January 24, 2010

Saturday, January 24, 1931: Dow 171.84 +3.38 (2.0%)

Assorted historical stuff:

Editorial by T. Woodlock: Now is the time to invest in stocks. Points in favor: 1) Granted that business is deeply depressed, it has always recovered in the past. While it's possible we haven't hit bottom yet or that recovery doesn't come this time, experience shows the probability is strongly otherwise. 2) Many stocks will maintain dividends even in current conditions. 3) Dividend yields are close to all-time highs compared to other money rates. 4) It's a fundamental truth that the best time to buy stocks is when the fewest want to and fear is highest, as currently. 5) Various technical indications of a bottom, including low margin loans, high short interest, etc. 6) abundance of credit at very low rates. Information available to investors is better than ever; only factor still difficult to evaluate is management. However, given current conditions as a whole, stock prices seem to reflect a good deal more danger than actually exists.

Glass committee hearings continue. A. Miller, Fed. Reserve Board member, blames out-of-hand speculation of 1928-29 on Fed. open market buying in 1927, increasing credit; favors requiring consent of 5 of 8 members for open market operations; favors rigid supervision of bank affiliates; believes gold redistribution impractical. Testimony heard on conflicts between Fed. Reserve Board and NY Fed. in 1929; Board wanted to act to slow speculation, while NY Fed. balked.

Washington report: Sen. Norbeck to appoint subcommittee to reconsider nomination of Eugene Meyer to head Fed. Reserve; will investigate charges against Meyer; confirmation seen virtually certain in the end. Strong action seen necessary in next 10 days to avoid dreaded extra session of Congress; Senate leaders may hold night or continuous sessions to break filibusters; Pres. Hoover may appeal directly to the country. Rep. J. Beck (R, Penn.) says Pres. Hoover has weakened reelection chances through renewed support of Prohibition, has faced the Republican party and the nation with "irreparable calamity" of a Democratic victory in 1932. However, Sen. Fess says Hoover hasn't closed door to all revision, just that proposed in the Wickersham report. Officials in charge of Prohibition enforcement rumored to bitterly resent Wickersham report, feel they were given impossible task with inadequate staff.

Editorial: Supreme Court is now considering an appeal of Judge Clark's decision nullifying Prohibition. Whether the Court decides to nullify or sustain Prohibition, it's greatly to be hoped that it explains its reasoning, unlike in its 1920 decision of the 7 suits known as the national Prohibition cases.

Editorial: Farm Board appears to have made a mess of wheat stabilization; it's now estimated to hold about 150M bushels of wheat; to break even, that wheat would have to be sold at about $1.12/bushel by July 1. This seems very unlikely, since wheat for July delivery at Liverpool is now under 64 cents.

Canadian Premier Bennett says Canada has highest financial obligations per capita of any country, but sees signs of improvement in conditions.

T. Steeg defeated as French premier, accused of encouraging wheat speculation by public announcement of price change. New elections seen.

NY Gov. Roosevelt says won't object to Republican leaders' proposal to borrow $30M against next year's bond issue to increase unemployment relief. Roosevelt is hosting conference of Governors on stabilization of industry; Met. Life offers to launch system of unemployment insurance in NY State.

Dow Jones averages are now so widely popular that one broker calculates and resends them over its wires every half hour.

London, Midland & Scottish Rwy. testing "no-railer" able to switch from rail to road in 45 seconds.

Possession of a camera by tourists is illegal in Rio de Janeiro, Brazil; if found, camera is confiscated and film developed; if pictures show any of the 7 forts guarding the city, owner is in for serious trouble.

Wild deer are so abundant in the Sierra Nevada mountains of Calif. that PG&E has devised a system for rescuing those who fall into their water canals; within a short distance they trigger an electric bell summoning help.

Market commentary:

Market wrap: Stocks opened strongly, and worked higher; trading more active; bears mounted several tests during the day, but little liquidation resulted; some profit taking in late afternoon was easily absorbed and stocks were rising again at the close. Bonds continue to rally in face of heavy new financing; strength throughout the list; many new yearly highs, particularly in investment grade. Commodities weak; grains down; cotton mixed; secondhand copper sold at 9 3/4 cents.

Conservative observers advise taking profits on further advances, believing market will remain in a range for some time.

Rail shares were in good demand early; public utilities were a strong spot later. Coppers strong on production curtailment and positive rumors. Bethlehem Steel up sharply on predictions dividend would be maintained. GM rose to new high for year.

US Steel earnings seen likely to improve in Q1 from low level of Q4, but will be down considerably from Q1 of 1930.

A big bear pool is reportedly operating now; since standard stocks have been holding up fairly well, not giving much opportunity to cover, this may strengthen technical market position.

Increasing interest is reported by clients in former blue chip stocks that are now on the "bargain counter," selling under $25.

With the Dow rail average in new high territory for the year, Dow theory would indicate a broad upswing if the industrials can confirm by also reaching high ground; this would require a move to about 175. In any case, the threat of a break to new lows seen earlier in the week seems to have receded.

Broad Street Gossip: Fashion now seems to be for stocks to sell below book value, contrary to 1929; some are selling below current assets. One big banker recently said that with large short interest and small floating supply in certain stocks, it would be easy to force a big advance, “But, we might be getting ahead of business, and we don't want to make that mistake again.” If the upturn in business starts before year-end, as the best minds believe, it will be on a stronger foundation than ever in the past, with commodity prices low and corporations having plenty of cash on hand instead of owing money as in the past.

Financial Times of London decries French govt. attitude in paying British holders of French war loan bonds in depreciated francs instead of gold ones.

Three leaders in Manhattan real estate, R. Dowling, C. Noyes, and B. Winter, were optimistic on recovery from the depression, though they differed on timing. Mr. Winter said NY City not overbuilt, though pause in construction now is welcome to catch up and rent space now on market; blamed many apartment vacancies on losses from speculation, with the “loser going to live with his mother-in-law.”

J. Lewis, United Mine Workers pres., urges maintenance of wages in coal industry; credits relative prosperity of anthracite (hard coal) industry to higher wages.

H. Phelps, American Can pres.: "I believe that we have struck bottom and have started up, and all we need is common sense."

A. Reeves, Nat'l. Auto. Chamber of Commerce pres., says automobile business returning to normalcy.

C. Thompson, Thompson Products pres., says believes estimate by some auto executives of 4M production this year is too conservative; expects 4.5M, increase of 1M over 1930, based on replacement demand of 3.6M; will have beneficial effect on general business.

E. Walker, Transamerica chair., says business sentiment better though conditions don't show much improvement yet; annual statements generally have been fair considering difficult circumstances.

D. Friday, economist, says substantial recovery in business certain this year, sees Dec. production 25% over 1930, and within 10% of normal.

Fed. Reserve Bd. of Governors reports better business sentiment in most sections; some improvement noted in production and employment by leading industries, particularly autos, steel, and meatpacking.

Economic news and individual company reports:

New oil proration arrangements being made across US; some wrangling in Texas and New Mexico, but most unsettled situation is in Oklahoma, where some operators want large increases in allowable production, particularly Sinclair Oil. Several large oil interests worried accomplishments of past year may be undone.

Dun's weekly review reports some trade improvement, partly due to seasonal influences. Bradstreet's reports good business sentiment, though activity not up to year-ago levels yet.

Fed. Reserve has reduced holdings of govt. securities by $104M and bankers acceptances by $212M since year-end; however, this isn't seen as retreat from easy money policy but as reversal of unusual demands due to banking uncertainty combined with seasonal factors.

State and city investigations into Bank of US affairs switched from public hearings to grand jury testimony; prosecutor M. Steuer called 14 witnesses to testify on “unusual method” by which business was conducted there. C. Frank and other stockholders bring suit to compel officers and directors to restore $100M claimed lost through mismanagement.

Detroit industrial employment has almost doubled since year-end, but is still slightly below the level before holiday shutdowns; employment index Jan. 15 was 76.4 vs. 40 on Dec. 31, 78.5 on Dec. 15, and 104.5 on Jan. 15, 1930.

Australian Arbitration Court orders 10% wage cut affecting many classes of workers as measure of national economy to combat depression.

World copper output in 1930 was 1.770M tons vs. 2.104M in 1929.

Cigar makers felt depression more than other tobacco sectors; total output was lowest in 23 years, while proportion of 5-cent cigars increased. Output of cigarettes, by contrast, hit a new high record by a small margin.

Recent earthquake near Mexico City has reportedly increased production of several wells in the Panuco oil region by 5%-10%.

Bethlehem Steel seen likely to maintain $1.50 quarterly dividend; Q4 net was about $.15/share, full year $5.25 vs. $11.01 in 1929 and $6.50 in 1928.

Company reports since Jan. 1: 46 companies reported higher earnings vs. 1930 and 116 lower; 237 dividends unchanged, 13 increased, 42 cut.

Companies reporting decent earnings: American Chicle (chewing gum), Telautograph (machines transmitting diagrams by wire).

Theater news:

As threat of censorship rears its head more persistently than in a long time, theater people are considering self-regulation as an alternative to externally imposed censorship. There does seem to be a problem with plays having one bothersome scene or line that theatergoers await with dread. Maybe producers will have to adopt the device of food makers who announce artificial preservatives on the label.

Sports flash:

Allan “Laddie” Stanford has arrived in California with his famous string of polo ponies to contest the Pacific Coast open championship. Included in the string this year is the internationally famous mare Beatrice, who served with the British cavalry in the World War and is the only horse decorated for gallantry under fire; she carries a scar on her right flank as a service stripe. In spite of her hectic war experience, she is considered one of the world's finest polo ponies, and has thrilled thousands of fans with her many dribbling gallops.


'Did you go to your lodge meeting last night?' 'No, we had to postpone it.' 'How is that?' 'The Grand All-Powerful Invincible Most Supreme Unconquerable Potentate got beat up by his wife.'

Gentleman (at police station) - Could I see the man who tried to rob our house last night? Desk Sergeant - This is highly irregular. Why do you want to see him. Gentleman - I just want to ask him how he got into the house without waking my wife up.

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