January 31, 2010

Saturday, January 31, 1931: Dow 169.34 +0.47 (0.3%)

Assorted historical stuff:

Editorial: It's discouraging that the Congressional advocates for the veterans' bonus are "stupidly or perversely" insisting on framing the controversy as Sec. Mellon, "wealthy protagonist of wealthy men" vs. now impoverished veterans. The bonus would damage "the business recovery now so slowly and feebly showing itself"; this would hurt everyone, including the veterans.

Washington report: Veterans' bonus now in hands of House Ways and Means Committee; J. Case, NY Fed. chair., outlined financing difficulties bonus would cause. Increasing chance seen of oil tariff compromise that would combine a tariff or embargo with domestic conservation. House votes against several versions of the $25M drought relief measure after the Red Cross says it would reject the funds. Senate Democrats adopt platform of Federal appropriations for relief. J. Raskob has proposed a contribution drive to pay off the Democratic party deficit he and friends are financing. Rep. Stone (R, Okla.) proposes ending system where Congressmen employ relatives as “clerks” using a $5,000 budget granted to each member of House and Senate..

G. Davison, Central Hanover Bank & Trust pres., tells Glass committee main trouble in banking situation is too liberal chartering of banks; “You can't make good banking by legislation, and no good banks have failed.” Main cause of 1929 stock inflation wasn't Fed. Reserve policy, but capital gains tax, which caused people to keep holding securities, leading to a kind of corner, although public speculation did contribute and faster Fed. action might have corrected the situation earlier.

Italian govt. notifies Sec. of State Stimson that US apology for Maj. Gen. Smedley D. Butler's remarks about Premier Mussolini was satisfactory. [Note: Gen. Butler was also known as "The Fighting Quaker" and "Old Gimlet Eye"; he was a highly decorated Marine but also an outspoken critic of US military adventurism, and author in 1935 of the very strong polemic War is a Racket. The remarks apologized for were apparently some gossip about Mussolini striking a child with his car in a hit-and-run accident.]

Winston Churchill resigns as member of Baldwin's Conservative "shadow cabinet" over disagreement on Indian policy; this ends his chances of being in the real Cabinet if Conservatives regain power.

Dr. R. Arnold testifies before Senate on US oil resources. Estimates current potential at 714B barrels, or 98% of original supply, including 27.5B barrels of "free oil" still in the ground, 92B of shale oil, and 595B recoverable from coal. Estimates 30 more years to discover all US oil fields; believes “peak of oil production in the US” may have passed in 1929 (1.007B barrels). Shale and coal oil will become important in the future when their price approximates that of free oil [I assume this is after free oil's price rises due to depletion]. Largest S. Amer. producers will be Venezuala and Colombia. Expects more imports in future due to lower costs.

Editorial: Producers of lumber, manganese, wheat, oil, etc. are agitating for a more effective bar against products of forced labor, aimed at Russia. The law should be amended to apply to all forced labor immediately, instead of just convict labor; also, the decision on making an exception for a product because the US doesn't have enough domestic supply should be put under authority of the Treasury Dept. Rep. Garner suggests a straight embargo against Russia, but it's better to enact a general principle with equal terms for all countries. Persistent "dumping," if proven, would need stronger measures, but evidence of Russian dumping is inconclusive.

NY City Commissioner J. Dietz warns low rainfall has reduced city water supply to "danger point," urges public to conserve water.

Junkers Airplane of Germany developing new type of transport plane capable of flying at 30,000 feet.

Some NYSE floor brokers are now so "bored to tears with the dullness of it all" they're taking long lunches, visiting friends, playing checkers, etc.

Women in search of places to get their hair bobbed have invaded barber shops. Fifteen years ago a barber shop was "a lounging place for gossiping men. It was often unsanitary, and the Police Gazette was the standard work of reference." Today women are fixtures at barber shops, raising "the general tone and character."

Market commentary:

Market wrap: Stocks moved up most of the session; strength was concentrated in trading favorites that were subject to bullish operations, including Auburn, Worthington Pump, and, later in the session, Eastman Kodak and Westinghouse; uptrend broadened to leading stocks as the morning progressed. A sharp reaction came in the last hour, with leading stocks down substantially from the day's highs and trading favorites falling sharply. Bond market continued unsettled; weakness in US govts. spread across the general list; foreign irregular. Commodities mixed on quiet trading; grains irregular with corn down substantially; cotton up moderately. Copper producers cut price to 9 3/4 cents; buying remains small.

Market observers cautious, advise against reaching for trading favorites. Some still advise reducing long holdings on rallies to rebuy at lower prices on reactions. It's causing concern that many stocks, particularly industrials, are meeting resistance around the top of their previous range.

Copper shares weak in midday on price cut. Bethlehem strong on Grace's statement business had picked up materially since start of year. Traders reportedly switching out of US Steel due to poor expected earnings this quarter.

Auto industry is drawing improved sentiment on preliminary reports of favorable auto show reception and better than expected Jan. sales; industry observers cautious about predicting extent of upturn until complete Jan. figures available. Farm machinery makers drawing concern due to increasing advancing of credit to customers; Deere reported receivables of $55.9M on Oct. 31, highest in its history and up $13.2M from prev. year; receivables were 47% of assets and required additional bank borrowing. Montgomery-Ward impressed market observers with $24M increase in 1930 retail sales even as mail order declined $42M. Radio Corp. is expected to report a very good Q4, allowing it to cover preferred dividends for the year and leave a small balance for the common stock.

Bank trends in past week: Liquidation of security loans continues. Banks have been switching funds to buying securities and to "all other" loans, but the increase in "all other" loans is going to bankers' acceptances and not to extend credit to business. Fed. Reserve bill holdings continue declining, but this is attributed to market conditions, not change in Fed. policy.

Broad Street Gossip: “For the enlightenment of some foreign correspondents” writing about poor US conditions, may we point out that savings bank deposits increased $1B in 1930, about $7B of new bond and stock issues were sold to the public, and leading corporations increased their shareholders of record by 25%-50%. If the US can do that in a depression year, what will it be able to do when normal conditions return? Curiously, the mere possibility of a new $3.4B govt. bond issue to pay the veterans' bonus caused the value of existing bonds to fall by about that much. Stocks seem to be making very slow headway, but conservative traders say they'll be satisfied if the market doesn't establish new lows.

Nat'l. Assoc. of owners of rail and utility securities cites almost entirely govt. owned Australian rails as cautionary tale; lost $25M in 1929 and $174M in 10 years.

J. Mooney, GM VP, says shipments of US cars abroad should increase substantially in 1931 due to working off of inventories in 1930.

B. Pease, Lloyd's Bank chair., says bank cut dividend not out of pessimism but as precaution since he sees no immediate prospects of improvement. Discounts gold shortage as cause of depression, saying there's no lack of banking credit available for those ready for trade; business activity is at minimum due to low confidence. Wishes he saw more promise of immediate upturn, but does think thorough deflation in commodities indicates we're not far from bottom.

J. Rovensky, Bank of America vice chair., discusses “Panics and Prophets.” Says 1930 stock decline marked return of a phenomenon not seen since the South Sea Bubble of 1720 - liquidation by the general public, who, as in 1720 but not since, had been lured into speculation. Believes these “unwilling investors,” many of whom hardly knew the names of the companies whose stocks they bought, held on after the initial crash in 1929, but then gave up and sold in 1930, accounting for the mysteriously persistent decline. Says depression not due to overproduction but to wiping out of people's “wealth - real or imaginary.”

Economic news and individual company reports:

Bradstreet's and Dun's weekly reviews report milder weather reducing trade in some lines; retailers have been marking prices down; however, some slow progress and encouraging signs seen; inventories low; spring demand should lead to gradual business upswing; textile demand reviving.

S. Rosoff, substantial stockholder in Bank of US, proposes plan for reorganization; has sent form to 450,000 depositors asking them to subscribe about 30% of their deposits at Bank of US, subject to safeguards.

US corporations had about $1.535B invested in foreign manufacturing plants at end of 1929. Investment increased in the postwar period due to US industrial advances and unfavorable financial and industrial situation in Europe; also important were foreign tariff policies. Largest group of foreign plants is electrical and telephone equipment; next is automotive; next is machinery.

New agreement between Mexican govt. and bankers allows postponement of gold payments for two years, deposit of silver at “normal” exchange rate instead.

South American bonds offered in the US in 1930 were $237.1M vs. $67.0M in 1929; of this total $134.6M were 6-month to 1-year loans to Argentina.

P. Snowden, British Chancellor of the Exchequer, says in FY 1931-32 Britain will receive $166.8M from Allied war debts and German reparations, while war debt payable to US in that period will be $164.3M.

British gold flow to France appears to have stopped.

Swiss banks have stopped paying interest on foreign deposits to repel capital that has been flowing there from Britain, Germany, and other sources.

Bolivian financial mission in NY seeking new debt accord from US bankers who floated their 1922, 1927, and 1928 loans.

Representatives of 3 largest non-Standard US oil cos. object to proposed new Colombian oil law, charging it would prevent further oil development in Colombia.

Financial circles say Ford will increase output and employment, and that business has been increasing; Ford officials aren't confirming the reports. Oldsmobile and Graham-Paige have increased production schedules and employment due to good orders stimulated by auto shows.

Company reports since Jan. 1: 80 companies reported higher earnings vs. 1930 and 220 lower; 313 dividends unchanged, 20 increased, 55 cut.

Companies reporting decent earnings: Pacific Gas & Elec., International Cement, Pennsylvania Dixie Cement, Paramount-Publix (movies), Cleveland Railway (traction/mass transit), Cleveland Union Stock Yards, Cluett Peabody (shirts and collars).


"I'd walk East until my hat floated, but I have no hat."

"I'll be in the bond business after today: the vagabond business."

"I'm outta luck like a florist with hay fever."


"'Congratulations, my boy.' 'But you just said that I flunked out of medical school.' 'Ah, but think of the lives you have saved.'"

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