Stocks Down, Gold Up

From the momentary rise of last fortnight which followed the loosened margin requirements set up by the Federal Reserve Board, the New York stock market last week slid hissingly back like a long wave receding down a beach. In trading, notable neither for volume nor volatility, prices descended every day, at week's end were back almost to the year's lows set on "black Tuesday," October 19. Dow-Jones industrial averages were down to 125.25, railroads to 31.67, utilities to 21.21. U. S. Steel stood at $53, Allied Chemical at $152, New York Central at $18, Consolidated Edison at $23, General Motors at $38.

Ample reason for weakness of securities was last week to be found in a quick glance at business indices, virtually all of which continued down, down, down. Steel production was estimated by Iron Age at 48% of capacity, some 26 points below the same week last year and 44 below the May high. Scrap, which is an almost infallible index of future steel operations since more than half of steel production is melted scrap, dropped 25-c- to $14.75 a ton, compared with $22 in mid-August. Dun & Bradstreet reported that retail trade was still from 4% to 15% above 1936 but by a steadily narrowing margin maintained in some cases by price cutting. Freight car loadings were off to 771,655 cars, 5% less than for the same week of 1936. In Lawrence, Mass., the world's largest factory of its kind, Pacific Print Works, shut down for ten days along with all other textile firms in the area, and out of work went some 30,000 people.

New building, prime hope for renewed industrial upswing, continued to tread water as lumber output, already off 15% from last year, sagged 9% more. Automobile production was down from the previous week to 89,770 units, compared with 84,780 for the same week last year. Makers were notably laggard about buying materials, and the New York Herald Tribune predicted a downtrend in the next few weeks. Electric power production fell but was still 4% above last year. Rug sales are a good prosperity gauge because rugs lie as close as any luxury product to the hard floor of necessities. Last week Alexander Smith & Sons Carpet Co. exemplified the general rug trend by going on a three-day week.

Among the major causes for the bear market which has existed since March were the smash that month of the British commodity boom and a simultaneous dishoarding of gold under rumors that the U. S. was about to raise the gold value of the dollar. Last week almost the exact reverse of this situation became evident. U. S. commodity prices were almost all at the year's cheapest and the Dow-Jones commodity index declined 3.26 to 52.60, a new low since 1935. Cotton was down to 7.70-c- per lb., wheat to 86-c- per bu., copper to 9.06-c- per lb., lead to 4.67-c-per lb., rubber to 14-c- per lb. Though no informed businessman, economist or politician in the U. S. gave credence to the notion, Europeans of high & low station suddenly became convinced that the recent U. S. efforts to stimulate business would shortly be climaxed by further devaluation of the dollar in order to raise internal commodity prices just as Brazilian coffee has lately risen internally on a depreciated milreis (see p. 75).

Immediately there came a renewed rush of gold hoarding abroad. In what amounted to a European flight from the dollar, all foreign exchanges were up and many touched new highs for the year. The English pound broke through $5. French francs, aided by recent elections supporting the Government, climbed to 3.40 1/4-c-, regaining all losses since October 1. In London the price of gold rose to $35.24 an ounce, a premium of 47-c- above the price at which the metal can profitably be bought in London and shipped to the U. S. Treasury for sale at its fixed price of $35 and the first time in over a year that gold has been worth more in Europe than in the U. S. Gold and "hot money" promptly fled the U. S. in sizable chunks. Though the state of the U. S. Gold Stabilization Fund is kept secret, the Federal Reserve Bank of New York revealed that gold stocks had risen only $3,000,000 in the week, though imports from such places as Japan totaled $12,000,000 and receipts of newly-mined gold equaled $4,000,000. This indicated that $13,000,000 in gold had left the country. Recalling the prediction of Finance Minister Georges Bonnet of France fortnight ago that U. S. gold would soon head for France, most U. S. bankers put two & two together, concluded that he had been right. Early this week Secretary of the Treasury Morgenthau acknowledged the fact by announcing that $10,250,000 in U. S. gold had been sold to France to maintain the stability of the franc in accordance with the tripartite monetary agreement.

Meanwhile, up in Cleveland to address the bankers session of the National Foreign Trade Convention rose crusty Dr. Oliver Mitchell Wentworth Sprague of Harvard University, onetime adviser to the Bank of England and the U. S. Treasury Department. Dr. Sprague fell from New Deal favor four years ago when he opposed Franklin Roosevelt's .monetary policies. Lately he has partially regained his place in the sun, for Franklin Roosevelt quoted him approvingly in his latest "fireside talk" (TIME, Oct. 25). Said Dr. Sprague last week: "If the present recession goes a bit deeper, I am not at all sure our present rulers won't be subjected to pressure to raise the price of gold again, despite the obvious fact that such a step could not possibly help the situation."

Two days later President Roosevelt permitted himself to be quoted on the stock-market for the first time in several months. Said he: "Speculation in news stories is just as dangerous as speculation on the Stock Exchange."

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