August 8, 2010

Saturday, August 8, 1931: Dow 135.13 +1.36 (1.0%)

Germany special:

Adolf Hitler, leader of the National Socialist or Fascist party ... threatens new political disturbances in that country by a bold bid for power in Prussia.” That region is the stronghold of the Social Democrats, largest party in the Reichstag and ensurer of the Breuning cabinet's survival against challenges by the Communists and Fascists. “The Hitlerites have managed to obtain” an election for Sunday to vote on dissolving the Prussian Diet (parliament) and calling general elections there; this would offer them the chance of a greatly strengthened position in the Reichstag. With about 13M votes required to carry the proposal (non-votes are counted as nos), chances are believed about even or slightly in favor of the Social Democrats.

Pres. Von Hindenburg rebuked the Prussian govt. for forcing 2,500 daily newspapers to publish a denunciation of the Sunday election on their front pages. While Von Hindenburg intends to boycott the vote personally, he was quick to recognize the resentment caused among the press by "the alleged encroachment on the freedom of the press." The Deutsche Allegmeine Zeitung predicted the action would boomerang by drawing out at least 2M new voters.

After initial conference with Premier Mussolini, Chancellor Breuning "announced they had found themselves in complete agreement on the idea that 'Europe needs the establishment of confidence.'"

The Reichsbank announced restrictions on foreign currency payments for imports will be lifted today; this was sooner than anticipated, and refuted charges that “Germany was taking advantage of the exchange situation to adopt a rigid protectionist policy.” Foreign currency restrictions will continue on investment abroad and repayment of foreign loans. Savings banks are to be reopened Saturday; it's believed the Reichsbank may cut its 15% discount rate next week. Farm Board rejected German offer to buy surplus cotton after failure to agree on terms.

Editorial: Prospects seem good for agreement among bankers to extend their short-term credits to Germany, though all details haven't yet been settled. "Thus, another important step has been reached in the rehabilitation of Germany's economic situation." This step means Germany can concentrate on "setting her internal financial affairs in order"; it also allows maintenance of our existing trade there. The bankers' agreement is "virtually an expression of confidence in the fundamental soundness of the German financial structure." More remains to be done, particularly tackling the knotty problem of converting short-term to long-term credits now being studied by the BIS, but it's reasonable to expect something can be worked out there too. "It is an ill wind that blows no good"; events of the past few months have proved how deeply the US is involved in the welfare of the rest of the world. It's now clear "reparations and international war debts are an incubus on business"; bankers and US business should consider a far-reaching revision of these international obligations.

Assorted historical stuff:

Pres. Hoover reportedly hopes to develop a plan for relief of distress resulting from unemployment that will head off demands for a Federal dole when Congress reconvenes. The President met with officials of the US Chamber of Commerce Thursday and went over problems facing the US as result of unemployment; the Chamber hopes to have a survey ready by Sept. 1. Chamber of Commerce pres. S. Strawn expressed concern: "When the dole is introduced in this country, the nation will have hit the toboggan." He believes unemployment relief is the responsibility of local communities, even if temporary tax increases are needed. He admitted there would be a significant increase in unemployment this winter, though he criticized AFL Pres. Green's estimate of 7M unemployed as "extravagant."

US regulation of coal industry as utility seen unlikely; govt. officials stated this would require revision of antitrust laws and bring demands for similar action from other industries facing difficulties including oil, copper and lumber.

Asst. Postmaster Gen. Glover predicts airmail flights from the US to Britain and Europe are “not so very far off”; route may be either north via Canada and Greenland or south via Bermuda and the Azores.

French gambling casinos in all major resorts are facing bankruptcy and may be closed unless relief is granted; lawmakers will ask Premier Laval for tax cuts.

Sobriety appears to be gaining substantially in Japan, but due to hard times rather than the temperance movement. The 1930 output of the 10,650 sake breweries registered with the govt. is estimated at 201M gallons vs. 219M in 1929 and 278M in 1925; decline is attributed to pressure of competition for jobs.

Record high US temperature is 134 degrees measured at Greenland Ranch in Death Valley. World record is only 2 degrees higher - temperature of 136 degrees measured on Sept. 13, 1922 at Azizia, about 25 miles south of Tripoli.

Market commentary:

Market wrap: Stocks experienced a sluggish session featuring continued weakness in rails, though industrials showed greater resistance and staged an intermittent recovery gaining momentum in afternoon. Bond trading featured strength in European list led by rally in German bonds; on the other hand, many S. American issues broke sharply; US govts. and public utility bonds were steady to firm while industrials and rails continued soft. Grains registered the sharpest gains since the current downtrend started June 29, as good export sales were reported to Asia and a large previously bearish “grain house” reversed its bearish sentiment. Cotton rallied to close unchanged after hitting new lows in earlier trading.

A report circulated that the leading stock market bear would be away from the Street for some time and was covering. Weakness in rails increased feeling they were headed for a test of the bear market low reached on June 2. Recent pronounced weakness in second-grade rail bonds has also caused concern.

Brokers advise clients buying in the near future to prefer stocks that have been “well liquidated,” are selling at reasonable price-earnings multiples, and with earnings that have been maintained or increased recently. This would eliminate many of the past stock market leaders. A number of bull pools have reportedly formed but seem to be “waiting for some encouragement” from action of leading stocks, which have not looked good at times recently. $44M decline in brokers' loans to new record low of $1.346B was larger than predicted.

Dominating influence” in the current bond market has been poor earnings of rails and industrials. “When a corporation cannot earn its fixed charges [interest on debt] all other fundamental factors fall by the wayside. The continual picture of strong and hitherto prosperous corporations reporting deficits after fixed charges” and poor outlooks for the rest of 1931 have triggered “unusual readjustment of bond holdings of banks and other investors.”

In spite of the record-breaking low prices in wheat, this is likely to be the first season in 5 years in which worldwide consumption will exceed production. Spring wheat production in the US and Canada will be sharply reduced by drought, Russia is unlikely to match last season's extraordinary yield, and Argentina and Australia are likely to cut acreage by 30%-40%.

Action of the copper market has been disturbing; demand has “continued negligible” in spite of decline to record low prices.

Economic news and individual company reports:

Oklahoma oil production fell off sharply Thursday, with only a few wells still active. No opposition was encountered in the Greater Seminole region as 200 guardsmen mobilized to enforce shutdown. Gov. Murray repeated ultimatum that "price of oil must reach $1 a barrel" but made no further move. Shutdown of Oklahoma oil wells has brought rising prices for oil products in the Midwest and other sections; gasoline in the Chicago wholesale market rose sharply by 1/2 - 3/4 cent to 4 cents/gallon and higher. A mass meeting of East Texas oil producers has been called for Aug. 14, when a general shutdown agreement will be sought; some East Texas producers have already voted to close their wells voluntarily. There appears to be little extra pipeline capacity for additional oil to be moved from East Texas in order to make up for the Oklahoma shortfall; movement by rail would be expensive. The great drain on East Texas fields is starting to show up in well pressures, and marked production declines are expected before long. Texas Legislature continued working on oil regulation. A separate oil and gas commission was rejected. Thorough regulation of oil and gas pipelines and storage was passed.

Low level of auto output is indicated by July production in the US and Canada of about 221,000 cars and trucks, lowest level for July since 1921 and 20% below a year ago. However, main factor in the decline was low rate of Ford operations; the industry excluding Ford ran at an estimated 10% above the total of about 142,000 in July 1930.

Editorial on lack of tax relief on railroad property; legislators “still regard the railroads as a curious combination of 'public enemies' ... and cows to be assiduously milked.” Govt. seen setting important precedent by withholding payments due the Richmond, Fredericksburg & Potomac Railway for transportation of mail until the railroad pays back $696,705 in “excess” profits the ICC found that the railroad had made in 1922-23. The ICC had argued that resorting to the courts for collection would result in “serious delay.”

Bradstreet's weekly review reports trade “about held its own” from the previous week, though seasonal slowness is still in force. “Encouraging optimism” is still apparent, though it's for a slow and gradual recovery rather than “any startling return to prosperity.” “Clearance sales” produced fairly good retail volume in many stores though probably not contributing much to profits; unusually hot weather also helped seasonal lines.

Sterling remained under pressure, with continued weakness drawing “attention all over the Continent,” though Bank of England gained gold on the day. Sudden break on Wednesday attributed to Bank of England's withdrawal of support. In Paris, “some quarters ... are disposed to criticize the Bank of England's methods of supporting sterling as unskillful ... Relations between Bank of England and Bank of France still appear to lack complete cordiality ...” Record-breaking French currency circulation of 80B francs is causing concern. US Ambassador to Britain C. Dawes reports recent decline in sterling not due to any fundamental weakness, but rather is a short flurry not expected to last.

After agreement between Canadian govt. officials, bankers, and wheat pools, the govt. will provide aid to combat “panicky conditions in the wheat market”; pools will make an initial payment of 35 cents/bushel to growers; govt. will “cooperate in marketing of the wheat crop and will protect the wheat price.”

Australian internal bonds of $2.750B will be converted by law into securities bearing lower interest rate, saving $32.5M annually. Australian Treasurer Theodore estimates World War cost the Commonwealth $3.720B up to end of last year. Financial crisis in New South Wales, Australia stops payment of salaries to all public servants including 11,000 teachers and 4,000 police.

Sharp decline in Spanish peseta has seriously retarded trade; Spanish exporters needing sterling have faced delays of as much as 10 days to obtain it.

A high AT&T official dismissed rumors of a dividend cut with the comment “Nothing in it”; pointed out co. covered its dividend in the first half.

Sears-Roebuck reports profit for 28 weeks ended July 16 was $6.008M vs. $5.618M in 1930.


An American Tragedy - Paramount film based on the Theodore Dreiser novel. [Note: film was subject of lawsuit by Dreiser against Paramount, who charged they had turned his novel into a "Hollywood version of a murder." Properly chastened, Hollywood never did that again ...] Judged on its own merits, film "has many excellent qualities," but it's unfaithful to the spirit of the novel, which argued that criminals are the product of their enviroment and "cannot be fairly charged ... by a society which has put the very obstacles in their way which they seek to overcome." The producers instead have "manufactured an effective courtroom melodrama" around a "mental and moral coward ... who finds himself torn between love for a beautiful society girl and duty toward a factory girl he has loved and got into difficulty." After seeing a newspaper story, he forms a plan to drown the factory girl but at the moment of decision can't go through with it; the boat they are in then by sheer coincidence capsizes; he allows her to drown, but has left too many clues behind and is caught and convicted.


"What impressed you the most about France?" "Well, I think it was the French pheasants singing the mayonnaise."

"Do you remember that couple we met on the steamer that we took such a violent fancy to - I mean the couple we invited to visit us?" "Yeah. You don't mean to say -" "Yes, the idiots are actually coming."


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

  2. "French pheasants singing the mayonnaise"

    That does it. This means war....