Friday, June 12, 1931: Dow 136.57 -0.25 (0.2%)

Assorted historical stuff:

“Back to Sanity” - The stock market, after a constant decline through April and May during which it seemed ruled by “fear rather than reason,” has of late shown some signs of a return to rationality. “Is there not a limit to reasonable price deflation? And is not that limit exceeded when the market appraises as valueless plants costing millions, organizations built up to a point of high efficiency, patents and good names that cannot be duplicated?” Some examples: Westinghouse - net current assets plus securities $55/share vs. recent stock price of 56 1/8; “the company's lands, factories, ... patents and processes” were given no value by the market, though the business earned $4.46/share in 1930. Lima Locomotive recently traded close to 19, in spite of holding over $31/share in govt. bonds, and over $11/share in other net current assets, with no debt; in other words, the market valued its govt. bonds at 63 cents on the dollar and the rest of the business at zero, though the business averaged almost $4/share in earnings over the past 10 years. In the past 2 months, cash buyers bought at least $476M of securities from those carrying loans on their securities, and bought over $700M of new issues. “Is not the soundest basis being laid for future stock prices when securities pass from the weak hands of those who are in debt to the strong hands of those with cash resources?” [Note: Remarkably, about another 70% of downside from here ...]

Editorial: "It is the habit of the worm to turn, though it is not of record that he thus escapes the attentions of the early bird. ... Whatever it may or may not avail him, there is steadily increasing evidence that the taxpaying worm is wriggling as he seldom has before." Practically everything has been drastically deflated in the past two years from the overinflated "new era" level, with the notable exception of "the country's huge tax bill." As a result, taxes are taking an increasing part of revenue in many parts of the economy. "It is an old story that every candidate for office promises tax reduction, while tax bills grow from year to year. But ... the worm cannot much longer be expected to believe that all the $10B annual cost of government is wise and necessary expenditure in times like these." [Note: The early bird gets the worm, but the second mouse gets the cheese. - Steven Wright]

British PM MacDonald says opposes international conference on, or Parliamentary discussion of, war debts at this time. US Under-sec. of State Castle says question of reparations and war debts serious, but not regarded at present as critical.

Nat'l Urban League reports black unemployment has increased sharply as whites have entered previously mostly black occupations due to the depression.

Norway is suffering a general labor deadlock, with large sections of industry idle for up to two months. Manufacturers are asking a general 15% wage cut.

Governors of two provinces in Spain outlaw use of machinery on farms to relieve unemployment.

W. Smith of the Full-Fashioned Hosiery Workers Union warns manufacturers will call general strike in US and Canada rather than agree to wage cut.

Possible fall of British Labor govt. and general election loom as result of controversy over proposed land tax.

Congress has recently expanded funding for the Weather Bureau to support aviation. Special weather services are maintained along all the main US highways; a continuous day and night information service is furnished aviators from centers at several airports.

Ford 3000-acre experimental farm in Lenawee County, Mich. has adopted $5 eight hour day for farm labor; now employing over 100 men. Ford believes one of the major problems of industry is to "correlate manufacture and farming"; he believes many farm byproducts can be useful to industry, thus widening the farmer's market and letting him buy more of industry's products.

NBC "to test new device on June 13 which transforms electricity into music and broadcasts it without the use of a microphone."

Camels and mules are being used to deliver American cars to otherwise inaccessible regions in Colombia, India and Australia. Cars must be disassembled into about 25 packages for transport by mule; heavier parts are laid across bars resting on the backs of two mules.

Jackie Cooper, child movie star, has a new contract paying $1,500/week.

During King George's recent illness the air he breathed, drawn from the palace garden, was purified by washing it in a shower of water containing a germicide, then dried and warmed over heated plates. Steam was added to reach the right humidity; a touch of ozone and the air was finally ready for the royal lungs.

Last year, Harper's Magazine received 25,000 manuscripts and used about 175 stories; the Saturday Evening Post received an average of about 1,000/day.

Market commentary:

Market wrap: Stocks experienced irregular but encouraging session. Wednesday's gains continued early but ebbed after overnight orders were satisfied. Market was unsettled in late morning by Southern Railway's ending of dividends; leading stocks had good-sized setbacks. However, volume dried up on declines and leading rails drew impressive support, spreading to other departments toward the close. Bond market featured sharp break in German issues, though other Europeans were steady; S. American suffered severe late slump. US govts. gained; highest-grade utilities reached record high; rail bonds were strong, with rally in lower-grade issues. Commodities mixed; grains mixed with wheat down on continued Canadian rain; cotton up sharply on short covering in spite of continued good crop weather. Copper foreign sales heavy, but domestic market at deadlock with producers refusing to sell under 8 1/4 but consumers unwilling to go above 8.

Conservative observers continue to favor gradual accumulation of standard stocks; believe market trend still upward with possible technical setbacks from time to time; recommend using stop-loss orders and raising limits as market advances.

A fight, "bitter ... at intervals," is apparently going on between diehard bear traders and the combined forces of bulls and some former bears who recently switched to the bull camp. "The outcome ... is awaited with keen interest in the Street." "A most encouraging development in recent sessions" has been the drying up of volume on setbacks; this has won over many undecideds to the bull camp. Part of liquidation in the past two sessions was attributed to Midwest interests selling due to the Chicago bank situation. However, selling has not been persistent or large, and did not appear to be forced. Session was encouraging to bulls who "thought that the best interests of the market would be safeguarded if the rally should proceed gradually, preserving a short interest by refraining from straight-line advances. In this way, it was felt that groundwork could be built up for a sustained recovery ..."

Editorial by T. Woodlock: The NY Public Service Commission's new rate schedule for electric service is noteworthy, since it raises rates to small consumers and cuts them to larger ones. “That the ... Commission has had the courage to make a decision so obviously unpalatable to many and so obviously open to attack by the 'politician' is a healthy sign of the times in itself ...”; it also makes clear, contrary to recent demagoguery by Gov. Pinchot, that small consumers are expensive to serve.

US Steel moved up after its report of a 277,277 ton drop in unfilled orders; bears had predicted a drop of over 400,000. NY Central's maintenance of dividend came as a surprise to many since it's not currently being covered by earnings; optimists believe this indicates hope of management for improvement later in the year.

In addition to prospects of rate increase, rail circles also drew encouragement from statement of C. Gray, Union Pacific pres., that freight revenues of Western rails had reached an "irreducible minimum" in the past five or six months.

Coffee has advanced strongly from the record lows of April, rising about 2 cents/pound since; this makes it almost the first exchange-traded commodity to apparently turn the corner on price. Coffee was the first commodity to show sharp declines in early summer 1929, foreshadowing the fall crash; observers are now "attempting to connect the upturn in the coffee market with a definite improvement in the economic structure."

Editorial: Agriculture Sec. Hyde recently implied that US farm exports are impossible in the long term unless farmers' living standards decline to those of Russian or Chinese growers. This is too pessimistic; much of the problem is due to raising poor quality crops on marginal land. "Instead of running away from foreign competition, it would be better to eliminate marginal lands and raise the grade and quality of the product."

Commerce Sec. Lamont tells lumber meeting any control of industrial conditions must come from industry itself; govt. can do little more than furnish information and statistics on conditions; not easy to control overproduction but the less govt. goes into it the better off everyone will be. W. Compton, lumber manufacturers representative, says conditions in the industry ominous, advocates agreements for control of production, possibly including modification of antitrust law.

Economic news and individual company reports:

Rail executives of Eastern, Western and Southern groups unanimously agreed to apply to ICC for general 15% freight rate increase; rates will then need to be adjusted down for some commodities unable to stand the raise, which would result in a net overall advance of about 10%. Rail observers were increasingly optimistic on prompt action concerning rate increase; Administration seen favoring increase to prevent wage cuts, and ICC is seen likely to expedite the matter as an emergency; prospects seen good for putting increase in effect before year-end. ICC observers were more skeptical on the response to rate hike request; the ICC “is thoroughly sympathetic of the railroad's dilemma, but is at a loss as to the proper remedies ... will have to be thoroughly convinced before it will order rate increases”; some within the ICC believe “the railroads can best solve the problem by helping themselves.” Reports that Pres. Hoover will intercede for the rails are discounted; Administration position is that the ICC is an independent body answerable only to Congress. There has also been some reaction in “responsible quarters” that a 15% increase is too high; organized shippers have already made their opposition clear.

German Chancellor Breuning and Fin. Min. Curtius reported on their reparations talk with the British. Breuning reportedly threatened the govt's resignation if the Reichstag steering committee called a special session to debate the austerity decrees, though the cabinet agreed to listen to proposals for modification of the decrees. Berlin stocks again suffered liquidation Thursday, and the mark continued to decline, reaching new yearly lows in London and NY; capital flight "is assuming large proportions," with Switzerland a popular destination. Pressure on the mark has not been relieved despite reserve losses to the Reichsbank of about 525M marks since June 1. However, it's estimated the Reichsbank would still have 40% cover if all short-term foreign loans were withdrawn. Bank of England weekly statement drew interest for 3.353M pound sterling increase in gold holdings, which are now at about 157.8M sterling. Gain was almost entirely due to receipts of gold sold by the Reichsbank to defend marks.

More small Chicago banks close; total this week is now 27 with deposits of $70M to $75M.

A number of large NY banks have announced their security affiliates now aren't contributing to dividend payments as in the past, including First National Bank (affiliate is First Security Co), Chase National (Chase Security Corp), and Bank of America (Bancamerica-Blair Corp).

Money in circulation June 10 was up $51M to $4.723B, total Reserve Bank credit outstanding down $9M to $929M. Member banks in NY City report brokers' loans down $49M to $1.490B; loans on securities to non-brokers down $10M to $1.741B.

GM sales by US dealers in May were 122,717 units vs. 135,663 in Apr. and 131,817 in May 1930.

F Sieberling, rubber co. exec., says US rubber industry, with annual sales of $1B, has had no overall profits over the past 10 years.

Gasoline in Chicago wholesale market sold as low as 2 1/4 cents/gallon, with most sales at 2 3/8 - 2 7/8.

Dow average of 8 iron and steel products held at $43.58, post-1922 low. Scrap prices were slightly lower but sentiment reportedly improved.

Brazilian Pres. G. Vargas optimistic Brazil is on "the sure road to economic betterment"; govt. administrative expense cut by $40M and revenues increased over $30M; studying reform of electoral law; in sympathy with Chilean FM Planet's proposed Pan-American customs union.

NY State Industrial Commissioner Frances Perkins reports NY State factory employment down 1.9% in May vs. April; NY City down 4%; average factory worker wage $26.83/week.

Tire industry has reportedly made definite and rapid progress in restoring profitability. Following conferences of leading sales representatives and bankers affiliated with the industry, many trade practices have been eliminated and much of the industry has “been raised from the severely competitive state” of the past year.

Candy appears close to depression proof; in 1930, about 1.336B pounds were consumed in the US, only 2% below 1929. Per capita consumption was 12.59 pounds; children accounted for 14.6% of sales.

Four leading cigarette makers withdraw promotion of 10% in extra packages to dealers who buy in tins of 50; promotion had been in effect for about 18 months.

NYSE seat sold for $212,000, up $2,000 from previous sale.

Southern Rwy. says plans no further dividends this year after $2 payment Aug. 1. Warren Bros. (pavement) cuts annual dividend rate from $3 to $2.

Companies reporting decent earnings: Electric Light & Power, Edison Bros. Stores, W.F. Hall Printing.

Horse racing special:

The Belmont Stakes will feature a highly anticipated duel between Twenty Grand and Jamestown. On “points”, Jamestown would appear to have the advantage in the Belmont's grueling mile-and-a-half endurance contest: “He is deeper through the loins, is exceptionally well ribbed-up and has unusually powerful quarters, with horizontal pelvis, which gives him a great stroke when in his full stride.”

Movie:

The Vice Squad - a Paramount film, at the Paramount. A disappointingly missed "opportunity to present a scathing indictment of one of the modern community's front page evils - the vice squad." The script's author formerly worked for metropolitan dailies, giving him an authentic background, the actors are capable, and the picture starts out promisingly, depicting "the deceptive methods of the police organization and its stool pigeon helpers" as Stephen Locarno, a diplomatic attache, is forced to cooperate to avoid exposing the unfaithful wife of his ambassador. However, story peters out "in an ineffectual effort to popularize the theme by insertion of a milk and honey romance." [Note: thank goodness Hollywood never did that again ...] Paul Lukas, as Locarno, is "a most effective and debonair stool pigeon."

Joke:

"Patient - Doctor, are you sure this is pneumonia? Sometimes doctors prescribe for pneumonia and patients die of something else. Doctor - When I prescribe for pneumonia, you die of pneumonia."

Thursday, June 11, 1931: Dow 136.82 +3.85 (2.9%)

Assorted historical stuff:

[Note: Under capitalism, man exploits his fellow man, whereas under communism it's exactly the opposite ...] Soviet govt. starts "tremendous publicity and agitation campaign" on behalf of new internal loan of 1.6B rubles "in response to the insistence of workers who demand the privilege of contributing at least three weeks wages." M. Kalinin, Soviet official, reminded workers they must subscribe since the govt. had graciously yielded to their demands and issued the new loan. T. Watson, IBM pres., speaking to the Financial Advertisers Assoc., calls for more active education on current investment opportunities: "Speaking to you toward the end of this depression we are going through - and in my judgment we are near the end - things generally are showing some improvement. It would help tremendously if the financial advertising profession could devise a plan ... for placing before the public the investment opportunities which exist today."

Former Belgian Premier G. Theunis urges US cooperation with Europe in meeting the Russian problem.

AFL pres. Green says labor won't accept general wage cut, even if driven until its back is against the wall; urges industry to assure job security and rehire the idle as quickly as possible; says unemployment has destroyed buying power of 25M people and curtailed buying of another group due to fear. Labor Dept. reports 146 strikes and lockouts in Q1 vs. 653 in 1930, 903 in 1929 and recent low of 629 in 1918; 14% of the disputes occurred in NY City.

War veterans meeting at Chicago June 12 will reportedly launch nationwide campaign for full payment of veterans' bonus.

Editorial by T. Woodlock rather sarcastically questioning avowed good wishes of the National Grange [farm organization] toward the railroads. “Somebody once defined 'charity' as a lively feeling on the part of A that B should at once do something to meet C's necessities. Whatever 'benevolence' ... that the Grange has entertained toward the railroads in its 70 years or so of life has been well-dissembled to date.” Recalls that “early repressive legislation against railroads is commonly referred to in the history books as 'Granger legislation.'”

Rep. Dyer (R, Mo.) tells Pres. Hoover nothing would do more to relieve unemployment and restore confidence than legalizing beer.

Treasury Sec. Mellon says trip to Europe is for purpose of seeing son graduate from Cambridge, and has no official significance whatsoever.

The Amer. Institute of Architects warns termites are causing heavy annual losses to buildings and their contents. "There is no section of the country, and no type of building immune from termite attack. These insects have destroyed valuable papers filed in non-combustile vaults of steel, concrete, and masonry. ... In locating their food - wood, papers, etc. - these insects, usually eyeless and wingless, show an uncanny knowledge or instinct, and soon get access to it, always remaining undercover, and often displaying an engineering ability hard to believe." The first hint of their presence may be "the failure of a floor, ... or the picking up of a book and finding nothing there except the exterior surfaces." Termites live in colonies like ants and bees, with a highly developed social order including queens, workers, and other castes. Each colony is self-sufficient, not maintaining connection with any other colony or any permanent opening to the outside world.

Saloons and bakeries were once public utilities in England; in the 17th Century, the price for bread and beer was regulated at the Bread and Beer Assizes.

War Dept. won't allow construction of proposed rail and highway bridge across the Hudson River at 57th St.; decision leaves B. & O. RR with no immediate plans for bringing trains directly into New York to compete with the Pennsylvania RR.

First bank in NY City was launched Mar. 15, 1784 under leadership of Alexander Hamilton; first public mention was in small advertisement in the NY Packet inviting those interested in starting "a bank on liberal principles, the stock to consist of specie only" to meet at the Merchant's Coffee House the next evening. Known then as the Merchant's Bank, it merged with the NY Life Insurance & Trust Co. in 1922.

Market commentary:

Market wrap: Stocks fluctuated irregularly on lower volume most of the session, but turned generally higher in the afternoon. Urgent short-covering broke out around end of first hour after NY Central's maintained $6 dividend rate; majors advanced sharply but as abruptly declined again. US Steel report of unfilled orders was followed by brisk rally in Steel common; general list was uncertain in mid-day but well supported on setbacks; Woolworth report of sales increase brought further encouragement; strength spread across the market in afternoon trading, with rails leading. Bonds featured strength in foreign list; German issues were slightly lower, but almost all other countries showed rising tendencies, with sharp rallies in Brazilian and other S. American issues and in Australian bonds. US govts. and highest-grade corp. were firm while rails and convertibles were irregular. Commodities mixed; grains soft, losing early gains after reports of widespread Canadian rain; cotton up substantially on irregular trading. Copper buying small, sales at 8 - 8 1/4 cents.

Conservative observers still cheerful; point out market has resisted pressure much better lately; advise customers anxious to adopt long side to gradually buy standard stocks and to protect accounts with stop-loss orders.

Technical market observers were encouraged by lower volume and by favorable recent action of the Dow rail and industrial averages. A change in sentiment was indicated by the market's recent resistance to selling after disturbing news. "Responsible quarters" believe some liquidation is still to come from the banks, though it's probable the selling will wait until the market moves somewhat higher.

American Can has been well supported in recent weeks; it is one of the issues that made its bear market low in the initial break in Oct. 1929 and has not been that low again. Woolworth remains a trader favorite, while Westinghouse remains a popular bear target. National Biscuit earnings, according to "usually well informed" interests, have been running somewhat below last year.

Better cooperation seen by rail-related interests including rail officials, security holders, and banks. Belief is also "growing that suggestions will be given more than the usual amount of attention by government authorities."

Editorial: Govt. report on wheat condition as of June 1 was "a bullish surprise to the market," indicating total crop of 834M bushels, about 60M below previous private estimates. This is still above the 10 year average of 820M, but there are other bullish factors including poor condition of spring wheat and Canadian drought.

Editorial: Endorsement by the Investment Bankers Assoc. of the NYSE's code for investment trusts [similar to mutual funds and ETF's] is significant, since the committee that approved the code consisted of bankers experienced in the field. This refutes complaints that the NYSE rules are too restrictive. It's clearly necessary for some recognized principles to be adopted for this new investment field, "where standards had been almost nonexistent." The NYSE code is "designed to insure investors a full and continuing knowledge of the ways in which his funds are employed," including revelation of capital losses and of the sources from which dividends are derived. One controversial feature "prohibits the use of calculations showing how a given trust would have fared if organized a number of years before its actual origin." The code seems likely to become a standard for investment trusts; "advantages of its formal acceptance by sponsoring houses will be obvious."

A report listed factors contributing to weakness in securities including malicious rumors, foreign political unsettlement, falling commodity prices, decline in foreign trade, labor's disregard of lower living costs, frozen loans, etc. The report was "from the Wall Street Journal of June 24, 1921, when things looked more clouded than they do now. Then, as today, wise counselors were saying: 'Buy now.' A few weeks later the long upswing began." Ernst & Ernst survey of over 400 companies finds 1930 depression had slighter effect on business than that of 1921.

F. Bernard, Indiana Bankers Assoc. pres., says business applied new scientific approach to increasing production and distribution but not to keeping forces properly balanced. “Business should no longer be the haphazard, catch-as-catch-can thing we once thought it was.” Says one of major factors contributing to current situation was “maladministration of our credit structure,” for which bankers bear a major responsibility.

J.M. Keynes, in the US for a series of lectures, expressed amazement over US indifference to falling commodity prices. "The continued fall cannot go on month after month. People do not seem to understand its significance. It is bound to upset our whole economic stability." Similar predictions of disaster were made by Sir George Paish recently. However, veteran observers here were more composed, arguing that "whenever conditions have reached such an acute stage, the expected never happens, but some measure of recovery sets in."

Economic news and individual company reports:

Nat'l Bank of Hungary reportedly obtained emergency $8M credit from BIS to protect against repercussions of the Creditanstalt collapse; withdrawal of US funds from Central Europe said increasing strain on central banks there.

Berlin stocks broke sharply Wednesday; decline attributed to foreign selling and nervousness over attitude of political parties. Reichsbank has had to actively support marks for the past two weeks, first as result of the Creditanstalt crisis and then due to “political uncertainty.” This has caused significant loss of reserves, but reserve position remains strong. A looming difficulty is possible failure of a Reichstag special session to approve austerity decrees; this could lead to new elections and renewed capital flight due to fear of radical gains. German press has been attacking the BIS for its lack of effort to make long-term credit available in Germany, pointing out prime commercial and mortgage borrowers have been paying 7%-10% for long-term loans.

Leading bank authorities in the Midwest reportedly believe the local banking situation is practically cleared up by the recent closing of a number of small banks, though "there may be some additions to the number already announced"; mergers effected on Monday prevented any real difficulties and larger banks are believed sound. Three more outlying Chicago banks failed, bringing the week's total to 22 with deposits of about $57.5M; larger Chicago banks have offered support to some outlying banks that are believed sound.

Bank of US trial featured appearance by Grand Jury stenographer to confirm statement at the Grand Jury by I. Kresel, main defense witness, which he later denied making. Statement was to the effect that "something was suspiciously wrong" with the $8M transaction on which the indictment was based.

Steel production for week ended Monday was about 39% vs. 41% prev. week, 43% two weeks ago, 70% in 1930, and 96 1/2% in 1929. US Steel reported decline in unfilled orders of 277,277 tons during May; however, this was in line with predictions and below the average May decline for the last 7 years. Weekly steel reviews had little constructive to say. Decline attributed to lower automotive production. Current rate appears unlikely to hold, since no gains are seen likely in any line and automotive demand appears set to fall further; summer minimum in production to be lower than expected. Prices of finished products are not being tested much since users are showing little interest in placing contracts for the third quarter.

NY Central declared regular quarterly dividend ($1.50), as did seven subsidiaries.

Woolworth reported sales in first week of June were 7.7% over the 1930 period, first sales increase in nearly two years. Woolworth is to receive $27M in cash and shares valued at $77M as a result of spinoff of its British subsidiary.

Sales of East Texas crude oil made as low as 12 cents/barrel. Gasoline in Chicago wholesale market sold as low as 2 3/8 cents/gallon; most sales at 2 1/2-2 7/8. Experts estimate total potential oil recovery from East Texas at 2B to 5B barrels, and from the great Kettleman Hills field in California at 2.4B.

US electric output for week ended June 6 was 1,562 GWHr, down 2.9% from 1930, vs. a 3.8% decline prev. week and 4.4% two weeks ago.

Class 1 rails put 5,330 new freight cars in service in the first 4 months of 1931 vs. 34,987 in 1930; as of May1 there were 8,554 new cars on order vs. 33,723.

Govt. reports weather favorable for cotton and corn; wheat conditions more mixed with rain needed in much of spring wheat area.

British unemployed June 1 rose to 2.630M vs. 2.507M on May 18; however, German unemployed May 31 declined to 4.067M from 4.389M on Apr. 30.

Spanish pesetas rose on rumors of possible French credit and that Spanish Socialists favor stabilization. Brazilian milreis rose on rumored debt plan. Uruguay Administrative Council voted not to suspend debt payments as suggested by Pres. Terra.

Brotherhood of Railway Trainmen closes convention at Houston; lasted 37 days at cost of nearly $1M.

History of the Insull utility empire. Starting with a struggling Chicago electric co. that had trouble selling its securities when Samuel Insull became president in 1892, utilities controlled by Samuel and associates including brother Martin and son Samuel Jr. have grown into empire extending from East Coast to the Rockies and into Canada and Mexico. Annual operating revenues approach $400M, and total capitalization is over $2B. Quickly adopt newest and most efficient generation methods and interconnection of systems. Threat of takeover by unfriendly interests warded off through holding company structure.

Movie:

The Five-Year Plan, Russia's Remaking - Russian production, with a talk in English, at the Central Theatre. Subject of this long film is now "attracting an unprecedented share of world attention, for a news subject that is neither war nor flood nor a Lindbergh flight." However, the film is disappointingly little more than a routine travelogue, tending to repetition and lacking the impact of previous Russian films that have appeared in the US. So much news and analysis has been published on the subject, and so many photographs and newsreels circulated, that the film has little to add. There is some interest in scenes concerning social play, geographic features including vast timber stands, and the work of American technologists in Russia.

Joke:

"' I would like to marry your daughter.' 'One word first. Can you support a family?' 'Certainly, sir.' 'Very good. I must tell you there are seven of us.'"

Wednesday, June 10, 1931: Dow 132.97 -2.95 (2.2%)

Assorted historical stuff:

German-British conversations apparently only resulted in decision to seek international collaboration to solve world economic crisis; possibility of joint presentation to the US seen. Meeting seemed overshadowed by upcoming European trip of Sec. of State Stimson, which has raised high hopes in German govt. quarters that he will advocate using US power to reduce war debts in exchange for European arms cuts.

Washington report: Administration appears to have settled on strategy for handing war debt revision: "sitting tight awaiting developments." US seen as interested but passive observer to current developments; will become active participant if debtor nations propose revision of their debts to the US. However, in this case Congress and not Administration would have final authority on debt revision. Therefore, "natural procedure ... for the present is one of sitting tight"; meantime, govt. officials will stay informed on conditions in debtor countries so they can make recommendations. Attitude of Congress seems likely to be problematical, particularly on linking war debts to reparations.

Editorial: Reticence has its place in public life, but the Administration is carrying it too far. Even the most astute observers seem to be hopelessly unclear about the Administration's stand on debt reduction; reports from three NY dailies give wildly different impressions, with Hearst's NY American saying the Administration was dead set against debt revision, the Times saying Pres. Hoover has been "shouting from the rooftops" that a substantial cut in arms might bring a positive US response on debts, and the Herald Tribune occupying a rather confusing middle ground. It's time for some clarity and "preparing the public mind for what is to come" on this essential issue. "It is impossible to believe that men like Mr. Hoover, Mr. Stimson and Mr. Mellon content themselves with such vacuities as 'hoping for the best and preparing for the worst'" or that they don't realize "the importance, in the present state of world financial strain," of US initiative to restore "confidence in the closely woven fabric of international credit."

British and French authorities disputed reports Pres. Hoover had made any remarks implying US willingness to reduce war debts in exchange for European arms cuts; while Hoover did stress the need for arms cuts, he made no mention of debts. French Foreign Min. Briand says govt. strongly opposed to any international debt conference as outgrowth of recent British-German conversations.

Editorial by T. Woodlock questioning how long business can maintain wages in face of possible bankruptcy, particularly in the case of railroads: "We all grant that the wage-earner has first claim upon industrial revenues [Note: Strangely unfamiliar dept.]; he holds a prior lien obligation. But, when after satisfying his lien the capital employed cannot get a new dollar for an old one, how long must it continue to operate before it asks the wage-earner to take less? Or, if the wage-earner will not take less, before it may cease to operate?"

Soviet industry reportedly threatened by serious coal shortage due to rapid growth of industries. Average coal production before the war was 29M tons; this fell to 8.5M in 1920; scheduled production under the five-year plan is 74.5M tons this year and 130M in 1933.

Interesting history of electric utilities and copper wire. First practical commercial use of electricity was in 1844, with Morse's telegraph line. This created demand for copper wire and hastened development of wire-drawing process, which came in handy when Edison's incandescent lamp arrived about 33 years later. First central power station, Edison's small plant on Pearl St. in NY City, supplied 220V direct current over a few blocks using copper wire; it had 500 customers in its first year of operation, 1882. The electric industry now consumes about 65% of total copper production; the two industries have developed hand in hand.

On June 15, final link will be made in international airway connecting Canada and Mexico.

E. Paine, sugar executive, says the industry recently received its "most encouraging news ... for many years." After 9 years, a process has been developed to turn sugar into "a new plastic substance" that can take forms of "a hard insoluble glasslike mass, white transparent rubber, ... and transparent package material."

The USDA estimates soil erosion each year removes 20 times as much "plant food" from the farms as is consumed in actually growing crops. Irreplaceable top soil washing out to sea is gradually reducing usable farmland; over 17M acres of land formerly cultivated has been eroded so badly that farmers can't afford to reclaim it.

Many of the big old New England hayfields have disappeared, and with them switchel, a traditional drink used by field workers to wash down dust and hayseeds on hot, dry days. Recipe was a mixture of molasses, ginger, water and a dash of vinegar; the jug was cached in the shade or a spring hole to stay cold.

P.G. Wodehouse recently spent a year in Hollywood, for which he was paid $104,000. However, he's not sure exactly why he was hired, since he was given little to do; he "polished the dialogue" on two completed scripts, and worked for 3 months on a musical script that his employers then decided not to use.

Market commentary:

Market wrap: Stocks opened strongly, extending Monday's gains on a broad front with rails and oils particularly impressive. Market fell sharply around 1 o'clock after reports of Chicago bank suspensions and Western Electric dividend cut; AT&T broke about 5 points and other majors sold off. Trading lightened in afternoon but no rally appeared; action in last hour "nervous and uncertain." Bond prices improved in many parts of the list; US govts. dull and steady near recent highs; foreign list featured rallies in German and Brazilian issues with other countries steady to firm; domestic corp. showed encouraging improvement in some recently weak issues, though convertibles fell late along with the stock market; oils, rails, and NY tractions showed particular strength. Commodities weak; grains soft on reports of Canadian rain; cotton closed down sharply after losing early gains. Copper buying moderate at 8 1/4 cents.

Conservative observers say market will be sensitive to developments, but warn against taking the short side since they still believe the market will reach a higher range before any important downtrend takes place; see "intermediate rallying movement" continuing with interruptions. Recommend stop orders for protection.

Brokers report customers "both in the metropolis and in other cities" have been more inclined to pick up stocks on dips since the recent rally. Bears have evidently been fighting the rally and probably will continue to resist further upturns. While many traders reportedly have deserted the bear ranks, some important operators continue to maintain their positions; huge profits in the past 20 months have given them confidence to contest rallies. "It must be admitted, however, that their efforts to hammer stocks have not been nearly so successful recently as during the period of necessitous liquidation." A change in sentiment has apparently taken place, and reactions seem likely to attract buying support in the immediate future. Market seen in stronger technical position to anticipate fall business improvement, thanks to extensive liquidation of brokers' loans.

Oil shares benefited from improved sentiment in the California oil industry, with producers apparently lined up to curtail daily production to target of 427,500 barrels/day (excluding Kettleman). Rise in crude prices is expected shortly. However, situation in East Texas remains "in a muddled state."

Being a corporate director isn't always "the enviable job ... often popularly pictured." R. Babbage was recently elected to the Board of Directors of the Missouri-Kansas-Texas RR; he has since attended one meeting, receiving a $20 fee, but has a paper loss of $1,500 on 100 shares of "Katy" he bought when elected.

US Steel report on unfilled orders as of May 31 will appear at noon. A substantial decline is expected, as is normal seasonally; a "slightly better than anticipated" showing might have a beneficial effect.

W. Alton Jones, Nat'l Elec. Light Assoc. pres., points out stability of utility industry in depression; in comparison of Q1 earnings with 1930, total of 259 industrials was 54.8% lower, total of 171 rails was 39.3% lower, but total of 76 light, power and gas cos. was only 1.6% lower.

Conflicting factors make local bank earnings hard to predict; profits are likely to decline due to poor business, low money rates, and "unusually liquid condition" but should benefit from marking up of high-grade bonds so far this year.

D. Friday, economist and Treasury advisor, predicted US business will reach normal by 1932 and continue progress to new era of prosperity in 1933; "Production cannot continue at a level of 35% below the peak if it is to meet the demand of consumers."

Interior Sec. Wilbur says economic conditions look to be in a state of convalescence. However, "Dr. Wilbur said there are factors in the economic situation that go beyond our present powers of accurate measurement and definite diagnosis."

Amer. Bankers' Assoc. says continued subnormal industrial activity in the past month is disappointing, but after adjusting for seasonality general trend now appears to be up; retail trade is gaining and consumption of many commodities is being maintained well above output. "Without attempting to prophecy the future, it may be safely said that the likelihood of continued, though slow recovery, seems much stronger than the possibility of a renewed declines to still lower levels of depression."

Economic news and individual company reports:

Investment Bankers' Assoc. committee decries real estate bond situation as one of the "blackest spots in our present financial outlook." Estimates total volume outstanding at $8B-$12B; about $400M in foreclosure in Chicago alone, similar conditions in most large cities. Rough breakdown of overall market condition: about $2B in good standing, $2B likely to work out without loss, $2.5B likely to foreclose with losses of 10%-25%, $3B with losses of 25%-60%, $500M with larger losses or should be entirely abandoned. Warn sharp curtailment of building possible until present situation has cleared; important to reestablish confidence in real estate securities so investing public would be willing to finance sound projects; suggest consideration of forming mortgage guaranty companies. J. Tyler of E.G. Tillotson & Co. said this type of bonds had suffered from the long-term public conviction that real estate is the safest form of investment; also blamed too much reliance on well-intentioned appraisals of value and called for greater margin of safety.

Bain group of 12 banks in Chicago closed due to "frozen real estate credits." Leading bankers "in close touch with the situation" said closings of 18 small Chicago banks in the past 2 days were not of great significance, and that settlement of the Foreman Banks' difficulties through merger yesterday eliminated the only major sore spot in the Chicago banking situation. The six banks that closed yesterday had total deposits close to $25M, while the 12 closing today had $13M.

Continued contraction in bank credit outstanding is disturbing, particularly since it's against normal seasonality; this indicates no early increase in business activity is likely. Security loans have been heavily liquidated; “all other” (commercial) loans are lowest since 1924; bank holdings of non-govt. securities have declined in spite of very low money rates.

Reichsbank has lost an estimated 200M marks of reserves so far in defending marks, but position still strong and seen able to avoid rate increase for some time.

Conference of Australian govt. and opposition leaders agrees all spending must be cut substantially to avoid national default; sacrifice must be shared by all; owners of internal bonds will be asked to accept cut of 22 1/2% in rate, to 4%; "suggestion that recalcitrant bondowners be coerced with threats of penal taxation was abandoned in favor of voluntary methods." Australian trade balance improved to surplus of $84.4M in 9 mos. ended March, from deficit of $163.8M in 1930.

Chicago school teachers' organizations fighting proposal to save about $1.5M/year by cutting school expenses and eliminating automatic pay increases. Mayor Cermak and Gov. Emmerson are in Springfield conferring on legislation to relieve Chicago's financial emergency; Cermak proposes to replace the elected Board of Assessors with an appointed committee of 3 experts to take charge of the tax situation; only 58% have paid 1929 property taxes with many protesting assessments.

Defense rests in Bank of US trial after 4 weeks and 13 witnesses; prosecution begins rebuttal.

Tennessee House clears Gov. Horton of impeachment charges.

Western Electric cut annual dividend rate to $3 from $4; 98% owned by AT&T. Sinclair Consol. Oil omitted dividend.

National conference of rail executives to be held in NY June 11. Southern rails apparently have decided to back Eastern and Western rails on any decisions on asking for rate increases reached at the conference; this is seen strengthening the rails' case before the ICC. Of 42 representative rails reporting earnings for the first four months, only 3 showed an increase in net operating income over the two preceding years. Rail freight loadings for holiday week ended May 30 were 710,931, down 44,137 from prev. week, down 17.3% from 1930 week, and down 28.9% from 1929.

Refineries ran at 68.8% in week ended May 30; stocks of gasoline fell 570,000 barrels to 44.225M. Crude oil production in week was 2.475M barrels/day, up 12,800 from prev. week and down 113,100 from a year ago.

USDA estimate of winter wheat crop based on June 1 conditions was 649.1M bushels, 25M below the average of private forecasts; low forecast came as distinct surprise to the grain trade. No estimate given for spring wheat, but condition of 67.9% was lowest June 1 figure ever reported. Permanent committee of wheat exporting nations to meet for the first time this month; breakdown of the cordiality established at May wheat conference feared. "All countries are agreed as to the causes of the present depression in the wheat market but differ widely on how to dispose of their huge surpluses."

Fertilizer Review reports usage in the US in 1930 was record of 8.110M tons vs. 7.975M in 1929.
International tin committee will meet in Paris June 16; will consider forming pool to withdraw important quantity of tin from the market.

Commerce Dept. reports seasonal upturns in a number of foreign countries in the past week, including France, Czechoslovakia, Japan, and Argentina.

Structure of Canadian newsprint industry seen threatened if bondholders refuse to go along with reorganization plan for Canada Power & Paper; one of the largest producers, it's now "on the brink of liquidation and dissolution."

US film producers open negotiations to relieve restrictions on French imports of US films; under current agreement, US producers must buy heavy percentage of French films in order to export US films to France. Negotiations await return of M. Petsche, "undersecretary of state for beaux arts."

D. Lawrence, publisher of the US Daily, reportedly negotiating for purchase of the Washington Post at price around $3M.

International Match [Ivar Kreuger-associated] earnings so far in 1931 reportedly "holding at record levels in the face of the world business depression." Woolworth earnings so far this year reportedly ahead of 1930; pres. Parson says expects June to almost make up the sales decline reported so far in 1931. Oakland-Pontiac enjoying one of finest years in its history; Pontiac 1931 business expected 50% over 1930, and Oakland 25% over. Glidden reports retail paint division increased May sales 15% over 1931; sees increase as encouraging indication general business is improving.

Companies reporting decent earnings: Novadel-Agene (products for bleaching wheat and flour).

Jokes:

A New Yorker "whose Western view had for years been obscured by the Hudson River recently was forced to make a trip to Chicago." He asked the Pullman porter what his average tip was. "About a dollar, sir," was the reply. The Gothamite obligingly handed out a dollar bill. "Thank you, sir," said the porter. "You're the first gentleman ever came up to my average."

"My husband and I find it's more economical to balance our budget in the evenings." "How's that?" "By the time we've finished it's too late to go anywhere."

Tuesday, June 9, 1931: Dow 136.40 +6.01 (4.6%)

Assorted historical stuff:

Editorial: The Breuning govt. in Germany has staked its survival on making progress toward reduction of reparations, without which it can't hope to get popular approval for its austerity program. What would follow collapse of the Breuning govt. is impossible to predict; "A Teutonic brand of fascism would be little less troublesome for the world than a Germany going communistic." The US and France have been skeptical on the urgency of Germany's predicament, but it may soon be demonstrated; while the Breuning govt. is operating with emergency powers, it can and no doubt will be called before the Reichstag in extraordinary session to report on the results of their London meeting and defend their austerity decrees. It's clear that the course of German politics will now depend on the attitude of other European govts. and in turn on Washington's attitude on war debts. If the Breuning cabinet can survive until Secs. Stimson and Mellon arrive in Europe, a British-US attempt should be made to bridge the reparations crisis.

Interesting editorial by T. Woodlock on current US feeling regarding Europe. “Our national psychoanalyst readily would discern a 'superiority complex' ... We feel that we have rid ourselves of the out-worn ideas that still plague Europe, of which its troubles are the just and natural consequence ... So we gather our skirts around us and declare that we will have nothing to do with these unseemly squabbles, and we look askance at all things 'international' - particularly bankers! ... Whence the complacence and self-confidence? It is something more than the ordinary national pride ... It is a settled mental conviction rather than an emotion.” Explanation is greater space available in the US. “We never have been crowded. In the Old World, there long have been two men after each job, ... a man at one's heel and a man at each elbow. Here, we could always move on into open spaces ... Nor have we ever known what Europe ... calls 'hard times.' What we call 'hard times' are no worse than the normal routine of life for most of Europe, year in, year out.” Calls for introspective common sense, humility and sympathy; “as a practical matter the 'isolation' on which we so earnestly insist for ourselves” may eventually prove “the worst kind of 'entanglement.'”

Editorial: The menace of Russian wheat exports to North American farmers may be exaggerated. Spring wheat seeding is reportedly late, particularly in the Ukraine and Lower Volga; outlook for yields is not good; while nature may help Russia as she did last year, "Lloyds would hardly insure the chance." Russian officials are giving estimates of production far higher than 1930, "but paper statistics are not always the same as wheat." Russia exported about 95M bushels from the last crop; this is a significant amount, but reportedly led to bread prices as high as $1.25 a loaf in Moscow and recent bread riots there. "Russia may temporarily disturb the wheat market but she cannot for long disturb it when obliged to starve her own people."

AFL pres. Green says rumors AFL would agree to 10% wage cut "positively untrue." Labor Sec. Doak repeats support of existing wage scale.

Over 1,600 employees of Empire Steel, who struck against wage cuts 3 weeks ago, marched en masse to company officials and said they wanted to help during the company's financial crisis (now in "friendly" bankruptcy); volunteered for 3-month 5% wage cut.

Navy Dept. anticipates savings of $25M as result of plan worked out in weekend conference between Pres. Hoover and Navy officials.

Treasury Sec. Mellon to sail for Europe; will spend 6 to 8 weeks in France. Sec. of State Stimson also travelling to Europe.

Rep. La Guardia asks War Dept. to refuse deliveries from Wright Aeronautical Corp. until it reestablishes prevailing rate of wages in the area.

Dr. C. Pabst, chief dermatologist at Greenpoint Hospital, estimates annual loss of 200,000 working days caused by sunburn, in many cases deliberate.

New Canadian tariff of 15 cents/pound on US publications likely to be relieved on case-by-case basis after publications satisfy the Fin. Min. "that they do not carry cheap sex or crime stories. ... It is said that the Canadian govt. has no desire to prevent entry of the better class of American publications."

Canadians hold distinction of world's most talkative nation, at least measured by telephone usage. In 1929, Canadians held 257.7 phone conversations per capita; the US was next with 231 and New Zealand with 212. In cities of over 50,000 Canada had 23.3 phones per 100 people; US was next with 22.9.

Increased popularity of foreign beers in Belgium has caused Belgian brewers to spring into action. Brewers have recently organized a research bureau to improve their products. A school for master brewers was started in Brussels in 1925; last term there were 45 pupils, of whom 12 graduated "with grand distinction."

The advertising medium of matchbook covers, once largely restricted to makers of nationally advertised products, is becoming more widespread; users include hotels, musical comedies and nightclubs, and even charitable institutions; covers have appeared in Dutch, Swedish, and other languages.

Market commentary:

Market wrap: Stocks opened under pressure as sell orders accumulated over the weekend and bears renewed operations; prices worked generally lower, with sharp declines in major rails. However, liquidation dried up after first hour setbacks and support came in on reactions; pressure was lifted from the rails toward noon and better tone spread across the list; NY Central staged a robust rally and major industrials joined in, with American Can particularly strong; rally carried on up to end of session. Bond trading very quiet, prices irregular; US govts. steady; S. American mostly higher; European generally steady but German lower; highest-grade corp. steady but lower-grade rails and some other sections that rallied sharply last week turned lower. Commodities mixed; grains heavy, with wheat down substantially on reports of some Canadian rain and good French crop; cotton closed up moderately after rallying from a new 16-year low. Copper buying quieter, price remained at 8 1/4 cents.

Market sentiment cheerful; observers who had predicted further recovery and advised buying were encouraged by resistance shown to reactions; some favored using stop-loss orders to protect accounts, raising limits as the rally extends.

Bears have been confident that the market will have a secondary reaction to around last week's lows after the recent sharp rally; this would follow precedent. However, after the recent rally investors now seem willing to step in on setbacks and pick up stocks with "well-fortified" dividends and high yields; this should provide "more ammunition to fight the bears than ... for many months." Short covering and buying by the public were reportedly heavier. Many believe that “floating supply” of stock has been shrinking; investment demand around recent lows was likely heavy, and buyers removed stock from the Street.

"Interests close to the bankers" say there may still be some "liquidation overhanging the market" since there are "still a few situations remaining to be cleaned up." However, this liquidation was not as urgent, and those with the securities to dispose of could wait for a good technical recovery to get well under way before selling.

Rail strength in recent sessions attributed to "growing belief that a demonstration will be made in the carrier group" after application for a rate increase is filed.

Early weakness in NY Central reflected nervousness on dividend cut at Wednesday's meeting. Pennsylvania RR also weak after report of Q1 loss. Chrysler is trading about 17, with net working capital over $15/share; had Q1 loss but is seen making a good showing this quarter.

Although recent pressure carried Insull Utility Investments down to the low 20's, it is still trading at one of the highest premiums over breakup value of any holding company; breakup value at end of 1930 was $4.55/share and is now likely to be considerably lower.

Calif. oil industry more optimistic than in several months due to recent production cuts; expect rise in crude oil prices within a few days.

Harvard Economic Society says "latest evidence justifies the view previously expressed that we are approximately at the bottom of the business depression," notwithstanding unsatisfactory developments in May. "Cyclical decreases in business have limits, both in extent and duration, and the limits of a major (but not exceptionally long) depression have now been reached." Note widespread gains in manufacturing activity since last Nov., when seasonally adjusted. Very unfavorable conditions in other countries may prolong US depression, but they haven't prevented an improvement in business volumes this year.

D. Friday, economist, predicts by this coming Jan. US production will be 25% higher than last Jan.; this won't mean a return of boom times, but will be proof of an upturn. "In fact, business is on the way up now. Production as measured by the Federal Reserve index" has been rising since start of the year. "Investigation has shown that during depressions the income of the people as a whole falls only 15% to 18% from the high levels. Income from dividends this year will be within 15% of the biggest year we have had, 1929."

Interesting ad calling for optimism by North Amer. Trust Shares: “I believe in the ability of the American citizen to swim upstream, hit fast ball pitching, break out of a half-nelson and have a pretty good time in the bargain ...”

Economic news and individual company reports:

Creditanstalt losses to date estimated at over 300M schillings; gains additional 100M schilling credit from B.I.S. and central banks. French govt. reportedly close to agreeing to discount half the recent 150M Austrian Treasury bond issue. Marks were steady, but this was attributed to active support by the Reichsbank; heavy withdrawal of British funds was reported due to the Creditanstant difficulties. Stocks in Paris broke sharply, losing all the gains of last week's rally; fall attributed to German demand for revision of reparations.

After a conference of leading bankers lasting 40 hours, two Chicago bank mergers were announced, producing two of the country's largest banks. First National absorbed Foreman-State, with $200M in deposits, which had run into trouble; to insure against loss, Foreman stockholders raised a guarantee fund of $2.550M and the Chicago Clearing House contributed $10M. First National will now have about $770M in deposits. Also, Central Trust Co. and Nat'l Bank of the Republic merged to form Central Republic, with $295M deposits. Business at the merged banks went on normally but six smaller "outlying" banks were closed.

I. Kresel, chief defense witness in Bank of US trial, denies his own grand jury testimony regarding $8M transaction of Jan. 1930; judge had to admonish him several times to avoid sharp comments when answering cross-examination questions. Committee of Bank of US stockholders and depositors asks NY State Supt. of Banks to sue for recovery of $25M from directors and discontinue bank branches. Banking dept. points out suit now would endanger reorganization plans.

Leading chain retail systems in May continued impressive showing; dollar volume was behind last year but it's likely tonnage was ahead due to price reductions. First 17 chain store and mail order cos. to report showed May sales of $142.3M, down 6.2% from 1930. However, most of the decline was due to a 25.9% drop in Montgomery Ward sales because of liquidation sale in 1930; excluding Ward, sales were only down 2.4% and 3.1% in the first 5 months.

Texas Gov. Sterling says will decide soon on calling special session of Legislature to deal with East Texas oil situation. "Some of the brainiest man in the industry say they don't know the solution or what should be done, so what can be expected of a poor governor ... Everyone might as well go fishing for a week for it appears no decision be reached until then."

It's become evident the proposed rail freight rate increase will be strongly opposed before the ICC; the Nat'l League of Commission Merchants, representing shippers of 1M carloads of produce yearly, said freight charges are already excessive and announced a program of "strenuous opposition."

Spanish Fin. Min. Prieto attributes fresh rise in banknote circulation to hoarding; proposes new stabilization loan and agreement with France by which Bank of France will discount commercial bills; also sees possible agreements with US regarding imports of oil and other merchandise. Peseta futures are now trading at a discount, and banknote circulation is "rapidly mounting," now reaching 5.293B pesetas vs. low of 4.604B on Mar. 28.

Canadian report: New Canadian tariff seen having mixed effect; will benefit some industries but, together with general tax increase, certainly increase living costs. Canadian Bank of Commerce estimates industrial output about at 1927 level, but output sold at abnormally low profit; this "may seem discouraging, but ... we find that such a degree of retrogression is less than in most other countries." New Canadian building awards in May were $36.9M, largest monthly total this year and 62.5% over April; first 5 months were 28.3% below 1930.

Three US and one British oil co. have almost completed negotiations for loan of over $10M to Mexico to be used for govt. payments in arrears due to heavy revenue decline. This is first financial transaction between the oil companies and the Mexican govt. since Doheny interests loaned the Obregon administration $10M in 1923 to suppress the De La Huerta revolution.

Revised NY City transit unification plan prepared by S. Untermeyer was announced; contained no important revisions in price to be paid for traction [mass transit] company properties. NY City traction shares and bonds rallied; securities are all selling considerably below figures to be paid in the plan, although final action is unlikely for several months since plan must go through several approvals. It would be very desirable for the plan to go into effect by Dec. 1, when the new city subway will be ready for operation.

Chicago and Cook County local govts. will be forced to reduce 1931 spending by $30M or 15% as banks won't lend more than 60% against anticipated taxes.

American Can pres. Phelps says sales so far in 1931 about 8% under record 1930 level, but expects to make up decrease; urges co. salesmen to buy stock.

R.H. Macy reports unit sales in past week were up 42% over 1930 in response to “their campaign to cure the depression.”

Companies reporting decent earnings: Hufvudstaden Real Estate (largest owner of city real estate in Sweden, affiliated with Kreuger & Toll).

Movie:

Never the Twain Shall Meet - "somber South Seas offering" starring Leslie Howard, at the Capitol. Audiences will highly enjoy the live revue starring Ted Lewis and his "orchestra and a bevy of entertainers ... quite the best revue now appearing off the legitimate stage." Once the movie starts, however, the quality drops off considerably. Mr. Howard is the vacillating Daniel Pritchard in this remake of a decade-old silent film; he woos and wins Tamea, a "South Sea passion flower," becoming a beachcomber in a "rather silly" sequence, but ultimately realizing that East is East, West is West, etc., and returning to his fiancee. "Conchita Montenegro, a Spanish newcomer ... has the role of Tamea, which Anita Stewart played with half the wiggles and twice the success in the original silent version." Karen Morley plays Daniel's long-suffering "cool, lovely fiancee Maisie Morrison" to whom he finally returns.

Jokes:

Matrimonial Agent - You don't like any of these photographs? I'll show you one more, and if that's not suitable I can do nothing for you. Now, how about this one? Client - Yes, that is just the type of lady I like. Agent - Then what about an interview with her? Client - Unfortunately, I already divorced her.

Monday, June 8, 1931: Dow 129.91 -3.42 (2.6%)

Assorted historical stuff:

German Chancellor Breuning, arriving in England, says German reparations burden has increased $600M in past 14 months; moratorium provided for by Young Plan not adequate for relief; calls for international cooperation, impartial review of German condition, and revision of postponable part of reparations. Says relief is needed by Sept. when unemployment will again rise and suffering become so great as to make revolution almost inevitable. Official German declaration marks “at least a break” in the third attempt to settle reparations after the World War, starting with the Reparations Commission in 1921, then the Dawes Plan in 1924, and finally the Young plan in 1929. The Reichstag may reconvene to debate the govt. austerity decree; govt. stability seen depending on result of British conversations on reparations relief. US Sec. of State had no comment yet on German developments; implies US hasn't changed position that there is no link between war debts and reparations. Observers believe allied countries unlikely to accept revision of reparations without corresponding relief of their war debt to the US.

Stock market in recent months "undoubtedly has operated as a restraining influence on business activity. Fresh enterprise has been choked by fears invariably arising from persistent declines ..." Complaints about harm the market was doing to public demand have come particularly from the steel industry; experts estimate current rate of production is several million tons below yearly replacement needs. It's therefore hoped the recent upturn will "exercise a stimulating psychological effect on commerce and industry." The upturn may also prove "the best tonic that could be administered to the market itself. Just as declining tendencies gain momentum from the nervousness they engender, a sustained rally receives impetus as it proceeds from the confidence that firmer prices create."

Editorial: The NY Chamber of Commerce recently adopted a resolution condemning all trade with Russia due to their aim of destroying the political institutions of Western Europe and the US. An earlier resolution last Nov. called for the US to protect its political and economic interests against Russia, acting together with all friendly govts. While Congress could probably cut off all US trade with Russia if it so desired, a realistic appraisal shows that this would now have little impact on their 5 year plan. Prospects for an international anti-Soviet alliance have dimmed as countries including Germany, Italy, and Britain have reached trade agreements which include financing of exports to Russia. "Americans, therefore, must think of the Russian problem primarily as one of defeating attempted dumping of goods on our shores to the injury of our industries and labor. We must expect to look out for ourselves and to do it single-handed."

Immigration to the US of "working class of aliens" has almost stopped due to enforcement of "likely to become a public charge" provision directed by Pres. Hoover; only class now entering are alien relatives visiting people already here. Visas issues in April were 96% below normal.

Editorial by T. Woodlock: The calculations behind Gov. Pinchot's charges that US public utilities are plundering $500M annually through overcharges "have one quality in common with those of Prof. Einstein. There are probably not a dozen people in the world who understand them." Detailed analysis reveals implausibility of the figure (total revenue from home consumers in 1930 was only $668.5M). Meanwhile, Sen. Norris also may be using unorthodox mathematics in endorsing Pinchot for President: "the Senator says ' ... I am for him five hundred times more than I am for Pres. Hoover.' How much is five hundred times zero? It seems as though the 'square root of minus one' must play a large part in 'Progressive' mathematics these days."

Postmaster Gen. Brown notes Post Office is now spending $17M more for airmail than received in postage, but says expenditure is a matter of national security.

Pan American Airways carried 12,842 passengers to the Caribbean and Central and S. America in the first quarter, an increase of 2,510 over 1930. A record of 100% was established for reliability, with every trip completed on or ahead of schedule. Recently added two Sikorski 41-passenger amphibians, largest planes ever made in the US. With initial development work completed, company is reportedly operating profitably this year.

Daily mileage of airmail flown in US is 74,000 as of today, with inauguration of service between Washington DC and Pittsburgh.

Sparks-Withington Co. to shortly sell first home sound movie machine, the Visionola; several film cos. including Universal to furnish films.

Forest planting by US agencies was 139,970 acres in 1930, up 24% from 1929; total planted is 1.798M acres, though planting has never kept pace with losses from wasteful cutting, forest fires, and erosion.

Receipts from observatory and promenade at top of the Empire State building running so far at rate of over $1M per year.

Construction cost of Grand Central Parkway through Queens estimated at $6M-$8M.

Chase National, largest bank in the world, uses an entirely different name for its Chinese subsidiary: Dah Tung Ning Hong, or Great Universal Silver Bank.

Week in review:

Stocks, after a weak start, "engaged in their most extensive recovery since Nov. 1929" after lowering of margin requirements by leading banks and brokers and decision of govt. to stop fighting the Vacuum Oil - Standard Oil of NY merger. Stocks in Paris rallied sharply in the last 3 days; stocks in Berlin hit lowest levels since 1925 early in the week but improved somewhat toward the end. Bond market also experienced a hectic week, starting "panicky" with many new record lows but staging a quick reversal in midweek with good recoveries in many issues; rails in particular saw "record breaking rally"; public utility bonds were relatively firm throughout and closed the week near record highs. Treasury's smaller than expected offering of $800M 3 1/8% bonds due in 1949 drew huge oversubscription of $6.3B and bonds sold in the market at 1 1/8% premium. Enormous Treasury financing of over $5B this year has apparently not disturbed US govt. bond prices. European issues were irregular, with German weak on talk of reparations revision. S. American govts. rallied, particularly Brazilian, although Peruvian broke after govt. default. Money markets quiet. Call money remained at 1 1/2%. Fed. Reserve member banks in NY continued liquidating security loans but “all other” (commercial) loans rose slightly; holdings of govt. and non-govt. securities rose. Foreign currencies irregularly lower; marks weak near gold export point, with Reichsbank exerting active support; pesetas gained on Spanish govt. decrees but outlook seen doubtful; Brazilian milreis firmed on rumored agreement with British bankers on solution for debt service. Steel production continued slow decline; no change anticipated before late summer; construction demand held up while automotive again fell slightly. Prices were generally steadier, with producers apparently more determined to avoid price cuts. Wheat hit new lows at midweek with July hitting 56 5/8 cents, lowest quote since 1896; prices then turned up after Canadian drought reports and rally in stocks. Cotton fluctuated near long-time lows, with July trading as low as 8.27 cents, lowest price on the futures market since March 1915.

Market commentary:

Market wrap: Bears renewed operations in the short Saturday session, while bullish element was not as aggressive and small traders appeared to withdraw; extensive setbacks from the rally highs took place in active stocks. Rails experienced profit taking; major industrials including Steel, Can, and GM pressured; reaction spread throughout the list and various trading favorites broke sharply, with Auburn 30 points off its recent high. Trading relatively light, but market closed with heavy tone. Bonds moderately active, prices slightly irregular; US govts. firm; foreign somewhat irregular with German bonds down moderately after govt. statement on reparations but issues of most countries relatively steady; highest-grade rails firm, second grade slightly easier; convertible issues down moderately following stocks. Commodities weak; grains soft on late reports of some Canadian rain; cotton down sharply near season lows on news of good weather.

Caution is favored in many quarters, but conservative observers favor gradual "accumulation of the standard stocks on reactions," and completing of long positions if resistance is shown when previous lows are approached; don't foresee long advance, but believe market could work substantially higher after technical reaction.

Stock market weakness attributed to "uncertainty over domestic trade prospects," doubts over staying power of the recent rally, nervousness over German demands for revision of reparations, and prospect of poor US Steel unfilled orders report for May. Filing of application for rail rate increase in the near future seen likely to benefit sentiment on rail securities. Eastern roads have already drawn up a rough draft of their reasons for requesting a 15% increase, and expect to have transport companies throughout the US convinced within a reasonably short time. Railroad authorities are optimistic on chances for getting the increase before year-end. Oil industry merger rumors are reviving due to govt. decision to allow Standard - Vacuum merger.

Recent heavy liquidation in AT&T attributed to "fright on the part of many small holders discouraged by the stock's persistent decline." Buying is said to have developed from "important sources." A leading broker says US Gypsum is likely to cover the full years dividends in the first half, a remarkable performance in view of current conditions.

Heavy oversubscription to new Treasury long-term bond issue seen indicating "investment capital has been piling up rapidly." This capital may "eventually ... find its way back into securities," first bonds and then dividend paying stocks, though "latter development ... may be delayed until much later in the year."

Rail freight figures in coming weeks expected to improve vs. 1930 due to heavy crops in many sections, particularly in the Southwest, and due to easier comparisons as general business began to fall sharply in mid-1930.

Editorial: The Royal Grain Commission in Canada recently found that trading in grain futures not only helps provide a liquid market, but "actually gives the farmer a distinct price advantage." We can't expect this to convince US critics of grain exchanges; "those who are hacking at them have political axes to grind." However, it may "lessen the submissiveness" of farmers who "are called upon to turn the grindstone ... when they learn that they are working against their own financial interest."

French Fin. Min Flandin rebuts criticism of govt. economic policies. Says French tariffs overall lowest in Europe; influx of gold not desired and due to abnormal world conditions; points to 4.2B francs in loans to Central Europe that France recently subscribed to.

Financial district is hearing reports of "some cooperative action toward temporary reduction in wages in certain industries." This would be considered favorable by groups believing one of the final steps in economic readjustment would be "liquidation of labor costs." Independent sheet-steel producers in the Midwest reportedly will get together in the next few days with object of stabilizing prices; many producers say current sales are unprofitable.

US exports in 1930 fell more sharply than some other countries (down 26.7% from 1929 compared to a 10.5% decline in Germany and 18.6% in Italy) but this was attributed to the fall in raw material prices rather than losing export markets to competition; the US held its share of markets in its major "customers," but those customers, including Canada, Australia, Argentina, etc. are heavy producers of raw materials and so suffered most from the price declines.

Economic news and individual company reports:

Creditanstalt situation possibly not solved after all. League of Nations control committee authorized Austrian govt. to issue 150M schillings of Treasury bonds, but there was difficulty selling them. Govt. forced Austrian private banks to take 100M of the issue, while German banks granted a 50M 6-month credit to the Creditanstalt to take the remainder. However, definite announcement by foreign creditors of "prolongation of credits" is needed to stop withdrawal of deposits, which has now reached 500M of a total 1.5B schillings. Austrian central bank holdings of foreign currency were 517M schillings on May 30 vs. 641M on May 7. Austrian central bank raised rate 1% to 6%. “Considerable unsettlement” seen in foreign currencies in coming days due to increasing seriousness of Austrian situation together with the reparations crisis. European capital markets continue to show heavy transfer of funds from Central Europe, “with anxiety tending to shift from Austria to Germany.” Central banks said cooperating to prevent export of gold from Germany.

Upturn in stock prices this week was reportedly an "electrical stimulant" to car sales. Contrary to numerous rumors, Ford reportedly is planning no radical changes to their car lineup this summer or fall.

New state and municipal long-term financing seen likely to set record high close to $2B by end of year as local govts. take advantage of strong municipal market; annual amount in past decade has usually been between $1.2B and $1.4B.

Market value of all NYSE-listed stocks June 1 was $42.534B, down $5.936B from May 1; average price of listed share $32.58 vs. $37.23. NYSE bond trading in May totaled $235.7M vs. $227.8M in Apr. and $227.2M in May 1930.

Despite cuts in dividends on rail stocks, 12 of 27 major rails failed to cover their current dividend rate in the 12 months ending in April; 3 more have already omitted dividends.

Investment Bankers Assoc. takes stand in favor of NYSE recommendations on investment trusts [similar to mutual funds and ETF's], including disclosure of holdings, care when buying securities from affiliated companies, methods of reporting profits and past performance, etc.

US Steel report of unfilled orders as of May 31, to be issued at noon June 10, is expected to show decline of 250,000-300,000 tons; operations dropped steadily in May but new orders fell more rapidly. Youngstown district steel output to rise 1% to 42% this week, first rise in 13 weeks, due to pipeline demand.

Interior Sec. Wilbur says no relief in sight for midcontinent oil industry until East Texas production is brought under control. Drastic curtailment seen necessary to achieve new California production limit of 427,500 barrels/day (excluding Kettleman Hills).

Canadian wheat condition reported most critical in 29 years; no improvement in conditions; urgent need for rain. US spring wheat still in need of rain in some sections, but overall US wheat crop seen large unless something unforeseen happens.

Fisher's wholesale commodity index hit another postwar low of 70.0 vs. 70.3 prev. week and 71.0 two weeks ago.

Total gross income for 105 telephone cos. in March was $98.5M vs. $99.5M in 1930; operating income $69.2M vs. $67.8M

Italian Premier Mussolini says govt. has decided on immediate measures to help domestic wheat growers, including requirement to use domestic wheat in flour.

Assets of Kansas City Joint Land Bank, which went into receivership in 1927 with charges of mismanagement, sold at auction for $26.750M to West Coast financier A.C. Stewart. Union Trust of South Bend, Ind. closes; deposits of $4.5M.

Detroit index of employment May 31 was 80.4 vs. 83.5 on Apr. 30 and 109.2 on May 31, 1930.

9 of 21 W. Virginia coal mines affected by United Mine Workers strike have signed closed shop agreements with the union; 2,700 miners will return to work.

Westchester County foreclosures in May were 77 vs. 94 in May 1930.

Companies reporting decent earnings: Firestone Tire & Rubber (showed improvement over poor 1930 earnings).

Electric utility special:

While market value of 19 important utility and holding companies has declined about 30% in the past 2 1/2 months, they have still been more resilient than the general market due to greater earnings stability. As of June 5, the companies traded for 14.2 times earnings for the year ended Mar. 31. Public utility bonds have found strong favor with investors seeking safety, being among the strongest classes of bonds in the current depression. In the case of holding companies, which have no property other than controlled subsidiaries, debentures are the instrument used, which offer “numerous advantages” over separate financing by subsidiaries.

Unlike other industries, electric light and power is seen as not close to saturation, with large potential demand remaining in both homes and farms. Current total of US wired homes is about 20.4M; during 1930 they used an average of 518 KWHr, at an average price of $.06 per KWHr.

Public utility activities have been investigated for the past 2 or 3 years by various branches of govt. including the FTC, but the next session of Congress is expected to take further steps including investigations into holding companies, possible regulation of interstate power movement, etc. Proponents of govt. control of utilities are exerting widespread efforts to build up public sentiment, including underhanded tactic of mailing out speeches using Congressional franking privileges.

Muscle Shoals has been “political football” for over 100 years, during which “Congress has wrestled ... trying to find some legitimate and reasonable excuse to convert it into an agency for govt. operations.” By contrast, Gov. Roosevelt's signature on the Cornaire bill ended a mere 20-year controversy on development of St. Lawrence River power, which will now be done under control of a state Power Authority.

Capsule histories of Middle West Utilities by Martin J. Insull, pres., and of recent utility industry developments by John J. O'Brien, Standard Gas & Elec. pres.

Detailed looks at individual electric utility and holding companies, including United Corp., Stone & Webster, United Light & Power, The North American Co., Pacific Gas & Electric, American Water Works & Electric, United Gas Improvement, Niagara Hudson Power, Commonwealth Edison, Edison Electric Illuminating of Boston, Connecticut Electric Service.

Britain, a pioneer in the electrical industry, is nevertheless seen offering good opportunity for expansion due to per-capita usage only about 1/3 that in the US.

French cinema report:

The talkie has caught on in France beyond expectations. The first theatre installation, by MGM, was little more than two years ago; 1929 saw 6 talking screens, a year ago it had increased to 120, and now it's more than double that, including such landmarks as the Moulin Rouge, “where once the can can attracted the curious and adventuresome.” Production studios have also been wired, and the native French sound film is thriving, using the talent readily available in Paris. “Unlike the American film, which has accustomed its public to squanderous standards of production, to great singing and dancing choruses ... and to all costly paraphernalia with which Hollywood packs its films, the French film sonore has leaned heavily upon its plays.” Productions tend to modest budgets, “fine plays adequately cast but without star emphasis,” with dialogue “written by master craftsmen.” For now, the US film industry has “forfeited to native producers the great middle bulk of its sales,” but the French appetite for talkies is ultimately expected to offer good opportunities for US producers; some have set up branch production units at Joinville, Billancourt, and Nice to make multi-language films for the whole European market.

Jokes:

"Tourist - Was that one of your prominent citizens? I noticed you were very respectful and attentive to him. Garage Man - Yes, he's one of our early settlers. Tourist - Early settler? Why, he's quite a young man yet. Garage Man - True enough. I mean he pays his bills the first of every month."

Reporter - How did you know to raid that barber shop? Dry Agent - Well, it struck me as odd that so many people were buying hair restorer from a bald barber.

Theater Producer 1 - There are a hundred ways of making money in show business. Theater Producer 2 - Yes, but only one honest way. Theater Producer 1 - And what is that? Theater Producer 2 - Ah, I thought you wouldn't know it.