Crossed Signals Flying

Three weeks ago, after the Hitler-panicked stockmarket cooled off (at around 115 on the Dow-Jones Industrials Average), a sober fringe of investors figured that many stocks were priced too low. Their reasoning: that the worse Hitler made things look for democracy in Europe, the more U. S. heavy industry would boom on National Defense spending.

Last week was the worst week yet for democracy--Italy entered the war, Paris fell, the Maginot Line was broken, indications pointed to a separate peace by France over the weekend. But the market reacted to Italy's war declaration by bouncing four lusty points off the floor (111.84), closing next day at 115.97. The fall of Paris pushed it to 122.27. While volume was only 40% of the average of Panic Weeks I and II in May, the market nevertheless closed the week at 123.36, up 12.52 points from the low day.

Professional traders fought the turn. The Wall Street Journal reported: "Wall Street did not follow the rise of Tuesday and Wednesday with any confidence. . . . Much of the buying came from out of town sources where business is scanned as much as the war news." Prominent performers in the rise were potentially big armament producers like Baldwin Locomotive and American Car & Foundry. But traders were still careful about overcommitting themselves for fear of what might happen if France collapsed. First day this week they were reassured. France surrendered, the market reacted by sliding off three and one-half points on the first shock. Then it rallied right back to close off only about 50-c- for the day.

Commodity markets also turned about last week. The volatile hide market rose 3/4-c-, moved 100,000 hides in two days before Chicago meat packers, anticipating still higher prices next fall, stopped offering more. Another push came from one of the U. S.'s weakest commodities, cotton; spot prices moved up 68 points, touched off a 100,000,000-yard buying move by cotton textile users fearful of a war famine and the possibility that Congress would raise the level of parity payments, up cotton's price. The battered grain markets, which had taken the worst beating during the panic, cast aside their month-old minimum price crutch, limped up a penny or two.

But unlike the stockmarkets, the commodity markets' firmness had no logical explanation. From Canada and Latin America, their European markets closing fast, came warnings of serious trouble.

Argentina had 20,000,000 bu. of surplus wheat, 300,000,000 bu. of corn, 500,000,000 Ib. of beef. Brazil had over 400,000 bales of cotton, plus her chronically astronomical coffee surplus (around 1,700,000,000 lb.). Canada had 300,000,000 bu. of wheat, and 70,000,000 lb. of pork and bacon all dressed up with no place to go. Cuba was carrying about 1,000,000 tons of sugar. Uruguay was loaded with 120,000,000 lb. of beef.

By last week these hemispheric distress signals, visible far beyond the Chicago and Kansas City grain pits, fluttered over the whole U. S. economy. Because Latin America could no longer sell to Europe, its purchases in the U. S. fell off by $10,000,000 as early as April, have remained well under the first-quarter peak. Ecuador, for lack of foreign exchange, last week had to duck out of her reciprocal trade agreement and cut some imports by 50%. The Pan American Coffee Conference, meeting in Manhattan last week, tried to decide what to do with 924,000,000 lb. of coffee that used to go annually to Europe. Other hemispheric surpluses, directly competitive with U. S. crops, overhung the U. S. farmer.

Last week some of the New Deal's most agile minds wrestled with the surplus problem. One emergency solution seemed to echo the drastic days of NRA. Its sponsors: a number of New Deal braintrusters, worried businessmen, clearing through the State Department's Assistant-Secretary-at-large Adolf Augustus Berle. Economic Fireman Berle and conferees noted that in 1938 Latin America alone grossed about $1,200,000,000 from overseas sales of coffee, meat, sugar, wool, cotton, hides and skins, wheat, corn. Their idea: to form a kind of Hemispheric Surplus Commodities Corporation to buy up these surpluses, store them, sell them at a discount to the Red Cross, or do anything to keep them off the U. S. market. Such action would be simply an expensive move to bail out Latin America. Its justification: unless the U. S. bails out Latin America, it will be forced to fall in with Nazi economic aims if Hitler wins.

Lest this proposed handout get South America into bad habits, Berle and friends proposed to attach a rider: Latin Americans, to get help for their surpluses, must also agree to scale down their production of competitive and unmarketable crops, produce strategic materials which the U. S. needs instead. At that point the emergency scheme would dovetail into large schemes (such as a long-term capital bank) for the hemisphere's economic integration. This week, spurred by France's surrender, Secretaries Hull, Morgenthau, Wallace and Hopkins united in announcing that some such plan lay right around the corner.

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