sen. Fletcher (Florida) estimates number of unemployed at 6M.

Chinese Min. of Industry estimates China's unemployed at 200M, representing half the country's inhabitants and more than the total US population.

Interesting editorial by T. Woodlock. Main causes of the world depression are Treaty of Versailles with resulting German reparations, and the fall in commodity prices. Cites results of MacMillan Committee on Finance and Industry (Britain), which recently completed its 20-month study. Regarding commodity prices, study concluded central banks worldwide should act more flexibly to increase and then stabilize commodity prices at a level appropriate to existing wages and debts. Proposed program for doing so involves withdrawing gold from circulation in form of coins or certificates; currency in circulation should be "managed" to keep it "stable with respect to gold"; central banks should make requirements for gold reserves more flexible so they could be relaxed or tightened "as their domestic legitimate needs might require"; currently, they should be relaxed.

Editorial: The upcoming disarmament conference in Feb. faces a potential roadblock from the stubborn French stance that they've already reduced their arms "below the level of national security" and that the world can't be "effectively organized for peace" unless all great powers take part, “since such abstention means that such great power may one day be trading with and, as a professed neutral in a military sense, feeding a nation” with which France is at war. US delegates should therefore "be prepared to say exactly what the US will do to meet the French demand for organized peace"; fuller US participation in the World Court and League of Nations may be in order if we wish to solve the crucial problem of arms reduction.

Remarkable gain in Swiss gold holdings (1.164B Swiss francs on July 31, up 451M from year-end) despite heavy trade deficit "caused almost entirely by the extremely heavy transfer of funds to Switzerland for safety, which was not even retarded by the failure of the Banque de Geneve."

GM sued for $250,000 by J. McHugh of Newton, Mass. for alleged use of his invention of adjustable seat and steeing wheel.

At least one outlet for cotton can be found in airship coverings; the US Navy's new dirigible "Akron," christened by Mrs. Hoover on Saturday, has its entire silvery covering made of 36,000 yards of cotton fabric, while another 56,000 yards are used for the gas cells. Durability of cotton in airship construction is demonstrated by the "Los Angeles," which is now 8 years old.

A small group of women, mostly British, is organizing to publish The Call, a daily newspaper in London; it will be controlled and largely edited and written by women and devoted to their interests. Capital of the company will be 5M sterling [note: seems like a sizable sum for a startup then].

About 30,000 Berlin families are living in cellars without light or air, and 50,000 in antiquated homes without bathrooms or gas. Great efforts have been made to relieve the Berlin housing shortage; failure to do so is attributed to official red tape. One Berlin firm planned to construct numerous 2-room portable houses that they could rent for only $8/month due to wholesale construction, but building authorities said the rooms would be too small.

Work on the Hoover Dam halted by walkout of 1,100 workers; Six Companies pres. W. Wattis says no wage cuts made, can attribute no cause to the walkout.

Market commentary:

Market wrap: Stock trading was at a minimum, with traders disposed to wait for results of the Prussian election and "most of the speculative community away for the week-end." Such action as there was continued Friday's pattern of relative firmness in industrials but disturbing weakness in rails, which have sagged dangerously close to the June low. Bonds continued recent trends in a dull session; German govts. were firm while S. American fell further; US govts. and public utility issues were steady while convertibles and industrial issues were generally lower; second-grade rails were particularly weak. Commodities broke sharply. Cotton closed slightly higher in New York before release of the govt. crop forecast, but plunged by over 1 cent/pound to below 7 cents in Chicago trading after the forecast. Grains fell sharply after release of the report.

Conservative observers still advise the sidelines; favor waiting to buy stocks until domestic business prospects show a change for the better; advise using technical rallies to reduce any long holdings, and stop-loss orders to protect "those who are still holding stocks."

Recent investment buying has concentrated on shares of companies making or retailing goods with steady replacement demand or products that are essential; these have included Woolworth, Sears, Penney, Borden, Coca Cola, Drug Inc. and Wrigley; shoe shares have also drawn buying.

Determined optimists on stocks point to extremely low recent volume, fluctuating between 700,000-900,000 shares in recent weekday (5-hour) sessions; considering large increase in listed issues, this is easily the slowest trading since 1921. With brokers loans' drastically deflated and trading inactive, the market has been technically strengthened; "bears have been handicapped in their efforts to cause the downward movement to gain momentum ... Meanwhile, the constant passing of stocks from weak to strong hands is gradually building up a strong understructure for the general market." This places it in excellent position to respond to any seasonal business improvement.

Another optimist notes that in the 1921 bear market [whose movements have been quite similar to the current one], stocks established a low in June, then weakened again in August, breaking slightly though the June lows and disturbing many "chart readers" at the time; a good recovery then developed. This indicates that a break through the June lows now may not be that significant unless "stocks do so on volume and the decline amounts to enough to convince observers ..."

"The nation is looking ahead with no little apprehension" due to the outlook that "liquidation of labor" [wage cuts] will be needed before end of year; while it's believed the readjustments "will be handled in a manner calculated to cause the least disturbance," the unsolved problem is seen as hanging over business.

Economic experts agree that seasonal business improvement would be underway by now if not for the foreign crisis that developed in early July. Hope persists of some pick-up in the fall due to generally low inventories and clearing up of the foreign situation, though idea that the recovery could exceed normal seasonal proportions has largely been abandoned.

Week in review:

German situation gave signs of return to normalcy. German private banks other than savings banks reopened without disturbances, and demand for currency was close to normal; even the Darmstadter [closed July 13] reopened normally and reported more deposits than withdrawals. Foreign currency restrictions were lifted for importers but remain on sending capital abroad for other reasons. England received a $250M credit from France and the US that provided some reassurance, but sterling curiously continued to show signs of weakness, fluctuating below the gold export point; some disturbing rumors were circulating regarding the British banking situation and how much of the $250M credit had been used; gold losses to France almost stopped but continued to Holland and Belgium. "Mexican currency situation is a welter of confusion" due to the new currency law; silver pesos in Mexico City fluctuated from 2.50 to 5.50 to the dollar in a single day.

Stock traders appeared to turn their attention back to domestic developments, particularly prospects of additional dividend cuts and the looming problem of necessary wage adjustment; industrials and rails fell to new lows on the reaction since June 27, with rails particularly weak; trading was unusually dull.

A seasonal fall upturn in business is still seen as possible, though unemployment and other factors were expected to restrain it to moderate proportions. Steel production gave no indication of trade improvement, falling to a new low for the year excluding the July 4 holiday; firmness in prices seen as positive.

Bond trading was dull but prices moved generally lower, in some cases sharply. Hungarian and Polish bonds broke, while German govts. fluctuated but ended higher; other Europeans were steady while S. American govts. were erratic but mostly lower. US govts. were quiet, while public utilities were in fair demand; however, industrials were mostly lower with particular weakness in second-grade rails.

Commodities were very weak. Cotton hit new season lows almost daily, ending with a final plunge after the high govt. crop forecast. Grains hit new lows, then rallied but fell sharply again after the govt. cotton forecast was released.

Economic news and individual company reports:

[Note: Strangely unfamiliar.] NY Superintendent of Banks Broderick filed suit against Bank of US directors for $60M, asking they "restore the moneys ... lost, misappropriated, wasted, alienated and diverted" and that they be "decreed to account for all gains ... and benefits received directly or indirectly by them ... through the wrongful ... use of the moneys ... of said bank."

Amer. Banks Assoc. estimates small US borrowers require over $11B/year; of this, $2.6B is installment sales, $2.5B “open book accounts,” $2.4B life insurance and veterans' loans, $1.150B by commercial banks, and $2.699B by others including pawn brokers, personal finance cos., savings and loans, etc. Personal loans by banks have grown steadily in the past 6 years; “entrance of banks into the field of personal finance has been dedicated to the proposition that the consuming public should have worthy credit at reasonable rates” and that “borrowers of small income should be encouraged to adopt principles of sound financial engineering.”

US govt. published its forecast for the cotton crop; figure of 15.584M bales was greatly above expectations of about 14M. If this forecast is accurate, total available supply of US cotton this year, at about 24.5M bales (crop plus carryover) would be over two years' consumption at the current rate. Following release of the report at noon, cotton plunged over 1 cent/pound to below 7 cents, and traders were discussing the possibility of 5-cent cotton. Texas Senate votes down proposed law for reduction of cotton acreage.

City of Chicago fiscal situation has improved; received $4.8M payment from Illinois Bell to accept city franchise; Governor's commission working on reorganization of tax system, which may allow sale of 1931 tax anticipation notes; salaries of city employees paid up to date. However, Chicago Board of Education is in worse shape and "still in dire need of funds to carry on its operations"; employees have gone payless for over 2 months and the Board is offering scrip for payment of salaries, "the validity of which has not as yet been formally decided."

Oklahoma oil producers reportedly offered a compromise to Gov. Murray; "reports said producers were willing to post 75 cents a barrel if it could be done without implying that Murray's stand was responsible." However, Gov. Murray "was in a fighting mood" and still demanded $1 a barrel. Oil and gasoline prices showed further signs of firming; minimum oil price paid in East Texas rose to 18 cents/barrel from 13 cents earlier in the week, and tank car gasoline was raised to 3 1/2 - 4 cents/gallon at Oklahoma refineries. Sentiment regarding the oil industry appeared to be improving. Texas House and Senate rejected Gov. Sterling's plan for a new oil and gas commission, leaving regulation in hands of the Texas Railroad Commission. Gov. Sterling warned that the Railroad Commission would be powerless to control the industry since the laws it operated under have been declared invalid; said if Legislature defeats his proposed conservation measures, the oil industry will get no relief at this session. Oil men petitioned Gov. Sterling to curtail the flow of Texas oil. Voluntary shutdown of East Texas wells reportedly only affects a small number of wells; major producers have "shown little sympathy."

GM earnings have been relatively stable compared to other industrials. GM's net profit for the first half was only 20% lower than 1930 and 44% lower than 1929; decline vs. 1930 only 14% if non-operating profits in 1930 are excluded. By contrast, first-half earnings of 171 leading industrials were down 47% from 1930 and down 63% from 1929. GM's results in the second quarter were even better; net profit was only down 9% from 1930 and operating profit was actually up. GM total sales to dealers in July were 87,449 cars and trucks vs. 111,668 in June but up from 79,976 in July 1930. Outlook for car company profits seen poor in the second half due to low current and year-end production and new model costs in Q4.

Decision of ICC to resume rail rate hearing last Tuesday instead of waiting to end of the month has raised hopes the proceedings won't take as long as anticipated; it's now believed a decision is possible in October rather than early next year.

Barron's seasonally adjusted index of industrial production and trade for June was 64.2, only slightly above the depression low of 64.0 in Jan. and well off the April high of 68.3.

Fisher's wholesale commodity index rose to 69.5 vs. the postwar low of 69.3 reached in prev. week.

Youngstown district steel operations will rebound sharply this week to 42%, up 9% from last week.

Canadian govt. ordinary revenue for 4 months ended July 31 was $131.7M vs. $160.9M in 1930; net debt July 31 $2.248B vs. $2.141B.

Companies reporting decent earnings: Knott Corp. (hotel operators).


The Star Witness - Warner Bros. film, at the Winter Garden. A timely drama, opening as it does "close in the wake of the recent gangland tragedy on 107th Street." Theme is intimidation of witnesses by gangsters who threaten them with death if they testify to the truth. Film is uneven, with a slow opening, excessive dialogue, and unrealistic plot developments. Film's chief merit is splendid performance of Chic Sale as Grandpa Summerville, the patriotic Civil War veteran who stands up for justice by testifying, and then is able to find his grandson who is being held hostage by walking around the neighborhood playing Yankee Doodle on his fife until the boy hears him and throws a baseball out a window. "Mr. Sale's make-up is perfect; he speaks in a high-pitched voice and walks around as if he were truly suffering from acute rheumatism." Walter Huston is forceful as the District Attorney, though "part is not big enough for his superlative talents."


"What color bathing suit was she wearing?" "I couldn't tell; her back was turned."

Man Boarding a River Barge - Is she going up or down? Nervous Passenger - Well, sir, her planking is leaky so she may go down, but on the other hand her boilers are bad so she may go up.

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