January 11, 2011

Friday, September 25, 1931: Dow 107.79 -8.20 (7.1%)

British crisis update:

Sterling continued to decline, opening at $3.91 and sagging to $3.81 (vs. $4.10 on Wed. and $4.85 the previous week); rest of the foreign currency list was unsettled, though francs and Swiss francs were strong. Reports from London state the govt. wants to prevent a sudden further fall in sterling, and may resort to further restrictions to “prevent bear speculation,” or even to intervening by “rallying sterling and squeezing the shorts.” Return to the full gold-standard value for sterling is now seen as impossible since “the monetary policy of recent years now stands condemned by its results and industry means to get every possible advantage from the exchange's depreciation.”

Stocks broke sharply in NY, largely wiping out Wednesday's gains; the Dow industrial and utility averages hit new bear market lows; bonds also fell but selling was better absorbed; commodities opened strongly but later followed securities markets lower. The London stock market was "strong, due to decline in sterling" while bonds were irregular; Paris was "independently firm." German stock markets will remain closed until next week; main reason for closure is "nervousness in banking circles" though official reason given is "uneasiness about the position of mark exchange" as sterling and other currencies become cheaper; German coal exporters are reportedly suffering from British competition.

The Fed. Reserve reported gold continued to be "earmarked" for the account of foreign central banks (in effect exporting it from the US); $64M was earmarked up to 3PM on Thursday, bringing the total in the past week to $185M. Foreign and local bill selling reached an "extraordinarily large" total of about $100M on Thursday; bill dealers "advanced their rates sharply in a spell of nervousness;" open market rates rose 1/4% on all maturities but the Fed Reserve maintained its buying rates for bills, and left its rediscount rate at 1 1/2%; this was seen as "a virtual invitation to banks and dealers" to sell bills to it. It's believed the Fed. would welcome a large increase in bill holdings and discounts, in pursuance of its policy of "making money rates extremely easy and increasing the volume of both Fed. Reserve and general bank credit outstanding."

[Note: What would we do without noted economists? Dept.] Sir Josiah Stamp, noted economist, says influence of a number of countries leaving the gold standard would be to release a large amount of the pressure to possess gold in order to back currency, automatically making it less valuable; predicts "this may stimulate a rise in the price levels" of countries remaining on gold standards, "with strange consequences in the exchange rates." Bank of Montreal notes that England's action has “deranged sterling exchange, but there is no reason to anticipate serious consequences to international trade, which in the past has flowed freely in like circumstance.” Regarding Canada, notes August external trade $97.2M, down 35% from 1930, continuing a steady two-year slide accounted for in most commodities by both lower prices and volumes.

Silver has moved higher since British abandonment of the gold standard (from 27 1/2 cents last week to 29 1/4); speculative buying has increased; "the market is generally unsettled and further fluctuations are probable." The silver market "will be watched with growing interest in the coming weeks"; past weakness in silver has been a disturbing influence on the commodity situation, and some interests argue improvement in silver would be encouraging. Some believe India may return to a silver standard, which might result in a sharp rise. It's reported "well posted interests" have been buying mid-1932 silver futures. Silver prices in Mexico have improved slightly for several days, though the increase isn't attributed to the British situation. The peso rose slightly; bankers "attributed the fluctuation to superficial reasons and misinformation concerning the true character of the suspension of the gold standard."

Washington officials indicated British proposal for international currency conference would be accepted.

Swedish Fin. Min. denies govt. has discussed suspending the gold standard; says spending cuts needed but "no reason for pessimism regarding the budget position ... foreign reports that Sweden's finances are in a precarious condition are entirely unfounded"; govt. is contemplating measures needed to restore trade balance. Bank of Sweden raised discount rate to 6% from 5%.

Cuban Treasury Sec. says Cuba will pay all external debts even if sacrifices are needed; can't understand drastic decline in Cuba Public Works bonds, which are trading at 38 in spite of guarantee backed by public works taxes.

Italy's trade deficit seen benefitting from depreciation in sterling since bulk of Italian trade is transacted in sterling. Bank of Italy reports 60% circulation coverage as of Sept. 10, of which 37% is gold and the rest gold-standard currencies.

European financial developments this summer "have caused the Chicago business community willy-nilly to take a much greater interest in what is going on across the Atlantic." The strong effect of European news on business in the "economic vortex of the North American continent" has "literally forced many business men to follow news from abroad closely, in order to protect interests which at first might seem purely domestic."

Wage cuts update:

AFL pres. W. Green, says he's not sure if Asst. Commerce Sec. J. Klein was quoted accurately as saying "there will be hell to pay throughout the US in the event of a general wage reduction," but that "it is my honest opinion, arrived at after deliberate and calm consideration, ... that it ought to be a logical outcome of the wage cutting policies pursued by the highly protected employing corporations of the nation."

An "insurgent" group of miners has called a strike against the Glen Alden Coal Co.; J. Boylan of the United Mine Workers said the strike was unauthorized and a "complete failure" with only a handful walking out; W. Inglis, company pres., said about 5,000 of the company's 25,000 workers were out; T. Malone, "insurgent leader," said about 10,000 were on strike. Officials of the Amer. Federation of Full-Fashioned Hosiery Workers said they were opposed to a strike called by their local in Paterson, NJ. The union's agreement last Saturday to 30%-45% wage cuts has been met by agitation for a general strike at local unions in NJ, NY and New England, but national union officials said they stood behind the agreement.

US govt. denies pleas of labor organizations to close bridge at El Paso in order to bar Mexican laborers.

Reports from Al Capone's headquarters in Chicago "indicate that he has sent out a wage cut order, similar to those of industrial firms all over the country." The amount of beer and liquor sold at saloons is reportedly down about a third from the days of prosperity, and gambling houses are also bringing in substantially less.

Assorted historical stuff:

Rather philosophical editorial calling for more US involvement in world affairs to prevent future war. The world is in the grip of two opposing forces. One, "the economic interdependence of the nations, has drawn us together in relations of the most intimate kind. The other, 'nationalism,' in an exaggerated degree, exercises a centrifugal force, threatening at all times to force us apart." A counter-force to nationalism is needed, but "all experience teaches us ... the mere dread of the material penalties that accompany war" is insufficient; "after a reasonably long armistice men quickly forget in prosperity the lessons that were so clear when taught by the now-forgotten war and the pride that prosperity has engendered readily grasps at new illusions." Instead a "spiritual" influence is needed; the first requirement is the "clear realization that we in the US can not live to ourselves alone" and must "recognize our share of the responsibilities of the family of nations and understand that upon discharge by us of that share depends our own safety and well-being."

The US Administration is reportedly "very keen" to have Premier Laval of France visit; US govt. observers at the recent Paris-London conferences "formed a very high opinion" of Laval, believing "his views on Europe are broad and liberal" and his leadership of the French govt. "a hopeful augury for the future." Officials refuse to comment on what might be discussed during the visit, "but point out that the sky is the limit." The French Cabinet has decided to accept the US invitation to Premier Laval to visit; Hoover-Laval talks in Washington are seen laying the groundwork for the world arms conference at Geneva in February, as the Hoover-MacDonald talks did for the successful London Naval Conference in 1930. Laval, the son of a butcher, also expressed hopes of visiting other parts of the US, commenting "The Champs Elysees isn't France, and I suppose New York isn't America. I represent the abbatoirs in the Paris Parliament and so I would be happy to visit Chicago if possible." Premier Laval will reportedly discuss with German officials "a scientific plan of emigration to cure Europe's unemployment problem." Noting that before the war Europe exported 2M-3M emigrants annually but since the war the US, Canada, Australia and Asia have closed their doors, the plan will propose studying "diverting surplus population to the African colonies and South America under sound economic conditions."

The USDA says direct reports from Russia are now arriving of trouble with wheat crops, confirming information the USDA obtained previously and reversing the optimism of earlier Russian reports. The Russian press has complained of work falling behind, blaming inefficient handling of machinery and "general slackening in the efforts of workers"; the importance of timely seeding of fall grains is stressed, noting that due to late seeding last year, many areas in the Ukraine experienced 20%-40% winter kill. Buyers are noting a lack of surplus spring wheat from this year's crop.

[Note: There are no free-marketers in foxholes dept.] C. Abbott, dir. of the Amer. Inst. of Steel Construction, called on Pres. Hoover to discuss steel industry problems and endorsed the plan presented by GE pres. Swope for control of industrial production, particularly to limit output of basic commodities to consumption; says suspension of antitrust law in current emergency would "prevent waste and conserve the profits that are essential to ensure employment." Editorial praising B. & O. RR pres. Willard's call to railroad managers and regulators "to come together in a new spirit of cooperation." Both rails and the public would "benefit immeasurably" if this were done rather than "pursuing individual theories, preferences and interests to the limit." Customers have been "too selfishly intent" on beating rates down by any means, while some rails have "been too intent on seeking company advantage" to help the ICC protect the industry as a whole. While an emergency rate increase is needed for the rails to carry on now, a better relation with regulators would be more important in the long run. W. Bennett, Continental Coal gen. counsel, presented new plan for stabilizing the coal industry similar to that recommended by the Administration to the oil-producing states as a solution for overproduction. The governors of several coal-producing states will appoint a committee of coal operators to study various plans; the committees will then report back to the governors. Pres. Hoover reported pleased.

Sen. Wheeler of Montana predicts nomination of Gov. Roosevelt for President in 1932. A statement by former Sen. Reed that he would consider it a "compliment" for Missouri Democrats to nominate him again will not help Roosevelt's candidacy; while Reed isn't expected to pursue the nomination country-wide as he did in 1928, he's not to be counted out at this stage; there's some doubt whether Roosevelt workers will even go into Missouri in view of Reed's statement.

The American Legion convention cast two notable votes; a resolution to petition Congress to loan veterans the full value of their bonus certificates was defeated by 902 to 507 in a calm vote, while a resolution opposing Prohibition passed 1,008 to 394 amid "wild disorder." Wets were encouraged by the second resolution, which asserted Prohibition had "created a condition endangering respect for the law and the security of American institutions" and called on Congress to resubmit the matter to the states. Wets agreed that the "first task necessary is to make inroads into the Congressional dry majorities. Despite prevailing Washington opinion to the contrary, they are not without hope that this can be done at the next session." Considering its past ability to "get pretty much what it wanted from Congress," the Legion's stand "will have a great influence" although it will meet more determined opposition in dry organizations than it did in its past work for veterans' benefits. Pres. Hoover was heartened by the Legion's vote on the veteran's bonus, but had no comment on the Prohibition matter. Agriculture Sec. Hyde announced he intends to investigate the economic possibilities of beer for farm relief, though he emphasized he wasn't instructed to make the study by Pres. Hoover.

New Navy dirigible the Akron, world's largest airship, successfully completes first test flight lasting 3 hours 47 minutes.

NY fall moving season likely to be quietest in several years; furniture storage increasing, with indications many are moving into smaller homes.

NYU's Graduate School of Business Administration opened this week with a graduate registration larger than last year.

NY Telephone uses a special operator just to give callers the correct time. The phone number for the service is Meridian 7-1212; callers hear the operator giving an updated time every 15 seconds. The peak number of calls comes in the 4 PM hour, averaging 3,000 callers; next busiest is 11 AM - noon; the rest of the day averages about 1,000/hour, and the total falls off rapidly after 6 PM. "Because of the monotony of the work, each operator is on duty only one hour at a time."

It takes 480 janitors to keep the Empire State Building in order, and that's without a single hand mop or broom in sight; all cleaning is done by machines. Although 50,000 people "trudge in and out of the building daily, they track in only one barrel of dirt."

Pres. Hoover will deliver a radio address at the opening of the Waldorf-Astoria Hotel in NY on Sept. 30. [Note: Hoover lived the final few years of his life in the Waldorf. He died at the age of 90 in Oct. 1964, and still holds the US Presidential record for longest lifespan after leaving office at 31 years and 7 months, though Jimmy Carter is approaching that mark.]

Market commentary:

Market wrap: Stocks reversed Wednesday's sharp rally. The market opened under selling pressure, and, after it was unable to absorb the supply, "liquidation, which halted on Tuesday, was resumed in large volume"; many stop-loss orders were uncovered by the end of the first hour. Declines were sizable across the list, but were particularly sharp for stocks in which bears had been punished in the previous sessions, including Union Pacific, Western Union and Auburn. Selling "was most persistent throughout the list"; the market could muster only a feeble rally off the bottom. Bonds showed early strength in some groups but later turned mostly lower; US govts. very weak with many new yearly lows; foreign list mixed with rally in S. American issues; rail bonds weak while utility issues showed “characteristic resistance.” Cotton rose early, influenced by "soaring prices" in foreign markets affected by sterling, but later fell off to close substantially lower. Wheat also strong early but pressured as the sharp reaction in securities broke out and ended fractionally lower. Copper remained at record low of 7 cents/pound but with more buying interest; large producers have withdrawn from the market. Silver fell 3/8 cent to 29 1/8, futures trading heavy.

Dow industrial average closed at a new bear market low; there were no new yearly highs and 102 new lows. Dow average of 40 corp. bonds closed at 89.25, down 0.60 but above the year's low of 88.56.

Conservative observers pointed to the market action as justifying their attitude in keeping clients away from the long side; believe liquidation likely to continue.

Prominent bears reestablished positions they abandoned Monday and Tuesday under NYSE pressure; while the NYSE again allowed short selling on Wednesday, the bears craftily waited to see how far the rally would carry, and resumed their "hammering tactics" when it became apparent it was exhausted; targets included Westinghouse, American Can and J.I. Case. While recent wage cuts should be positive in the long run, bears contended "the downward adjustment of values had not been completed," noting continued weakness in steel production, rail freight loadings, and electricity usage. With no signs of improved business, "they felt that the market was open to further tests of its ability to hold above the recent lows"; some "insisted that business still had many trying periods to pass through."

US Steel drew heavy interest, at one time falling 8 1/4 points to 75, close to its bear market low. Union Carbide and du Pont hit new bear market lows. High-priced rails were weak, reversing Tuesday's impressive gains. Public utilities experienced heavy selling; North American Co. was heavily targeted by short sellers although "it ranks as one of the strongest utility holding organizations ... and is noted for its conservative accounting methods."

Technical position of the stock market was weakened by Wednesday's "violent gains" as short interest had been substantially reduced. The market was also unsettled by renewed weakness in bonds, particularly in rails and foreign issues. Heavy short covering had developed in the rails at times earlier in the week, leading to "spectacular gains which were frowned upon by many of the conservatives."

Stock investors are giving the bond market "more significance ... than at any time in the past"; "several of the leading professionals will base stock market operations on the action of bonds"; further bond weakness may therefore delay operations in the stock market by "interests who have been credited frequently in the past with directing upward movements."

S. American bonds have generally declined to very low levels; even after the rally Wednesday, few closed at a yield below 10% and many $1,000 par issues are selling below $250. This, of course, reflects uncertainty due to defaults that have already occurred in Chile, Bolivia and Peru, along with the announcement Brazil will suspend interest payments. Commentary questioning absence of investment trust [similar to mutual fund] buying of foreign bonds that are now available at huge discounts; this is said to be just the type of profit opportunity the trusts were supposed to be ready for. Some trusts may reply they buy only domestic stocks, but there's no such restriction in their charters; the real explanation is that investment trusts are in general so heavily invested that they've been able to do little buying at current low prices.

NY City borrowed short-term funds at a record low rate of 1 3/8% for 3 months; the city has been able to attract funds at exceptionally low rates over the past year or more; a year ago its prevailing rate was about 2%. The city has also done very well at selling longer-term loans, most recently selling a $50M issue of 4-year notes at 2.99% in May.

Brokers report greater public participation early in the week; many customers who had sold stocks some time ago and stayed on the sidelines reentered the market. Buyers used "great care and discrimination," concentrating on stocks that were heavily liquidated and that had suffered from forced foreign selling.

B. Block of Benjamin Block & Co. believes "the American market is again a stable one"; its remarkable "ability ... to absorb a flood of foreign offerings and mount to higher levels" after Britain's abandonment of the gold standard "indicates that a definite change for the better has occurred both at home and abroad" and that "stocks of companies that have been able to earn money during these times of depression can again be bought with safety." Of course, buying should be "on a conservative basis and a due amount of patience exercised"; however, the US is strong in natural resources, manufacturing and financially, putting it "in a position to benefit as probably no other country will during the next few years."

Economic news and individual company reports:

Insatiable demand” for AT&T stock continues, with about 5,000 new shareholders added per month; over 600,000 stockholders are now listed on AT&T's books, not including over 200,000 Bell System workers covered under the employee stock plan. Average number of shares per holder is 31. While AT&T will probably not cover the $2.25 quarterly dividend in the seasonally weak Q3, first half earnings were $4.89/share (vs. $5.72 in 1930), and business is expected to improve in Q4; therefore, the $2.25 dividend will "undoubtedly" be maintained for the rest of 1931.

Treasury Secretary Mellon is likely to announce with a month whether the Administration will recommend a tax increase; Treasury has been "looking into various revenue sources" for the past few months.

Money in circulation Sept. 23 was up $77M to $5.164B, total Reserve Bank credit outstanding up $36M to $1.315B. Member banks in NY City report brokers' loans down $64M to new record low of $1.207B; loans on securities to non-brokers down $8M to $1.720B.

Dow average of 8 iron and steel products held at $44.25 vs. the 1931 range of $43.58 - $44.56. Scrap markets continued to feature little interest by steel producers in purchasing for fall, though some quarters expect steel activity may increase as a result of the recent wage cuts.

Gen. Wolters, commanding the militia in the East Texas oil field, reports daily production in the area declined to 363,423 barrels vs. a peak of 436,000 after the new Railroad Commission order limiting production to 185 barrels/day per well. Texas Gov. Sterling sent a telegram criticizing the "great amount of unnecessary drilling" being done in East Texas. While Oklahoma Gov. Murray has said oil fields there won't be reopened yet and he will still insist on a price of $1/barrel, conferences between state officials and oil operators are increasing and reopening is believed in sight. Oil operators cite agreement by the Public Service Commissioners of Texas, Oklahoma, and Kansas to allocate allowable production among the states "to keep the national total well below demand as a means of stabilizing the market"; Oklahoma would be allowed 546,000 barrels of daily production, Texas 902,000 and Kansas 110,000.

S. Carolina Gov. Blackwood signed a bill prohibiting planting of cotton in S. Carolina in 1932, provided 3/4 of the South's cotton acreage is similarly restricted.

Postmaster Gen. Brown says air mail deficit is $17M; estimates 1M passengers will be carried by air transport lines this year.

The Colombian Senate passed a law granting the President extraordinary powers for one year to deal with economic problems; powers include ability to restrict imports, either by raising duties or enforcing an embargo.

Merchants Savings & Trust of Pittsburgh closed; deposits $1.0M. Bankers Trust of Philadelphia, closed Dec. 1930, to be liquidated by order of Pennsylvania Sec. of Banking; will make preliminary distribution of 25% to depositors "as soon as possible after legal requirements are completed." Depositors of the Cheasapeake Bank of Baltimore, closed Dec. 1930, may receive some money due them in October.

The Baltimore Stock Exchange, passed a resolution fixing closing prices Tuesday as the minimum below which bids would not be accepted until further notice.

Procter & Gamble pres. R. Duepree says co. "has adhered 100% to its plan of guaranteeing year-around employment to its factory employes throughout the US and Canada, and will continue to do so"; calls the plan "one of the most productive moves our company has ever made."

Even in hard times, "the epicure is one purchaser who refuses to stomach anything but the best"; total Canadian shipments of live lobsters rose to about 12.5M pounds in 1930 vs. 11M in 1929 and 9.8M in 1928.

Companies reporting decent earnings: City Ice & Fuel.


The Breadwinner, a new comedy by W. Somerset Maugham. The author's revamping of Moon and Sixpence for the stage is generally unfortunate, though "not without its smiles." A husband repudiates his comfortable home and family, but, unlike in Moon and Sixpence in which there was at least "an illusion of positive purpose" as the protagonist felt he couldn't fulfill his artistic ambitions at home, in the play the reason for leaving seems to be simple boredom as "he has come to the conclusion that he does not want to do anything at all."


[Note: a couple of knee-slappers today.]

"Inspector - Got away, has he? Did you guard all the exits? Country Constable - Yes, but we think he must have left by one of the entrances."

Little Johnnie - I ain't gwine thar. Teacher - Listen carefully, Johnnie. I am not going there; he is not going there; we are not going there; you are not going there; they are not going there; thou art not going there. Do you get the idea? Student - Yessur. Ain't nobody gwine nowhar.