After the Gong

Gongs, idle for nine days, last week sounded sweet silvery notes and were greeted by rounds of applause from brokers who straightway recommenced trading in all the nation's stock and commodities markets. Prices bounded. On the New York Stock Exchange they mounted 15%, greatest one-day gain on record. On the Chicago Board of Trade a few transactions took prices up 5-c- (the limit allowed by special rule). Next day prices gained again but more moderately. Thereafter began a gradual recession while businessmen took stock of their hopes, doubts, profits.

Hopes. Faith in better business conditions rested chiefly on the following grounds:

P: Reopening of some 13,500 U. S. banks (75%) provided a broad enough credit base for commercial operations. The closing of weak banks makes that base much firmer than before.

P:Prospective balancing of the U. S. Budget means that the Government's credit should remain absolutely sound. P: The Federal Reserve's gold holdings increased $327,000,000 to $3,010,000.000 (more than a year ago). The amount of currency in circulation decreased $269,000,000--all showing that the run on banks had definitely ended. P: Beer promises new profits, not only to breweries (average brewery stocks rose nearly 50% in price during the last two weeks) but to motor companies (manufacturing delivery trucks), to farmers (who grow barley and hops), to vendors of labels, bottles, bottle caps, advertising. Owens-Illinois Glass Co. reported that orders for 62,000,000 beer bottles had been received in the last month. Restaurants and hotels look for more profits when they can sell beer.

Doubts. Businessmen looking ahead saw, however, these obstacles which must be overcome before recovery gets into full swing.

P: Healthy though it is to have weak banks cut out of the banking system, if 15% or 20% of the banks are liquidated it means that depositors will have to pocket losses of hundreds of millions of dollars. In liquidation National Banks average only about 67% payment to depositors, state banks considerably less. Furthermore while the Federal authorities appear to have been fairly rigorous in weeding out weak banks, there are no doubt cases of nonmember state banks opened by local authorities who for political reasons were more lenient than they should have been.

P: It remains to be seen whether the Administration's efforts will have any effect on restoring farm prosperity. Unless nature or government succeeds in restricting next year's crops the farm surpluses bid fair to stay. Last week there were alarming reports of increases in tobacco acreage. P: Many railroads must soon face reorganization.

P:There will have to be a readjustment of many mortgages, urban as well as rural. Last week in ever-radical North Dakota,

Governor Langer ordered the militia to prevent foreclosures where sheriffs disregarded his orders. In New York the State banking and insurance departments laid restrictions on some 50 companies which had guaranteed mortgages sold to the public, forbidding them 1) to sell more guaranteed mortgages; 2) to declare any dividends to stockholders, or 3) to pay to guaranteed mortgage holders either interest or principal beyond such amounts as the companies actually collected. This drastic measure aimed to conserve the assets of these companies, which would soon be dissipated if they had to make good deficiencies in the collections on some $3,000,000,000 in mortgages which they guaranteed and resold to the public. P: The bond and mortgage situations must be cleared up for the benefit of life insurance companies. In New York the State superintendent of insurance, after limiting to needy cases loans on policies and cash payments on surrender of policies, last week forbade any insurance company doing business in the State to declare any dividends to stock or policy holders. (This does not affect 1933 dividends, already declared.) Similar orders were issued in other states--Ohio, Wisconsin, Delaware.

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