Monday, August 3, 1931: Dow 136.65 +1.26 (0.9%)

Assorted historical stuff:

Washington report: The once semi-weekly press conferences where Pres. Hoover answered written questions from reporters have become rare, even after the debt moratorium question that was supposedly occupying the President's time was settled. "There seems little point in trying to cover the fact that there is a growing coolness between the White House and some sections of the newspaper corps." While technically the Administration's policy against wage cuts is unchanged, subtle signs have appeared indicating that it now recognizes the policy may be impossible to maintain in face of economic realities. These signs include Commerce Sec. Lamont's letter declining to intervene to prevent wage cuts in Rhode Island textile mills. It's true that after this letter, the White House affirmed its previous policy, but only "in a very brief way." Officials also insist the policy was worthwhile in that it prevented a wholesale campaign of wage cuts in 1929.

Pres. Hoover has directed the Agriculture Dept. to cooperate with local authorities in dealing with the drought and grasshopper destruction in Northwest and Central states. "The President said that while suffering in the areas affected is acute, the extent and damage of the drought is comparatively minor to that which confronted the nation last year."

Editorial by T. Woodlock: A recent Alabama legislative investigation of the power situation there is of interest since Alabama, along with Tennessee, is "vitally concerned" with the Muscle Shoals situation [potential govt. power development]. The investigation found that the private Alabama Power Co. charged lower rates for service than publicly operated plants in the state, and furthermore that the company was earning less than a fair return on property and was more heavily taxed than comparable businesses. It's also noteworthy that no witnesses appeared before the committee to complain about utility service.

Soviet govt. gives instructions for large increases in livestock raising by state and collective farms over the next two years.

Peerless Motor Car is planning to introduce within a few months new 12- and 16- cylinder cars with all parts made of aluminum, including motors, pistons, connecting rods, etc.; parts will be made of a special heat treated alloy called duralumin prepared by the Aluminum Co. of America.

Prof. Bell was granted his original telephone patent in March 1876, and exhibited that summer at the Philadelphia Centennial Exposition, to little attention. The early phone consisted of a single instrument used alternately as a transmitter and receiver and a length of wire. Today there are over 20M phones in the Bell System, representing over 57% of total telephones worldwide; even in these depressed times, only 100,000 phones have been lost this year.

The Navy will advertise for bids on construction of its "immense" dirigible hangar at Sunnyvale, California.

Fares on Graf Zeppelin flights from Germany to Brazil will be reduced 25%, to $750 one way.

"Americans have long been accustomed to sending missionaries" to Asia to spread Christianity; now they will be surprised to see some missionaries returning the favor, coming to the US to spread Buddhism. At a recent religious conference in Honolulu, hope was expressed that "the morals of Confucianism, the philosophy of Buddhism, and the emotionalism of Christianity might soon be combined in one great ethical system."

Airline customer service dept.: On a recent Eastern Air Transport flight from Washington to Richmond, a passenger was allowed to carry 53 pounds of luggage without extra charge; luggage is usually carried free up to 30 pounds, and the limit allowed is 50 pounds. However, the passenger in question was a dwarf only weighing 48 pounds, so the staff didn't charge him for extra weight since total of him and his luggage was below the average weight of a passenger alone.

George Imes, trolley conductor who inspired the long-running Toonerville cartoon, died in NJ. "Mothers entrusted their children and housewives their marketing to him. He wouldn't start his car until all his regular commuters were aboard; he escorted inebriates home, and directed strangers."

Germany special:

Schedule taking shape for removal of some German banking restrictions. Today, transfers between clearing house banks are to be allowed; on Tuesday, all other interbank transfers are to be allowed, including checks; on Wednesday cash payments will be permitted, except for savings banks; removal of restrictions on savings banks "is expected to follow soon" and payout limit for savings banks has been raised to 50 marks/day. To avoid "explicit declaration of a moratorium on foreign payments," it will likely be necessary to get definite agreement on prolongation of foreign credits before Tuesday. In any case, an office will almost certainly be established to "keep a rigid control" over the foreign currency market and "safeguard the gold reserve." Germany shipped $11M in gold to NY, believed to be working capital for the office. Reichsbank rate hike to 15% seen as temporary measure to tide over transition period, prevent "sudden outpouring of capital," and maintain stability of the currency exchange rate in spite of large new issue of currency. It's estimated note circulation will increase about 1.2B marks from the 4.4B on July 31. However, note cover isn't expected to fall much below 30% since some foreign currency is expected to return to Germany thanks to the recent decree requiring this for holdings "not economically justified."

Farm Board chair. Stone seemed amenable to selling of surplus commodities to Germany on credit, though he said the Board had received no definite proposals from Germany. "The plan seems to be regarded as a good move but not of fundamental importance in the commodity situation at this time." Opinion seemed divided on whether the plan would increase world consumption of wheat or cotton.

Fed. Reserve together with Bank of France granted a $250M credit to the Bank of England; the credit will run for 3 months and be renewable at maturity. NY bankers “expressed the belief that the Bank of England had already weathered the most severe part of the current strain” and saw little chance that the credit would actually be used; the step was seen as mainly to bolster public confidence, particularly in France. It's expected the Bank of England will maintain its 4 1/2% rate to avoid use of the credit. Announcement of the credit was “something of a surprise to the financial district.” Sterling strengthened following announcement of the credit, though effect was muted due to today's holiday in London; further improvement expected this week.

Week in review:

It took the US Steel dividend cut announcement “to shake the market out of its apathy and bring about a definite price move”; unfortunately the move was lower as the cut to a $4 rate was worse than expected. Volume on Monday and Tuesday was well below a million shares, and even after the Steel announcement only rose to 1.6M on Wednesday, which would normally be classed as a very dull day. Bethlehem's dividend announcement also wasn't very positive for the general list, though Bethlehem itself rose afterwards. Speculation intensified on wage cuts after the steel leaders' reports, though no statements were made by the companies. It was also believed that the dividend cuts by such basic industrials might be followed by a faster pace of dividend cuts at other cos.; rails in particular reacted after the Nickel Plate omitted dividends on both common and preferred stock. Trends in the steel industry presented a mixed picture; canning continued its unexpected decline, but overall production rose 2% to 33% and scrap markets continued firmer; prices were more stable but remained untested.

Commodities were very weak. Grain prices worked lower in spite of reports of extensive drought damage in some sections; the US Northwest, in particular, reportedly was facing the worst crop failure in its history. The week ended with grain prices generally in new low ground and wheat hit record lows. July corn, however, saw a spectacular short squeeze develop, rising almost 25 cents/bushel to over 72. Cotton prices declined almost continuously to new season lows; spot cotton, at 8.25 cents/pound, hit lowest price since 1915.

Fed. Reserve credit rose slightly; NY member banks expanded investments but reduced loans, as brokers' loans fell to a new low record; all other loans also fell slightly, but loans to non-brokers rose for the first time in some weeks. Money markets were inactive.

Foreign currency markets featured rises in central bank rates in Britain, Sweden and German. Sterling rallied strongly against dollars after the Bank of England's rate hike to 4 1/2% in an attempt to stem gold losses, but much of the gain was lost the next day. Bankers believe higher rates in London might cause gold to move there from NY. However, sterling disappointingly failed to make much headway against francs and some gold losses continued to Holland. Reichsbank rate hike to 15% was seen as a measure to prevent inflation when emergency restrictions on cash payments by banks are ended.

Bond trading was generally lethargic, though the foreign list showed activity at times. US govts. moved slightly lower. German issues were firm early in the week but eased later. Hungarian bonds broke sharply Friday. S. American issues fluctuated widely with most ending lower. Foreign list rallied substantially in the week's last session after announcement of the $250M Bank of England credit. Rail issues generally weak, with some hitting record lows. Industrial bonds weakened after the US Steel announcement, particularly oils; convertibles lost ground. High-grade public utility bonds a notable strong spot. Municipals slightly higher.

Market commentary:

Market wrap: Stocks opened irregularly, then trended lower with J.I. Case a particular weak spot. Around 11 o'clock, a general recovery set in with major industrials including Steel and Can moving up; Woolworth and AT&T were strong spots; trading in rails was very dull, but they also participated in the rally. Market closed with fractional gains, though volume wasn't particularly heavy. Bond trading showed considerable activity; foreign list rallied on Bank of England credit and news of improvement in German credit situation; US govts. steady; domestic issues affected by poor earnings were pressured, particularly the railroad list, while Aug. 1 payments brought reinvestment demand in the highest quality bonds. Commodities mixed; grains featured sharp rally in Sept. corn with moderate rises elsewhere; cotton continued to sag, with spot cotton falling to 8.15 cents, the lowest price since 1915. Copper at 7 5/8 - 8 cents, buying quiet.

Encouraging news items from abroad included $250M French-US credit to Bank of England and further details on proposed German plan to buy surplus US wheat and cotton; reports from Berlin also considered more positive.

"Secondary stocks" have recently been more resistant on reactions than the majors; many of these shares were "thoroughly liquidated and deflated during previous declines," discounting likely unfavorable business developments; bear traders also have concentrated efforts on the majors rather than low-priced secondary stocks.

Chain stores have been relatively resilient, with many selling closer to their 1931 highs than lows. Some investors concerned about possible anti-chain store taxes have turned to Dominion Stores (Canadian), even though it only offers a yield of about 5%; sales and earnings increased in the first half vs. 1930.

Rather complex analysis of railroad figures shows that due to large increase in wages and salaries from 1916-1929, "new capital put into the railroad properties not only failed to produce returns, but, in addition, the return on old capital was partly sacrificed." [Note this was even before the downturn became serious in 1930-31.] Steel industry authorities say condition of the rails is adversely affecting steel buying. In normal times, railroads are important steel buyers. Due to small earnings, rails now aren't placing orders and, in some cases, are postponing delivery on orders placed almost a year ago. Stock market observers continue to watch the rails closely in belief their movements predict those of the general list; a number of traders are basing their operations in other groups on action of the rail averages.

Conservative observers are carefully watching developments in the Northwest; crop failure is reportedly possible; this would not only affect rails in that area but general business due to further curtailment of farm buying power.

Editorial: "Texas legislators are spending their summer vacations hard at work" on the oil problem. However, while the East Texas overproduction situation is admittedly the most serious current problem, bringing it under control would only be likely to repeat the disaster elsewhere; "other pools, no doubt, are yet to be discovered." It's time to appeal to the Supreme Court regarding whether "the antitrust laws stand in the way of a decent and orderly production of oil and coal, as the Dept. of Justice apparently feels itself compelled to hold, or whether the rule of reason has something to do with these matters. Such an appeal ought in all conscience to be made, without waiting the years that must pass before any elaborate scheme of state and federal legislation can become effective."

Wall Street now expects many further dividend cuts; a number of boards of directors will likely take their cue from the US Steel dividend action.

Economic news and individual company reports:

As features of the new Ford car continue to “filter through the veil of secrecy which has surrounded it for the past several months,” it appears the 1932 competition among car cos. will be waged “on the battleground of increased values rather than lower prices.” Another factor in favor of the new car buyer is “a rather surprising turn” in used car prices, which from reports over the past 15 months have been depreciating at a lower rate.

Total class 1 railroad net operating income in first half was about $239M, down 36.5% from 1930 and 57.5% from 1929; revenues $2.190B, down 18.6% and 28.5%. Only 3 of 52 major rails reported higher first-half income than in the previous 2 years. The two largest rails in terms of revenue, the NY Central and Pennsylvania, reported even worse declines in first-half income vs. 1930 (47.8% and 51.4%).

Fisher's wholesale commodity index fell to 69.3 vs. 69.5 prev. week, another new postwar low. Commerce Dept. reports worldwide decline in wholesale prices since 1929 has been the most drastic since the postwar deflation in 1920-21; prices in 14 countries have declined 18%-33% and are now lower than before the war in many countries.

Youngstown district steel production will start the week at 42%, about the same as last week though down from the midweek bulge to 45%; production remains higher than the industry average and sentiment on fall business is slightly better; August production will be better than expected.

Gasoline in Chicago wholesale market firmed to 3 1/8 - 3 1/4 cents/gallon; gasoline rise in face of discouraging news from East Texas attributed to continued strong gasoline consumption.

US leaf tobacco exports in first half were 271M pounds vs. 260M in 1930 and 226M in 1929; value $51.8M vs. $55.1M and $52.8M.

Uruguay says despite foreign exchange quotations that place the peso about 50% below par, the govt. will meet all debt payments promptly.

Chilean banks and stock exchanges reopened after 4-day holiday due to change in govt. Chile appoints exchange control committee with authority to restrict purchase or sale of gold coins and bars, and to prohibit foreign currency operations "not arising from regular legitimate or commercial financial transactions." Central bank of Chile given exclusive right to buy and sell foreign currency.

Argentina bondholders' corp. reports total Argentine govt. debt 4.702B pesos ($1.376B); deposed regime left budget deficit of 900M pesos.

Union Miniere de Haut Katanga [huge producer of copper and other metals in Belgian Congo; later a source of uranium ore for the first atomic bomb] says co. is still profitable with copper at 7 1/2 - 8 cents; helped by more stable prices of its secondary metals including cobalt and radium.

Florida now has the highest state tax on gasoline at 7 cents/gallon; estimated annual revenue $2.350M.

Liggett & Myers denies agreeing with other cigarette makers to increase prices, but says it reserves the right to respond to action by competitors.

Link Belt Co. cuts factory wage rates for the first time, by 10%; also puts entire co. on a 5-day week, effectively reducing pay a further 8%. Armour cuts salaries 5% - 10% but exempts employees on hourly wage basis from cuts.

Ford Motor opens $5M assembly plant at Richmond, Calif.; plant is another unit in the company's $60M worldwide expansion program announced last year.

Earnings reports: Amer. Light & Traction Q2 $.77/share vs. $.96; half $3.08 vs. $3.88. Pittsburgh Steel year ended June ($3.92) vs. $3.74. Bucyrus-Erie (steam shovels) half $.89 vs. $1.33. Formica Insulation half $.75 vs. $1.03. Melville Shoe half $1.37 vs. $2.33.

Movie:

A Jew at War - Film in Russian, produced by Ukrainfilm, at the Cameo. A young Russian Jew, David, is drafted by the Czar to fight in the World War, and forced to leave sweetheart and friends for the front. He comes to hate war and those he believes responsible for it. He deserts together with an old German friend he has saved from death in no-mans land, and the two join the Bolsheviks in Russia. His friend betrays his trust and becomes a "grafter. It becomes David's duty to have him shot for sabotage." David returns to his small frontier hometown to take charge of a state shoe factory built according to the Five Year Plan. Part of his job is dismissing drunken workers, one of whom stabs him. Film "ends with the thought that, while David is dead, what he fought for still lives in the minds of the younger generation of Jews who are now active in carrying out the plans of the govt." Story follows the "new conventionalism" of Soviet films; a hero and villain are still called for, each of which represents "new forces in the Communist State. The endings ... are all 'happy,' envisioning a new social order in which the workers will rule and in which machines will do their bidding." [Note: Exactly - I can't believe they copped out with that cheap happy ending.] Film is directed using "methods prescribed by Eisenstein, Alexandrov and Pudovkin," but not as adeptly. Acting is good, particularly Venimin Zuskin of the State Moscow Jewish Theater as David.

Joke:

Customer - I've ruined my suit with your paint. Store Owner - But didn't you see the Fresh Paint sign? Customer - Yes, but I didn't take much notice - I figured it was like your Fresh Eggs sign.