February 12, 2010

Thursday, February 12, 1931: Dow 181.88 +0.68 (0.4%)

Assorted historical stuff:

Court of Appeals opinion written by Justice Cardozo upholds constitutionality of law on responsibility of bank directors: "The power of legislature to make it a crime for banking officers to be so neglectful of their duties as to involve their banks in ruin is hardly to be doubted."

House Ways and Means Committee kills proposals for full veterans' bonus; however, committee is now considering several partial plans.

Washington report: Sen. Pittman's subcommittee on China trade recommends program for rehabilitation of silver, including international pool to advance silver to China for specific projects. Also notes problems of gold standard govts. in obtaining gold to meet budgets and pay debts. Action on silver stabilization considered unlikely at this session. Article by H. Woodhead in Shanghai Evening Post calls proposal for international silver loan to China “the crudest form of quackery.” Several Farm Board members including chairman Legge likely to quit; new members may be hard to find as Board faces “almost insuperable task.”

Martin J. Insull, Middle West Utilities pres., speaks on Halsey Stewart radio hour; says much harm is being done by agitation against the "sinister, threatening trinity of words - the Power Trust." Calls implication of illegal trust absolutely false; blames most of alarm and agitation on politicians, college professors and newspapers. Cites progress of industry in now providing best electric service at lowest rates in history. Editorial by T. Woodlock: This column has previously cited the Potomac Power Co. in Washington, DC as an example of successful utility regulation. The utility was allowed an agreed rate of return, and earnings above that rate of return were split between utility and consumers. Following this agreement, the basic residential rate that started at 10 cents/KWhr in 1924 has been reduced every year and will be 4.2 cents in 1931. Unfortunately, the District commission has now decided the utility is making too much profit and asking for modification of the agreement. This is a case of cutting off your nose to spite your face; the real objective seems not to get cheap and efficient service, but to eliminate private profit at all costs, probably winding up with public operation.

Agriculture Dept. says Russia could reasonably have a wheat crop this year equal to 1930 crop of 1.157B bushels, but notes Russia does have history of occasional bad crop failures.

Australian PM Scullin formally asks British govt. for reduction in interest rate on loans made to Australia during the war.

Austrian Agriculture Min.Thaler rumored to intend resigning and emigrating to Paraguay with 20 Tyrolean farmers due to despair over Austria's economic future.

NY State death rate in 1930 was 11.7 per 1,000 population, equalling record low of 1927; birth rate was 17.1, also a record low and down 30% from 1914.

Illinois House passes O'Grady bill repealing state Prohibition and search and seizure laws, carrying out terms of referendum in Nov. election.

Car values have improved dramatically since 1924; price per pound is down about 35%, while when added values like comfort and reliability are considered, the 1931 dollar probably buys twice as much car as in 1924.

North Amer. Aviation says testing an airplane that can be flown with a few hours instruction; claim ship can be landed by novice pilot with hands off controls.

Rep. LaGuardia (R, NY) asks Congress to appropriate $2.5M so US can compete with Britain and Italy in Schneider Cup (series of seaplane races).

Pan American fare cuts of 8%-42% across system seen as major change in policy to increase passenger business, which until now has been secondary to mail.

Market commentary:

Market wrap: Stock rally continued vigorously most of session, with trading heavy; major industrials rallied, trading favorites rose sharply, and strength spread to the utilities. However, increasing profit-taking came in the afternoon; good-size setbacks took place from the highs, but enough support came in to limit the reaction. Bond trading slower; US govts. firm but sold off mildly late; foreign irregular; corp. mostly steady. Commodities mixed; grains sell off sharply as reports of Russian revolution prove false; cotton up substantially. Copper rises another 1/4 cent to 10 cents. Silver again advances 3/4 cent to 27 5/8 cents.

Late market weakness attributed to statement by Under-Treasury Sec. Mills on possible bad news regarding veterans' bonus in next 48 hours. Grain weakness also called unsettling. Oil news discouraging, including larger than expected rise in gasoline stocks and prospect of large new Texas fields. Rail freight drop of 19.9% vs. prev. year also unfavorable.

Silver market tone improves as movement seen likely to restrict amounts offered by major sellers, including Indian govt. Jan. copper statistics considered more favorable, showing a drop in total stocks of 11,000 tons to a still large 574,000 tons.

Wall Street sentiment is more cheerful. Shorts were punished by the bulls again in some issues. Good news on particular stocks (Best & Co.) has been reflected immediately in trading. Traders are paying more attention to low-priced issues.

Some brokers are advising against jumping in at current prices, since they feel the rally has been too fast compared to the slight improvement in business; the sharp rally might attract public interest and bring in poor-quality buying.

Editorial: US grain exports have been declining drastically over the past few years; wheat exports declined from 168.3M bushels 1927 to 87.8M bushels in 1930; total value of grain exports declined from $444M in 1927 to $191.3M in 1930. While the world is actually consuming more wheat, we have been exporting less and piling up our surplus. "A little study on this subject might be fruitful of good results."

AT&T will probably reach 600,000 stockholders this year; investment trusts have been heavy buyers in the past few months.

W. Atterbury, Pennsylvania RR pres., says buses and trucks, if properly coordinated with rails, can be operated to the mutual advantage of all.

Broad Street Gossip: Goodbody & Co.: “Inertia induced by mob psychology is causing many people to stand on the sidelines in the hope that they can buy favorite stocks a few points lower. There is no more reason in being rabidly bearish now than there was in being enthusiastically bullish in the summer of 1929. We would not miss the present opportunity of investing a part of one's funds in low-priced common stocks. The old Standard Oil was unscrambled about 20 years ago; following the recent Standard of NY - Vacuum court decision, some on the Street believe certain Standard Oil companies will indulge in a little re-scrambling. Many traders who bought stocks for a “long pull” a week or two ago couldn't resist taking short pull profits on the rally.

Best & Co. say believe recent market strength has stirred speculative enthusiasm, with potential buyers waiting for a reaction to enter the market; believe this “will prevent any immediate important general reaction.”

Editorial: Market action since the low point of Dec. 16 (Dow 157.51) is encouraging; since then, we've seen "close to two months of interrupted but progressive recovery with the top and bottom points of rallies and reactions making an ascending line"; this has happened with good economic news relatively scarce. Recent course of the market undeniably "gives substantial grounds for optimisim concerning the business future." It's true that "similar inferences were erroneously drawn" in early 1930, which turned out to be an exaggerated bear market rally. "Nevertheless, the price movement has taken on exactly the character called for by the assumption that the debris of the 1929 collapse has been cleared away and the required conditions established for the gradual rebuilding of prosperity."

Economic news and individual company reports:

Weekly steel reviews report demand spotty, but in total enough to register another slight gain. Outlook is for slow progress until spring demand starts in March. Machine tool demand still increasing slightly, though picture is mixed in different districts.

Irving Trust, trustee in bankruptcy proceedings, files suit against all directors of Bankus Corp. (Bank of US affiliate) charging over $50M of assets lost through negligence. Complaint details loss of large sums by trading in bank stock and real estate speculation. Bank of US officials surrender and are taken into custody on Grand Jury indictments. S. Rosoff submits plan for Bank of US reorganization. Depositors committee asks liquidation legal work be done by Attorney Gen. office.

Under-Treasury Sec. Mills addresses Bond Club; says govt. bond values would be damaged by veterans' bonus; “you are going to hear a lot more in the next 48 hours, and I am sorry to say it may not be as favorable as you make have been led to suppose by newspaper reports.” With Treasury facing $500M deficit at end of this fiscal year (June 30), and $8M of callable bonds due in next 2 1/2 years, new bond issue would be very costly.

Govt. weekly weather report shows beneficial rains over much of US, but more moisture urgently needed to replenish subsoil.

1930, and 1931 so far, have had unusually warm and dry winters; this has affected many economic sectors including agriculture, businesses selling to farmers, sales of winter clothing and supplies, etc.

Pres. Hoover issues proclamation increasing duty on woven wire fencing composed of wire between 0.03 inches and 0.08 inches in diameter.

Joint efforts by British and French bankers to stop British drain of gold to France considered encouraging; Bank of England has kept open market rate at about 2 1/2% while Bank of France has pressured private bill rates below 2%; French banking funds have been attracted to London. German capital flight has ended and money rates are declining following recent encouraging developments. Spanish currency down sharply after news of general strike throughout Spain.

Boston unemployment is now 11% of working population, up 4% since April.

Smokers continue shift to cigarettes; in 1930, for the first time, a pack of cigarettes was smoked for each cigar. Snuff is only other form of tobacco showing gains.

Coca Cola's 1930 showing went against industry trend; 1930 sales gained 5.1% over 1929, eighth straight increase, while beverage sales as a whole declined about 15%. Good showing was attributed to extensive sales and advertising campaign. Co. now has 13 syrup factories: 7 in US, 4 in Canada, and 2 in Cuba; 800,000 bottle retailers, up 200,000 in 1930; 123,000 fountain retailers, up 18,000.

Los Angeles Evening Express reportedly purchased by W.R. Hearst, who already owns the L.A. Morning Examiner and Evening Herald.

Companies reporting decent earnings: Commonwealth Edison, Southern Calif. Edison, Western United Gas & Elec., Columbus Railway Power & Light, Hygrade Lamp, Lorillard (cigarettes), North Amer. Aviation.


Scandal Sheet - Well acted but unrealistic newspaper melodrama. Mark Flint, fearless managing editor of a tabloid, has an ironclad policy of getting and publishing all the news. This is tested when the crucial point in a big story concerns his wife's relations with a prominent banker. However, he remains consistent, and makes a front-page story out of the event by shooting the banker and returning to his office to write the story himself. He then takes a taxi to police headquarters to surrender. A comic epilogue shows Flint as editor of the prison newspaper, threatening to fire the inmate reporters if they fail to bring in the news.


The police refused to let a radical make a speech from the gallery of the House of Representatives. The mistake which the radical gentleman seems to have made was to neglect getting a nomination on the Republican ticket.”

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