February 9, 2010

Monday, February 9, 1931: Dow 172.90 +3.02 (1.8%)

Assorted historical stuff:

Editorial by T. Woodlock: In the postmortems now in progress, some are finding fault with the Fed. Reserve bankers. They may be guilty of some errors, particularly increasing supply of credit as the "speculative debauch" was getting under way. However, their record isn't bad considering the extraordinary run of events in the 16 years since the Fed's establishment: financing of the World War, "the great 'deflation' of 1920-21, then the return of 'prosperity,' culminating in the wild speculative orgy of 1929 and the subsequent crash and depression." Some are now suggesting the Fed should direct credit to "useful" areas such as industry as opposed to speculation; this would be impossible in practice, for credit once created "is a natural fluid"; attempts to put conditions on credit would be "an experiment in bureaucracy of the most dangerous kind." Banks should decide on the proper use of credit; functions of the Fed and banks should be carefully separated.

Washington report: Apparent drought relief compromise raises hopes of better inter-party cooperation and avoiding extra session. More talk is heard of a lower-cost compromise on the veterans' bonus, but the situation is still unclear. Sen. Wagner is suggesting states might offer unemployment insurance with Federal aid, but some are concerned that in difficult times like the past few months, Congress would face strong pressure to increase contributions, and Washington would end up carrying the load. Proposed bill to restrict oil imports together with curtailing domestic production would give Federal govt. first direct authority over oil conservation, allowing it to reward states for developing conservation plans and enabling cooperation to adjust total supply of oil to demand. Sen. Glass says he intends proposing changes in both Fed. Reserve and national bank acts when hearings conclude. Subcommittee hearing on nomination of Eugene Meyer to Fed concludes; confirmation expected by Senate.

Editorial praising drought relief compromise, and recommending similar reasonableness on the veterans' bonus issue; allowing veterans to borrow against their bonus certificates on more liberal terms would take care of the needy without the folly of issuing billions in new govt. bonds.

Sec. of State Stimson announces Hoover administration has definitely abandoned Wilsonian policy of promoting republican government in Latin America, and has returned to Jeffersonian theory of recognizing any form of rule a nation may choose for itself. Editorial praising Stinson's statement; discards Roosevelt's version of the Monroe doctrine giving US “international police power” in this hemisphere; new version of the Monroe doctrine “is evolving which the peoples to the south of us are likely to accept and support.”

Izvestia announces Soviet grain collections to Dec. 31 were 21.7M metric tons, 52% over 1929.

French and British foreign offices fail to agree on pipeline transporting Iraqi oil to outlets in Lebanon and Palestine; French demande immediate construction of line, while British oppose it due to present oil overproduction and estimated $1B construction cost.

Work is proceeding on design and construction of a new reflecting telescope that, at 200 inches, will double the diameter of the current world's largest. Construction will cost several million dollars; a number of possible sites in Southern California are being surveyed. When built, the new telescope will make the moon appear to be only 25 miles away, and objects the size of the US Capitol building should be visible.

Airplane powered by a Packard diesel engine just completed a 12,000 mile tour consuming 1,082 gallons of fuel, for a total fuel cost of $108.20.

Capt. M. Campbell establishes new midget car speed record of 94.031 mph at Daytona.

Thousands of tons of rock recently broke away from the Goat Island side of Niagara Falls, leading to a stream of curious visitors during a normally dull season.

Market commentary:

Market wrap: Stocks were irregular early in the short session, then settled into a narrow range for the first hour, with activity concentrated in trading favorites. Buying spread to leaders in the last hour; rallying spread across the list and stocks closed strongly. Bonds generally strong; US govts. continue up; corp. dull, generally firm; European govts. strong while S. American were irregular. Commodities mixed; grains firm, with corn up sharply; cotton off slightly. Silver declined 3/8 cent to a new record low of 26 1/8 cents.

Week in review: Stocks continued in recent trading range, though Sat. gave signs of breaking out to the upside; advance to 175 on the Dow would be considered strongly bullish. Security loans continued decline. US govt. bonds rallied sharply through the week; rally extended to high-grade corp. though general list was dull; European bonds were strong but South American were unsettled. Credit continued easier, with bankers' acceptance rates hitting record lows. Sterling was strong, shutting off British gold drain to France; German stocks and currency rose after positive reaction to Breuning statements; silver declined to new record low, as did Chinese currencies; Peru announced debt moratorium. Steel improvement slowed. Grains mostly steady; cotton turned up.

Conservative observers continue to advise remaining on sidelines until market breaks out of trading range.

Saturday's rise in the Dow to within 0.14 of the Jan. 8 high of 173.04 raised hopes the market was ready to break out of its recent range into a sustained rally.

Recent resistance to bear drives has increased opinion stocks were thoroughly liquidated at end of 1930, and market is now in strong technical position.

Wall Street cheered by indications that any veterans' bonus measure will be relatively modest, perhaps in the $500M range. On the other hand, weekly trade reviews were mixed, reporting a lack of public buying power.

Well known bear Bernard E. Smith returns to Florida after several days in NY.

Reports of foreign buying of US stocks have been heard several times recently, the last being of buying from Amsterdam.

Failure of NY Central to cover dividend has raised concern; while dividend is likely to be maintained for now, longer-term outlook is uncertain if depression in rail earnings continues.

Steel interests deny reports of recent price cutting; recent investigation shows no important cases of customers able to obtain cuts; stability has been maintained; next move in prices anticipated to be upward. US Steel is to report end-of-Jan. unfilled orders tomorrow at noon.

Special Libraries Assoc. has prepared a pamphlet listing 214 important commercial and financial information services.

Broad Street Gossip: Traders cite some better news over the past few days: higher Jan. sales for some chain stores, continued gradual improvement in steel production, declining brokers' loans, rising stocks, strong year-end corporate balance sheets in spite of poor earnings, more favorable developments on veterans' bonus, and better chances of avoiding extra Congressional session. One trader is optimistic in spite of being down 70% from Oct. 1929: “If the country is going to the 'bow-wows' I am out of luck, but the country never has gone there yet, so it is a 100-to-1 shot that if I hold what I have I will make money.”

G.M.P. Murphy says residential construction cos. anticipate a sharp increase in activity this year; point out that normally 47% of all construction is residential, but in 1930 only 23% was; history indicates 1931 should see a large bounce-back in residential construction.

Pres. Hoover sees future prosperity for textile industry as a result of its improved fact-finding policy creating all-around efficiency.

Eugene Black, Atlanta Fed. Reserve gov., says business is swinging upward and ample credit is available for "legitimate agricultural requirements."

Darwin Kingsley, NY Life pres., looks back in company annual report on prosperous 1930 for life insurance industry.

S. Schwartz, Sutro & Co. senior partner, believes last stage of bear market has been reached; pessimism of today is as unwarranted as extreme optimism two years ago; sees positives both in economic situation (" unmistakable signs of gradual improvement") and in technical market position (resistance to bear drives over past few weeks).

Economic news and individual company reports:

Jan. auto production in US and Canada was 183,876 cars and trucks vs. 161,223 in Dec. and 283,606 in Jan. 1930. Ford worldwide production was 55,182 vs. 45,032 and 98,529.

Dividend record in 1930, surprisingly, showed many extra and increased dividends in early part of the year. Despite predictions of poor future earnings, dividend increases outnumbered cuts much of the year, with turning point not coming until mid-June.

Class 1 rails reported 1.394M workers with wages of $193.9M as of mid-Nov., vs. 1.455M with wages of $213.9M in mid-Oct., and 1.681M with wages of $240.8M in mid-Nov. 1929.

Bank of US auxiliary probe started regarding minor aspects of the bank's closing; to run independently of Steuer investigation. Plan of reorganization presented to State banking superintendent by I. Pershkin, counsel for depositors group; S. Rossoff, stockholder, is also preparing a plan.

Fisher's wholesale commodity index declines for 9th week in a row, to 76.4 for week of Feb. 6, vs. 80.7 for week of Dec. 5.

F.W. Dodge reports Jan. new construction awards in 37 states east of the Rockies $228.0M vs. $324.0M in 1930; 4 of 13 territories showed gains over 1930.

Steel production in Youngstown District to rise to 50% this week; rate is expected to fluctuate between 45%-55% for near future.

Tariff commission submits report to Congress showing foreign oil to be underselling domestic production by a wide margin; for period from 1927-29, oil from Oklahoma and Texas cost $1.98 delivered at refiners, while oil from Venezuela in 1929 cost 79 cents, though products of domestic oil refinement are more valuable.

Germany ran a trade surplus in 1930 for the first time since the war, exports exceeding imports by 1.6B marks. However, large amounts of foreign capital continue to be needed; heavy interest charges on commercial debts abroad made the balance of payments stay negative, and the drastic 3B mark decline in imports is unlikely to be maintained.

French govt. revenues in Dec. were 3.630B francs, down 5.5% from 1929; revenues in 9 months to Dec. were down 7%. Budget deficit for year to Mar. 31 estimated at 1.5B francs.

Commerce Dept. reports wool consumption was 377.8M pounds in 1930, vs. 516.1M in 1929 and 465.0M in 1928.

Coca Cola 1930 net was $13.5M, or $11.15/share, vs. $10.25 in 1929.

Companies reporting decent earnings: Coca-Cola, Jewel Tea, Imperial Tobacco, Lincoln Printing (largest financial printer), E. Kahn's Sons (meat packers).

Upcoming movies:

Howard Hughes is filming The Front Page at United Artists, adapted from the play by Ben Hecht and Charles MacArthur; Pat O'Brien will star. Mr. Hughes will next produce an original Ben Hecht story called Scarface, probably starring Louis Wolheim in the title role. Upcoming films from other producers include The Greeks Had a Word For It, and What Fun Frenchmen Have.


"'You were swindled over this Rembrandt. The picture is not 50 years old.' 'I don't care about age, so long as it is a genuine Rembrandt.'"

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