January 14, 2010

Wednesday, January 14, 1931: Dow 165.95 -2.04 (1.2%)

Assorted historical stuff:

Due to Russia's repudiation of war debts, almost all transactions with US are on a 50% cash-in-advance basis, while European countries have guaranteed Russia credit. In spite of this, the US is now the leading exporter to Russia. About 2000 firms are carrying on business with Russia, including GE, Ford, Du Pont, etc. The Soviet government apparently has undersold world prices in some cases to meet foreign currency requirements.

Editorial quoting P. Warburg's description of "ostrich politicians." US built its mass production industries behind "our wall of high protection"; then, not content with huge domestic markets, began to conquer foreign ones on which Europe depended and further increased domestic tariffs. Combined with debt payments, this has broken down Europe's purchasing power. "Our international policies seem ... to be fashioned by Senators of state-wide views" who believe the US can exist in "privileged isolation" considering only its domestic interests; the current depression offers an "overwhelming answer" to this view.

Administration reportedly opposed to reduction of Allied war depts in spite of advocacy by some financial leaders; Congress considered unlikely to approve, and debate likely to be “opposite of constructive”; opponents also argue debt payments are small percentage of national budgets. Administration opinion on Fed. Reserve doubts its power to effectively modulate major trends of over-optimism or pessimism, even if completely freed from politics and given best equipment and personnel. Major job seen as keeping its house in order and member banks in shape to meet emergencies.

Conventions signed by Sir J. Chancellor, High Commissioner under British mandate, for construction of pipeline to carry oil from Mosul, Iraq, to port of Haifa, Palestine, on the Mediterranean. Vast oil project will be one of most difficult ever attempted; obstacles include hostility of desert tribes along the route, cholera, typhus, and disagreements between French and British interests. "The oil lands are in the territory of King Feisal of Iraq, over which nation British holds a mandate under the league of Nations. An agreement was reached with France, however, to share the rich oil land with other powers"; branch of the pipeline may go to "Tripolis, the French port."

J. Simpson, Farmers Union pres., repeats charge that Farm Board is speculating in wheat and cotton; further charges Board purposely brought down prices and advised bankers to demand payment of farm mortgages to ruin individual farmers and force consolidation into 50,000 acre units; says proposed government drought relief would not be worth a dime to farmers by the time it reaches them. Farm Board chair. Legge says not finding it necessary to buy much wheat currently; total cash and futures holdings now exceed 130M bushels; may control the entire wheat carryover next spring. Editorial: US wheat exports were 149M bushels in the second half of 1927; 100M in 1928, when farmers were advised to hold their wheat for higher prices; 89.0M in 1929, and 86.6M in 1930. The Farm Board has failed at its stated objective of effective commodity merchandising; world prices are now far below the US price, making the surplus impossible to sell normally.

Southern Assoc. of Commissioners of Agriculture discusses state regulation of cotton planting, with fines and imprisonment for farmers exceeding allotted acreage; C. Williams of the Farm Board says 1931 cotton crop of more than 12M bales would be disastrous for South.

Editorial by T. Woodlock: Important cause of the depression is serious dislocation of the price relation between commodities and services. This has severely lowered buying power of farmers while raising that of wage earners and the "rentier" class; natural result is unemployment for workers and reduced income for "rentiers." Prosperity must come by restoration of balance; underlying reasons are hard to fathom, but history shows many precedents for mankind's ability to pull itself out of almost any difficulty. "If one wanted to cultivate a cheerful view of the future, a good way to do it would be to read the annals of the past ..."

House Appropriations Committee recommends $11.370M for Prohibition Bureau, $2.370M over current appropriation, but $161,180 under budget estimate due to committee's refusal to grant salary increases and small sum for furniture and fixtures.

Pres. Hoover issues proclamation asking country to donate $10M to Red Cross for drought relief. Rep. Ackerman (R, NJ) proposes issuing a billion special 2-cent stamps to be sold for 3 cents, with proceeds to go to Red Cross to aid destitute in drought areas.

NY Gov. Roosevelt asks Legislature to act on $48M for public works before taking up annual budget.

Market commentary:

Market wrap: Stocks continued weak early, leaders declined while oils, Westinghouse and Vanadium were particularly pressured. Trading settled into a narrow range at midday; some tentative rallying developed in afternoon trading. Bonds generally weak; US govts. firm; foreign lower; corp. lower across most of the list. Commodities narrowly higher; wheat firm on reports renewed Farm Board operations.

Conservative observers more cautious; some now believe the recent market rally may have moved ahead faster than warranted by business fundamentals. Some observers are watching action of leading stocks, believing when they break out of the recent range this may signal which direction the next move will go.

Over the past few weeks, ease in money rates has started spreading from short term rates in NY City to longer term rates. Banks have reduced rates on deposits, while the bond market has staged a spirited rally. Corporations have revived some planned bond financing and projects abandoned last fall.

Demand for new bond flotations was reportedly below expectations, though some attributed this to a temporary oversupply; call money remained very easy and rates on bankers' acceptances (30 - 180 days) were lowered to 1 5/8% - 2%.

Banks over the past 2 weeks have reported increased government security holdings and reduced other securities, but this is attributed to year end operations; the trend is anticipated to reverse in the next several weeks.

Rail stock that has increased the most in the recent rally was Chicago & Alton, up over 200%. The road was purchased by the B. & O. out of bankruptcy; the B. & O. bankers have stated the stock has no value.

Some negative surprises similar to Texaco's announcement yesterday may be upcoming from other companies, particularly from those that only report annually.

Broad Street Gossip: Short selling by big operators has recently increased; "considerable selling has come from Florida winter resorts, now the headquarters for several of the largest bears." US Steel backlog of 3.943M tons compares favorably to the past four years; backlog was lower than this at some times when mills were at 80%-90%. Editor: Wage earners who have kept their jobs with no cut in pay have the best of it; their cost of living should easily be 20% less than a year ago. One NYSE broker has advised clients optimistic on 1931 to establish tax losses now rather than waiting until conditions may not be favorable.

Economic news and individual company reports:

Bethlehem Steel directors sued by four stockholders asking return of bonuses paid them since 1911, totaling $36.5M.

Nat'l Conf. of Insurance Commissioners investigate recent disclosures that investment banks having no interest in life insurance policyholders can get control of companies and substitute paper of doubtful value for insurance reserves.

Rail freight loadings for holiday week ended Jan. 3 were 615,382 cars, up 76,963 from prev. week, but down 160,373 or 20.6% from 1930 week, and down 183,300, or 22.9% from 1929.

Corporate financing remained very low in Dec.; total corp. sales of bonds, notes, and stocks were $159.9M vs. $156.4M in Nov. and $311.7M in Dec. 1929. Full year total was $5.920B vs. record high of $11.007B in 1929 and $8.474B in 1928.

Steel production was at 40% in week ended Mon. vs. 36% prev. week and 24% in holiday week; production a year ago was 65%. American Machinist reports improved machine tool orders and inquiries since start of new year.

Sales of 24 chain store and mail order cos. in Dec. were $351.3M, down 9.2% from 1929; full year was $3.341B, down 1.6%.

Total US electric output in 1930 was about 95,300 GWHr, down 2% from 1929 but up 8.5% from 1928. Comparison with 1929 has worsened through the year; Nov. production was down 6.7% from 1929.

Indications seen of imminent cuts in crude oil prices; Texas independents are already buying at lower prices. Potential supply remains excessive; future prices depend on further curtailment and timing of general economic recovery. Typical grade of midcontinent crude will be cut 25 cents, to 70 cents/barrel. Price cuts and lower volume will adversely affect earnings; several companies seen likely to cut dividends.

National City Bank [predecessor to Citigroup] reports current operations profitable with net of $21.4M for 1930, but decided to mark securities held down to market at year-end, resulting in drop of about $40M to surplus and reserves. In response to question whether they contemplate expansion to regain position as largest bank [now Chase National], chair. Mitchell replies: "We do not have our mind on size as much as quality."

Lloyd's reports world shipbuilding in fourth quarter was lowest since 1926; sharp decline in Britain and Ireland, US gains to almost 10% of world total.

Agriculture Dept. reports farm prices firmed in the first 10 days of Jan.

Some New England textile mills have reduced wages by 10%, though other manufacturers strongly oppose any reductions; for example, the large mill town of New Bedford has not instituted any cuts [in the 19th Century, New Bedford was a large whaling city; Herman Melville was a whaler there before writing Moby Dick].

Tire shipments in Nov. were 2.834M vs. 3.499M in Oct. and 3.339M in Nov. 1929.

Companies reporting decent earnings: Procter & Gamble, R.J. Reynolds Tobacco, Sweets Co. of America, National Licorice.


Almost a Honeymoon - Light British farce about young love. A penniless young Englishman must marry in 24 hours to get a job in the foreign service; failing, he gets drunk and returns to his old apartment, forgetting he moved that day, and awakens to find a girl in the adjoining bed. Not hard to guess ahead from complication to complication, except where the man's butler is concerned. [I love that even penniless Englishmen get to have butlers.]

At the galleries:

Exhibit of twenty-odd abstract paintings by Picasso at the Valentine Gallery "will serve to edify and instruct those unfamiliar with abstractions, as well as confound those whose tastes do not concur with them. One can no longer igore the genius of the artist ... an explorer with unsurpassed intrepidness." Henri Matisse, the co-leader with Picasso of the School of Paris, exhibits some forty-five sculptures at the Brummer Gallery; seem more experimental than his paintings. A very original exhibition by Hilda Rebay at the Wildenstein; her best work is "in the manipulation of scraps of colored paper ... to say the least, a vivid talent." Erlich Galleries are showing fifteen master paintings, including portraits by Rembrandt, Titian, Van Dyck, and Rubens.


"Two pickpockets had been following an old man whom they had seen display a fat wallet. Suddenly he turned off and went into a lawyer's office. 'Good lord,' said one; 'a fine mess. Wot'll we do now?' 'Easy,' said his mate, lighting a cigarette. 'Wait for the lawyer.'"

"Mrs. Newly Rich - Yes, all real antiques. Some of our chairs go back to Louis the Fourteenth. Mrs. Not So Rich - Same with us. Our dining room set goes back to Hartman's on the fifteenth."

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