Wednesday, September 23, 1931: Dow 109.40 -1.43 (1.3%)

British crisis special:

“Great Britain's second day off the gold standard, as far as the man in the street was concerned, found the country carrying on under the war-time slogan 'business as usual.' Everyone was pursuing his normal vocation and so far there had been no popular manifestations or demonstrations. Retail prices for the ordinary necessities of life had not increased. Movie theater audiences were not diminished.” Public has apparently heeded appeals of PM MacDonald and Chancellor Snowden not to “rock the boat.” British govt. is reportedly promising prompt action “to prevent excessive retail price increases and profiteering.” PM MacDonald, “fatigued by the recent critical developments, plans to rest in the country several days.” British Treasury restricted purchase of foreign currency by British subjects, other than for normal trade or to fulfill existing contracts. British business with foreign connections was hampered by the inability to transfer funds even for normal trade, since quotes couldn't be obtained on some currencies. London department stores held off on placing orders for US goods, while US wholesale buyers in London increased their purchases, since British goods were about 15% cheaper. S. African gold was not offered in London Tuesday as producers held it back for a higher price.

Foreign currency market in NY “continued in a disorganized condition, although it was possible to get bid and offered rates on most leading currencies.” Sterling settled into a narrower range in NY trading, ranging from $4.10 to $4.225. Movement in other currencies was “bewildering.” Francs were a lone strong point, rising close to the gold export point from NY. Italian lira plunged; Italy, along with Germany and other European countries, is on the “gold exchange standard,” giving central banks the option of paying out sterling or other gold currencies rather than gold, and so depend on holdings of sterling and other foreign currencies to back their own currency. Scandinavian and Canadian currencies broke sharply, to the lowest levels since postwar stabilization. Swiss francs and guilders were “lower but fairly strong, all things considered.” Silver currencies fell back slightly after a sharp rally Monday.

In "one of the greatest gold transactions in history," several European central banks reportedly "earmarked" $116M in gold (in effect exporting it from the US) with the proceeds of liquidated US investments. This is the first substantial loss of gold by the US since the summer of 1930 when about $100M was exported to France and Canada. US exports this year up to Sept. 16 were $75M vs. imports of $500M, bringing US gold holdings to the record high of $5.015B on that date. Demand for gold may be due to serious effect of British crisis on many central banks which carried large amounts of sterling as reserves or held balances in London; Bank of France particularly exposed. France, Switzerland, Holland and Italy “probably involved” in the earmarking transaction.

Stock markets reopened in Amsterdam and Brussels; trading continued in Paris, Rome and Milan; substantial improvement reported in leading shares, while prices also rose in unofficial London trading; NYSE trading calmer; foreign govt. bonds generally higher. Stocks of British cos. trading on the Curb (later Amex), as well as those of US cos. doing business in England, recovered from Monday declines “almost without exception.” “Assurances from leading financiers, both here and abroad, that England's action should prove an aid to world recovery, served to lessen nervousness.” London stock exchange to reopen today; Berlin will remain closed. Bond trading resumed in Tokyo; prices sharply lower.

US investments in Britain are believed relatively small, and are largely direct investments such as branch factories rather than in securities. Total long-term US investment in Britain estimated at $640M vs. $4B in Canada; US holdings of British bonds about $140M.

Mexico sees possibility of considerable trade now going to the US being diverted to England as a result of England's suspension of the gold standard. Mexico is showing keen interest in the British move since it's seen as paralleling her own earlier action in making silver pesos legal tender and demonetizing gold.

High Administration officials optimistic on effects of British suspension of gold standard; seen increasing British exports but without great effect on US trade since US and British goods don't compete much in other markets. Action has resolved major uncertainty that had been looming for many months, causing various complications. Action seen improving general British situation, which will benefit the US.

"Important banking interests expressed considerable optimism over the outlook for American securities, voicing the belief that the present British policy would bring gradually increasing demand into Wall Street from all parts of the world." Bankers predicted US markets "would be the repository of the world's investors to the greatest degree in history in the next decade." Several favorable developments seen following the dramatic British action: First, stocks listed on the NYSE were "able to absorb the world's frightened liquidation, not only without collapse but actually on a rising scale of prices." Second, with England temporarily off the gold standard, the US dollar "becomes the outstanding gold standard of the world"; Brazil has already adopted the dollar as a basis for exchange instead of the pound, and Chile is considering transfer of reserves from London to NY. Finally, benefits to the US won't be at the expense of England; on the contrary, British exports are expected to be stimulated by a lower sterling level, and "inflationary tendencies resulting in Great Britain from abandoning the gold standard" will probably result in higher commodity prices throughout the world, as indicated by immediate jump in silver.

Editorial noting predictions that NY can now "succeed to London's age-old leadership in world finance." While the British crisis unquestionably gives the US a great opportunity, this transition has been prophesied before without materializing - for example, following the world war. Whether it happens now will depend on some unanswered questions. First, there must be "a restoration of America's confidence in herself." On this score, the NYSE's performance Monday was splendidly encouraging, but the weakness in "domestic bonds, which could not conceivably be adversely affected in their intrinsic worth" by the British crisis, "was a refusal by much of the investing public of its part in leadership." Second, there must be "some sort of reconciliation ... between business and politics"; it's particularly to be hoped that the "economic debris of the war" can be tackled based on "present-day realities rather than ... bogus tradition." “Without a doubt we shall have to replace nervousness with a sane self-confidence if we are to accept even temporarily the leadership of world finance. As a matter of fact, signs are beginning to appear that that replacement has begun.”

Wages, wages, wages:

Announcements of cuts in employee compensation came from three leading industries. US Steel announced general wage cuts for the first time in the depression, averaging about 10%; other steel makers indicated they would follow suit. This follows US Steel's action in late July cutting salaried employees by 10%-15%. GM announced salary cuts of 10%-20%; hourly wage rates weren't affected. US Rubber adopted a 5-day week, cutting salaries by one eleventh.

There was no official Washington reaction to the US Steel announcement, though "it is known that the attitude of the Administration is still for maintenance of high wages where possible"; Labor Sec. Doak refused comment.

Rep. W. Wood, House Appropriations Committee chair., proposes reducing annual salary of members of Congress to $8,000 from $10,000, for annual savings of $1.062M.

Over 3,000 members of the Amer. Fed. of Full-Fashioned Hosiery Workers revolted against new national agreement between union and manufacturers cutting wages by 30%-50%; seven mills idle.

Two letters to the editor on the wage question. One argues that lower wages would allow lower-priced goods, which would stimulate industry. The other calls for a comparative table of wages paid by major industries, making it clearer if "certain groups were demanding excessive wages."

H. Firestone, Firestone Tire & Rubber pres., recommends five-hour day and five-day week as temporary measure to meet the depression.

Soviet Supreme Council of National Economy announced 30% wage increase in all branches of coal and metallurgy industries in order to increase productivity and quality; also instituted system of bonuses enabling administrative and technical personnel to double their earnings.

Assorted historical stuff:

Pres. Hoover's appeal to the American Legion convention drew support from prominent Legion officials; sentiment among delegates reportedly also moved toward his position that the US can't at this time afford large new spending, such as cashing in the full value of veterans' bonuses, without prolonging the depression.

Under-Sec. of State Castle says US govt. determined to bring about “real limitation and reduction” of armaments; notes “competition in armaments is one of the greatest of war breeders and all wars leave an aftermath of depression which brings suffering into every home.”

Editorial noting recent Japanese-Chinese clashes in Manchuria, and general "equanimity" with which the world has greeted them. While this is partly due to pressing troubles elsewhere, it's also because the current situation is a logical continuation of recent history, in which Russia and Japan have alternated attempts to undermine the "nominal and weakening Chinese national authority. ... It is in no way surprising ... that the outside world refuses to excite itself over an affair, which, though it seems to reveal pretty baldly Japan's intention eventually to make another Korea of Manchuria, is absolutely consistent with her activities there for the past 20 to 30 years." [Note: Japan occupied Korea in 1905, remaining there until after World War 2.]

Editorial by T. Woodlock quoting recent speech given in Scotland by Ambassador Dawes, who observed that "it was not at times of adversity that mankind made its mistakes, but in times of prosperity." Times of crisis have the benefit of teaching "people that they are absolutely interdependent" and making "compromises and sacrifices ... 'politically' possible." The current distress will silence "demagogues who ... by promoting international prejudices for internal political purposes, ... delay ... sensible and constructive agreements of mutual self-interest among the nations." However, Woodlock says this hopeful observation may not apply to the US since "we know little of the 'common hardship' that is the fate of the Old World today ... our 'good times' are far 'better' than the Old World's 'good times' and our 'hard times' much less 'hard.'" The 1932 election will be a test of whether the US can resist "the demagoguery of today." It will be the first Presidential election held in hard times since the 1896 campaign. While there was demagoguery then too, "it was of a simpler and more robust type," with "not a little of the pioneer spirit. The men who led it ... believed in something, even if it was only silver." By contrast, the "demagoguery of today ... talks in 'scientific' terms, and the essence of its doctrine is an all-corroding skepticism as to the worth of ... individual strength and individual responsibility. ... It has a consuming hatred of individual success ... and its aim is to wrest from the hands of the competent and place in the hands of the less competent the power to manage the social, political and economic affairs of the nation." If the current crisis hasn't taught us "enough to ... hold the main road, ... we may confidently expect that our schooling will continue until it does."

Interior Sec. Wilbur says pleased with progress of oil states in lowering production to bring it more in line with demand; particularly pleased oil states have recognized conservation is a local problem; good progress made in unit (cooperative) production in California field of Kettleman Hills.

Assoc. Against the Prohibition Amendment reports to Congress that so far in 1931 it has raised $410,769 and spent $391,658; about a third of contributions came from the du Pont family; J. Raskob contributed $40,000.

Radio Corp. (RCA) is working hard on television, and will reportedly be ready to market a set in 1932.

"Obelisk Illumination" - When the Washington Monument was erected about 50 years ago, it seemed unlikely that it would ever impede traffic. Now, however, the structure has become a hazard to aviators, and officials have just completed successful tests for lighting the monument at night to minimize the danger.

The last Presidential team of horses and carriage disappeared several years ago, but the White House stables remained standing until recently, when they were ordered demolished to make room for the new Public Health Service building.

The economic downturn will reportedly be reflected in wage cuts for big league baseball players next year. However, "from the size of pay checks some of them draw they will still be able to make a pretty fair living after the cut." Highest salaried players: Babe Ruth of the New York Americans, $80,000; Hornsby of the Cubs, $40,000; "Hack" Wilson, also of the Cubs, $35,000.

C.V. Whitney to dispose of “about 60 of his best thoroughbred mares and several young stallions”; 25% of proceeds to go to the unemployed.

Market commentary:

Market wrap: Tuesday's stock trading provided considerably less excitement than the extreme swings seen on Monday, as "a noteworthy degree of confidence" appeared to replace the initial "general feeling of dismay" following British suspension of the gold standard. Prices firmed after a weak opening, with leading issues rising above Monday's closing prices. "Considerable irregularity" developed at mid-day, but "the general list continued to give a satisfactory account of itself. Moderate setbacks in the principal stocks attracted prompt support, and reactionary tendencies proved unable to gain headway." Bond trading irregular. Major foreign bonds mostly moved higher, but volume was much lower than in Monday's session and price moves showed unusually wide variation, ranging from sharp gains in some issues to sharp losses in others; German and British bonds rallied; Italian weak. US govts. moderately higher. Corporate issues continued lower; Dow average of 40 corp. bonds closed at new post-1924 low of 88.56, down 0.24. Grains mostly firm, though Sept. corn broke to a new season-low under heavy deliveries by "Thomas M. Howell, the leading spot corn holder," who accumulated 8M bushels while orchestrating a short squeeze in July and hedged by shorting Sept. corn. Wheat market here ignored further sharp gains at Liverpool as merely reflecting a lower sterling value. Cotton up moderately. Coffee fell sharply; cocoa hit new record lows but rallied to close flat. Silver fell 5/8 cents to 28 5/8, retreating from its sharp rise Monday.

Dow industrial average closed at a new bear market low; there were no new yearly highs and 207 new lows.

"There was talk in the Street" that the ban on short selling might be lifted by the NYSE in the next few days. A number of stocks have experienced sharp runups as shorts found it costly to exit, including Reading and Western Union.

Several leading bears have reportedly switched to the "constructive side"; believing that with the British situation coming to a head, one of the most powerful negative factors has been passed, some have been buying stocks they believe likely to benefit from a market turn.

An increasing number of brokers favors the purchase of stocks and bonds that have declined to levels that are obviously too low based on earnings or outlook.

Movie companies have declined sharply, considering their "large earning possibilities"; Loews, which has the smallest debt and highest earnings per share in the group, is selling to yield over 10%.

An increasing number of rails is expected to follow NY Central's lead in borrowing directly from banks instead of attempting to sell bonds.

Some skeptics dismissed the impressive resistance shown by the stock market Monday as artificial, pointing to the "virtual prohibition of short selling. However, the best opinion was that the market had given a remarkable demonstration of technical strength in face of extremely troubled circumstances." While early support may have been due to short covering, the continued strength throughout the day was seen as indicating that "genuine demand for stocks was greater than the forced liquidation from every part of the world, a development that created growing confidence regarding the immediate future of the market."

The bond market has recently suffered from "almost complete lack of interest ... on the buying side ... broad declines are shown when any holder of bonds finds it necessary to dispose of even a small block. Investors show no interest in yields, although in multitudes of cases these are so large as to satisfy the most extravagant desire. Their attitude toward obligations seemed to be governed entirely by fear," at least regarding foreign govt. bonds and corp. bonds both domestic and foreign. As one example, German international 5 1/2's due 1965 are available at about 40, giving a 13 3/4% direct annual yield. Bankers say there's a large amount of money "awaiting investment in bonds" but staying on the sidelines due to fear; therefore, "any indication of price stabilization would bring heavy buying, which ultimately would start bonds on a violence advance." On the other hand, "present sentiment ... it is unlikely to prompt such buying as long as prices continue to sink."

Economic news and individual company reports:

Radio Corp. of America settled a large number of lawsuits with independent radio manufacturers, involving a total of $60M in claims; will pay $1M to the DeForest Radio Corp. and cross-license patents with it; other mfrs. will drop antitrust suits and obtain licenses of RCA patents. D. Sarnoff, RCA pres., praises the amicable settlement as freeing radio industry from the litigation that has burdened it; the settlement will allow radio makers to concentrate on developing new products, and should stimulate business as a whole. This leaves the govt. antitrust suit against RCA, GE, Westinghouse and AT&T as the only major litigation facing RCA.

Income tax revenue is down sharply from a year ago; income tax receipts for July 1 - Sept. 19 were $296.6M vs. 488.8M; for the period, Treasury reported a deficit of $358.1M for the period vs. a surplus of $14.0M a year ago.

Pres. Hoover's organization on unemployment relief reports state highway construction employed 370,000 workers in Aug., up from 325,000 in July.

Rail freight loadings for week ended Sept. 12 were 667,750, down 91,796 from prev. week, down 30.8% from 1930 week, and down 42.0% from 1929. Declines vs. previous years were exaggerated due to Labor Day falling in the Sept. 12 week this year.

ICC is expected to issue its decision on the rail rate increase with "unprecedented dispatch," possibly within the next month. Rails are anxiously awaiting the decision; favorable action by the ICC is expected to result in advances in many rail bonds from current low levels.

Weekly bank statements showed "continuation of the general deflationary tendencies that have been in progress for months." Loans, which ordinarily rise in early Sept., have fallen $147M in the past two weeks, in spite of $80M in new British loans. Holdings of non-govt. securities fell last week by $41M, bringing the total about $300M below the April peak and down to the lowest level since Jan., while govt. securities rose by $227M; this continued reduction in non-govt. securities partly accounts for the recent weakness in bond prices. Demand deposits at member banks are down sharply; current total of $13.134B is $700M off from the year's peak and the lowest at this time of year since 1928; "these deposit drops, which are non-seasonal and drastically large in extent, clearly indicate that there are still no signs of returning confidence, or expanding trade."

BLS reports US building permits totaled $127.1M in August vs. $112.1M in July, but down 10.3% from Aug. 1930. Compared to 1930, residential construction fell 22.6% while nonresidential increased 1.5%.

NY Cotton Exchange estimates world consumption of US cotton for the 1930-31 season at 11.1M bales vs. 13.0M in 1929-30.

Argentina accepts $25M US loan negotiated by Brown Bros. Harriman; matures in 6 - 9 months, at 6% interest.

Suez Canal traffic payments will henceforth be payable in francs rather than sterling.

The European art world showed “hardiness and courage” this summer in spite of the depression; exhibitors “provided both quantity and quality” in the summer's art events; auction houses generally refused to postpone important sales and, in several cases, their optimism was more than justified.

Airplane and engine production (commercial and military) for the first 7 months totaled $21.8M, down 5.1% from 1930; sales were $22.9M, down 2.2%.

Companies reporting decent earnings: Canadian Hydro-Electric, Federal Water Service, Brooklyn & Queens Transit.

Movies:

Karamazov - Tobis Klangfilm of Germany has followed the example of its rival UFA in taking over a US theatre to be devoted entirely to its releases - the Vanderbilt on 48th St. The first offering, unfortunately, is this film, "ostensibly based on the famous novel" but converted to a "garbled, incoherent, blood-and-thunder script" that "might pass for an Edgar Wallace mystery thriller"; "the ironic contrast of Dostoyevsky's subtle characterizations with the mechanical antics of the stock characters of melodrama makes the picture ridiculous."

The Squaw Man - MGM film, at the Capitol. Cecille B. DeMille remakes his earlier silent film; Warner Baxter stars as Jim Carston, a wealthy Englishman who comes to the American West to forget his cousin's beautiful wife; Lupe Velez plays the Native American girl who saves Jim's life and wins his love. Effort to bring the theme up to date by adding current-day scenes doesn't work, but film succeeds as "the old-fashioned melodrama that it is." DeMille has "made a beautiful motion picture ... the Western scenes are entrancingly photographed and directed."

Joke:

Teacher - Johnny, how old is a person born in 1890? Johnny - Man or woman?