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October 11, 1935. Dear Pres: I enclose as usual the minutes of the Q.C. meeting for the past two weeks. You w i l l note with interest the matter of Newhard-Cook & Company where there was no question that they were caught in an unethical proceeding. They seemed to have explained t h i s s a t i s f a c t o r i l y through passing the buck to one Mr. Dumont Dempsey of whom I know nothing, but i t i s rather i n t e r e s t ing I think the amount of effort they made to accomplish t h i s . I an not at liberty to disclose the d e t a i l s but suffice i t to say that they wi11 probably be watched very closely for any similar moves in he near future. Mr. Gay addressed theAmericanManagementAssociation Wednesday evening and succeeded in getting a great deal more publicity than he had desired and of Course i s credited with having started the recent upward move in the market. This worries him a good deal and i t took a l o t of courage on h i s part to break away from the conservative viewpoint of the past and actually lay the ground work for placing some of the responsibility for stock movements where i t rightly belongs. I had a good deal to do with he writing of t h i s speech and f e l t toward the whole matter a good deal as though i t was a personal issue or as a father might toward a child, so that I really o f f e r e d a good deal more during the address than i f I had made i t myself. In fact Mr.. Gay i s such a bad speaker that there were severa1 times when I wanted to rush up on the platform and show him how i t ought to be done. I t i s really wonderful how conceited we a11 are and how we always think we could do a whole lot batter than the other men. As a matter of fact, i t came off very well and has done a great deal to aid the Exchange in baking a more progressive viewpoint as well as working toward cleaning up i t s own internal organisation. Mr. Gay's most important address of the year w i l l be delivered in Chicago next Thursday evening, and should s t i r up a good deal of interest throughout the Mid-vest i f he succeeds in getting across the point that the Stock Exchange clearly recognises that i t is not a private club but a national i n s t i t u t i o n and that irrespective of such problems as branch offices and other local i s s u e s , i t s f i r s t responsibility i s t o the public. He w i l l attempt to reiterate in the course of that address the responsibility of the Federal Reserve Board, the Treasury Department and the S.E.C. for the ultimate welfare of the banking community. Mr. Davis has been a great aid to the Exchange in liberalizing i t s viewpoint so far as the country as a whole i s concerned and i t becomes increasingly apparent that i f the Exchange i s to regain the position i t formerly held, the influence of conservatives l i k e Mr. Whitney, Simmons and Lindley must continue on the wane. Mr. Lonsdale was the toastmaster at the dinner in New York and I listened to him gas off for bout f i f t e e n minutes beforehand. He now thinks the solution of the railroad problem (he i s an authority, he now admits, because of h i s receivership of the F r i s c o , ) l i e s i n the sale of income bonds to the public. However he looked a l i t t l e blank when I asked him who the public was that would buy then and he admitted that he didn't consider them a very good investment himself. He i s a very queer fellow and he continues extremely nice to me, though I would hate to count on him as a friend. I have had to do a great deal of work recently on exchange matters such as working on the speech of Mr. Gay's and laying the ground work for his Chicago appearance next week. I had several nice talks with Mr. Landis and am considerably worried about the progress being made on the matter of segregating the dealer and broker. At the Stock Exchange Institute meeting Thursday morning, Mr. Landis met the issue f u l l - t i l t and while you could put on most any interpretation you wanted, on the actual tendency of his mind, there i s no doubt in my own mind but that he s t i l l leans towards segregation. I am told via Professor Frankfurter that before Mr. Roosevelt went west, he urged on Mr. Landis the necessity for settling this issue once and for all and the hope that several of us here had entertained that when Congressrecommended,hemight poll the political stunt of stating that i t had been impossible to adequately study the matter in the time allotted and therefore was in no position to recommend anything of this kind, thereby tabling the natter for the present and on account of legislative inertia, probably for all time, or at least until after the next important stock market break. If this i s so, the problem becomes increasingly more important and inasmuch as several of the key men are excellent friends of mine and like me personally, I have made several trips to Washington to try to get across our viewpoint to them. I don*t enjoy this sort of work and would not engage in i t if I were not so absolutely certain that the method which they are taking i s utterly unfair and will not work out for the good of the whole. I have gotten to like Landis a food deal better and think he i s a sincere public servant so that I think i t is probably just a matter of making him see i t in the proper light and we can count on his decision to be an honest one. However, he i s surrounded by a number of people who have axes to grind and are very smart. They I am afraid having only theoretical knowledge are combining their talents with their emotions to produce a horrible hodge-podge. Perhaps I am spending too much time and energy on this type of work but from the community standpoint, a11 of i t i s worthwhileand will ultimately produce real results. The stock market continues to move inward and with the exception of the o i l s , which as you know I am not bullish on, has been doing quite w e l l . Chrysler continues to climb toward the hundred mark and I can see nothing but higher prices over the longer term period. Volume I an inclined to believe will al30 nick up. The best business students, both here and in Washington are convinced that the trend i s up until at least next April or May. The possibility of inflation i s no longer upon us. Inflation i s actually here, and with the steady influx of gold into this country from abroad, being further accentuated by the Ethiopian-Italian war, when one considers that each dollar of gold in our vaults i s in theory at least the base for $25.00 in currency, plus the fact that our excess reserves are getting chose to the three billion mark, i t i s difficult to sec why anyone should liquidate stocks, We might at any time have a ten point reaction but there would probably be selective strength in individual issues at the sane time, so that i t seems very foolish to s e l l anything except on a quick trading basis. The office has been running quite smoothly except that we now have a problem in the case of an individual through whom we have been getting a good deal of business, who i s a trader for G. L. Ohrstrom and Company. He has made several purchases through us for customers and on the same day has bought the sane securities at a lower price for himself, this apparently with the full knowledge of the company for whom he i s working. I am convinced from careful examination that there is nothing out of the ordinary in what he has done so far, but in principal I would not have a man working for me who traded for his own account at the sane time he was executing customers' orders, so that regardless of another these purchases and sales were of a bona fide character, i t may be straining at a knot, but I an afraid I will have to ask him to take his account elsewhere. I am not worried about ho loss of commissions, but inasmuch as he is Reggie's brother-in-law and Reggie can't see My viewpoint in the matter, I am afraid it will cause us considerable trouble for a w h i l e . Reg, like all those traders in the street, has absorbed some of the Wa11 Street methods of winking when i t does not directly concern you and of course strictly speaking, i t i s none of our business and there i s no question whatever but that there are a dozen other houses who would accept the account without any hesitation whatever and be only too glad to get i t . S t i l l I think it i s better to be on the safe side as I don't want our books to be in any shape so that an auditor might some day feel that we were an accessory to dishonest trades. I am told that I have too high standards on this sort of thing but know that you agree with me, that we would much rather starve than in any way cast reflections on the integrity of the firm. One of the things I liked the most about our position all during the recent depression is that no natter how lousy our judgment nay have been and i t was unquestionably pretty bad in some spots, s t i l l we were in a position to at all times account on a conscience basis for everything we had done. I am taking courses at Columbianoww i t hMoleyandWolmanand get a great deal of pleasure out of hearing their comments in the privacy that a snail class provides on the so-called new deal experiment. I think that they are both considerably disillusioned about Mr. Roosevelt Personally and are beginning to think that he i s just another opportunist who has sold his birth-right for votes. Competent p o l i t i c a l observers in Washington nor think that Mr. Roosevelt after his recent trip rest i s a two-to-one choice to be re-elected but to my great surprise they are considerably worried on the democratic side at the persistence of the ground s w e l l which the Republicans are encouraging toward Landon of Kansas. They do not seen to be a bit worried about Col. Knox as they think he w i l l talk too much once his name gets before the public and many here think that Hoover i s definitely opposed to Knox in much the same tray as he i s to Borah. I an told in strict confidence that two recent straw votes taken of important political leaders gives the definite impression that the Roosevelt losses have not been stemmed even by his recent speaking tour, that the New England states and New York as wall as Pennsylvania will definitely enter the Republican column and that the far "test will also be Republican with serious inroads being made into the solid South and the necessity of Maintaining Mr. Roosevelt's popularity in the mid-west being accentuated by the possibility of such a popular man as Mr. Landon running in his own territory. I s t i l l don't take very ouch stock of these and personally would bet three-to-one on Mr. Roosevelt, particularly as I think there r i l l be enough business improvement during the balance of the year and the early part of next year to provide him with enough ammunition to make a plea for re-election on his record. The Republican chances are being strengthened by their sudden awakening to the fact that the Constitution was not written by God and that while i t i s a popular rallying ground, they better not stand for it in i t s entirety or i t may prove just as bad a rock to them as i t has to Mr. Roosevelt. Mr. Moley seems to be most worried that large sums of money are contributed freely to the Republican cause while even such heavy contributors as Mr. Raskob and the Al Smith crowd are providing nothing for the Democrats. Well, this gives you the picture down here pretty well.
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