February 27, 2010

Friday, February 27, 1931: Dow 192.23 +1.51 (0.8%)

Assorted historical stuff:

Pres. Hoover vetoes veterans' bonus bill. Veto message: Bill violates committment given in 1924. Govt. has already spent $5B on veterans' relief, hospitalization, and welfare since the war and will continue this support. "Not a penny in the Treasury" to pay; veterans in need only a minor percentage and being cared for adequately, often receiving preference from employers; payments won't be enough for adequate relief. Business can't be stimulated by "borrowing from some of our people, pledging the credit of all the people, to loan to some of our people who are not in need"; people today need lower taxes and more jobs, but laws like these will force us toward higher taxes and job losses. House immediately overrides veto; Senate will consider the veto today.

Editorial: Some are wondering whether the current recovery is another “false dawn” as happened in early 1930. However, there are reasons for believing this recovery, though gradual, will be more lasting. Business activity in early 1930 had only begun to readjust, with general activity about 10% below normal; by contrast, in Jan. this year, activity was 25%- 30% below normal. Likewise, price readjustment had barely gotten started in early 1930 but now is far along, with Fisher's index below 76 compared to 98.6 in mid-1929. These adjustments strongly indicate "business has lately fallen to the minimum requirements of 120M people" together with capital projects that are sure to go ahead. "After a year of such painful readjustment, it is only logical to suppose that the greater part of the inevitable elimination of weak spots in the economic structure has been accomplished."

Washington report: Oil legislation picture is complex. While House leaders and the Pres. now may be able to agree on a compromise on restricting imports, it probably will be blocked this session by oil consuming states worried about price increases. Eventual compromise might give Federal govt. more regulatory authority over the oil industry, possibly by giving an agency power to adjust import restrictions. House Committee blocks legislation to regulate rail holding cos. through the ICC. E. Meyer's 72-11 confirmation in spite of Congessional charges involving “international bankers” and “stock gamblers” seen as personal triumph. Some speculate the upcoming Democratic Nat'l Committee meeting will propose resubmitting Prohibition amendment to the states. Closing rush of legislation before Congress adjourns Mar. 4 is likely to generate one last extra session scare.

O. Baker of the Agriculture Dept. predicts US will reach stationary population of 160M by 1960 unless birth rate rises (considered improbable), or immigration laws are liberalized.

Calif. treasury officials warn that special fund spending of $28.6M added by the legislature would leave a deficit of $6.9M over the next 2 fiscal years.

J. Stephens (D, NY), only black member of NY State Assembly, introduces amendment to civil rights law prohibiting public utilities from discriminating on basis of race or color.

NY Board of Education approves 1931 school construction program involving construction of 90 new buildings, estimated spending of $68M.

Welfare Council of NY announces 32 NY corporations employing several hundred thousand have pledged not to lay off workers during unemployment crisis.

Mr. Gannett says he's interested in buying NY World and maintaining policies of Joseph Pulitzer; NY World employees also trying to put together offer.

NY State Senate authorized construction of tunnel between Midtown and Weehawken, NJ [Lincoln tunnel].

New City Bank building's switchboard will handle daily total of 39,000 outgoing calls, 59,000 incoming, and 51,000 inter-office.

Maj. Gen. E. Jadwin, appointed by Pres. Hoover to investigate possibility of canal through Nicaragua, says commission has concluded it would be feasible at a cost of about $700M, but hasn't decided whether to recommend construction.

Spain is building a huge University City near Madrid, on a 900-acre park donated by King Alfonso. It's hoped the University will be completed in four years, at a cost of about $50M; Spanish writers are calling it the "new Athens of our century."

Market commentary:

Market wrap: Stocks resumed advance; major industrials pushed ahead aggressively, with new 1931 highs in US Steel, GE, and GM; trading favorites were up sharply, and many low-priced shares were subjected to bullish demonstrations. Some setbacks from day's highs in the final hour. Bonds moderately active; US govts. lower; foreign active and strong; corp. high-grade irregular, speculative and convertible up sharply. Commodities weak; grains down sharply; cotton off slightly. Copper buying continued heavy, possible advance in price seen. Silver market uncertain due to Indian deficit.

Market sentiment cheerful, but conservative observers advise against becoming overextended on the long side.

Utilities strong on declining fears of Congressional action. Goldman Sachs Trading went above 10, and some other investment trust and holding cos. gained. Banks and trusts closed mostly lower on the day. Warner Bros. pressured on poor earnings and outlook.

Outside short interest is reportedly down substantially from earlier in the year. However, a number of leading bears stubbornly continue to fight the rally, maintaining that private reports on business from around the country have been anything but encouraging; some predict a renewed business dip after the spring.

Wall Street opinion traces turn in the market to last Nov. and Dec., when important interests again started accumulating their favorite stocks; market movement seems based on belief business has hit bottom and will recover gradually, rather than on expectation of sharp upturn. For the past several weeks, market has seemed to ignore unfavorable earnings and other news as “water over the dam,” already discounted by the decline last year.

Survey of 20 large managed investment trusts [similar to mutual funds] for changes made in 1930 finds stocks most commonly liquidated were: Standard Oil NJ, IT&T, Westinghouse, Gillette, Radio; holdings of industrials declined while utilities and rails increased.

Remarkable recent growth of fixed investment trusts [similar to ETF's] attributed to soundness of idea, but also to aggressive advertising through newspapers, magazines, and specially made talking films shown by dealers.

Strong markets have increased Wall Street's population; brokers report clients reappearing after a year or more's absence; some have hired more staff.

Broad Street Gossip: One brokerage with over 1,000 customers reports the percentage of active customers has increased from 25% before the rally to 75% in the past week. Market has been acting very badly for the bears, with no substantial reactions on which to cover. Precedent suggests a reaction is due, though many sold on that belief five or ten points ago. Rise in the market has revived a lot of dormant merger rumors. While many reasons are being given for the rally, the basic one was that “stocks were selling entirely too low, some of them far below net quick asset values.”

Editorial: European grain conference aiming to encourage East European exports to rest of Europe, isn't that significant to US exporters; only 4 East European countries are sizeable exporters, with probable limit of about 100M bushel surplus, while estimated European requirements are 610M bushels this year.

D. Robinson, railworker union leader, hits govt. subsidizing of unprofitable waterway transport, says it has hurt labor and the railroads, is being promoted by “special interest shippers.” Editorial by T. Woodlock bemoaning loss of “ideal” gasoline traffic by railroads due to competitive conditions in oil industry. Trucks are taking an increasing amount of profitable new car-delivery business from rails, though higher gasoline taxes may stop this trend.

Coca Cola seen benefitting materially from low cost of sugar, one of its main raw materials. Air Reduction (welding) seen benefitting from stricter building codes.

Predictions for March auto output are about 300,000 cars and trucks, vs. about 220,000 in Feb. and 178,000 in Jan.

Economic news and individual company reports:

J. Pole, Comptroller of the Currency, says giving Federal official the power to dismiss bankers engaging in unsound practices would go far to restrain bad banking; on the other hand, laws aimed at specific bad practices “may have unforeseen reactions in other directions.” Motions to dismiss indictments against Bank of US officers denied. Supreme Court rules Nebraska depositors' guaranty law constitutional; state banks now liable for large payments to make up accumulated $21M fund deficit; many state banks expected to become national to avoid payments.

Fed. Reserve reports money in circulation Feb. 25 up $9M to $4.569B, total Reserve Bank credit outstanding down $1M to $904M. Member banks in NY City report brokers' loans up $26M to $1.798B; loans on securities to non-brokers down $15M to $1.870B; this figure has declined continuously since start of year.

Jan. earnings of first 30 reporting rails down 27.6% from 1930.

Detroit employment index on Feb. 15 was 78, vs. 76.5 on Jan. 31 and 106.5 on Feb. 15, 1930. Number of new families applying to Detroit welfare dept. for help has declined substantially for the first time in 18 months.

About 1,000 people gather to protest oil curtailment in Oklahoma; J. Simpson, Farmers' Union pres., says many farmers depend on oil lease rentals, Okla. is being discriminated against in favor of other oil states.

H. Kenner, Better Business Bureau of NY GM, puts total losses from preventable rackets at over $2B annually, of which a third is due to stock swindles; asks raising of $5M fund annually by legitimate business to fight fraud.

O. Auspurger, NY Auto. Club pres., estimates total US investment in motor transport at $25B, of which about half is in rural highways and a third in vehicles.

Article detailing astonishing growth in Insull utility holding cos., formed to buy securities to maintain control of the Insull-led utilities. Insull Utility Investments began operating in early 1929; Corporation Securities Co. of Chicago “had to be organized in the fall ... when it became apparent that the required financial operations were larger than one investment co. could conveniently carry out.” Total book value of holdings was $394.4M as of Dec. 31. Insull Utility has a rather eye-opening $58.5M accounts payable item, “which will be liquidated as soon as permanent financing can be arranged.”

Farm Board announces Grain Stabilization Corp. will sell up to 35M bushels of wheat in holds to export markets over next 4 months in order to clear domestic ports for the new crop; wheat prices declined sharply.

Conference of Australian Premiers reaffirms 3-year financial rehabilitation plan to “lift the nation from its present critical condition.”

Deficit of 13.5M pounds expected in Indian budget announcement Mar. 1; new taxation likely.

Bank of England hasn't lost gold for several weeks, but has also been unable to replenish reserves substantially.

A small Paris bank is selling rubles at rate of one tchervonetz (= 10 rubles) for 26.50 francs, or only 20.4% of the official rate of 13 francs/ruble.

US cigar makers testify embargo on Sumatra cigar wrapper tobacco would destroy the industry; at earlier hearings it was admitted indentured labor was used to produce the wrappers. Domestic growers say they could supply US needs, but cigar makers say smokers have acquired a taste for Sumatra wrappers.

Gillette defers action on common dividend until future earnings are clearer.

Companies reporting decent earnings: Grand Union, Borden (dairy products), Bangor Hydro-Electric, NY Steam.


Comrades of 1918 - German film about the war, directed by G. Pabst. Provocative; striking photography; many of the war scenes authentic and compelling. Scenes vary from gruesome views of the battlefield and improvised hospitals, to lighter scenes behind the lines, "and in a trench where one of the men sings, while picking 'cooties' out of his clothing, to the tune of a harmonica ..." Sound recording isn't as powerful as our own All Quiet on the Western Front.

Political joke:

Pres. Coolidge, on seeing Sen. Borah riding by on horseback one day, observed that it must be a unique sensation for the Senator to be going along in the same direction with even his horse.

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