February 26, 2010

Thursday, February 26, 1931: Dow 190.72 -3.64 (1.9%)

Assorted historical stuff:

Senate confirms Eugene Meyer as governor of Fed. Reserve Board, 72-11.

A. Pope, First National - Old Colony exec. VP, testifies before Glass banking committee. Defends bank investment affiliates as essential for industrial development of US; against publication of investment affiliate portfolios since they might disturb markets; unwise to try to regulate bank investments and loans; blue sky law to stop worthless security issues would do more harm than good; regulation can't supply good judgement, but proper examination of banks and affiliates would help. Glass committee to suspend hearings when Congress adjourns next week, will then take up work of drafting a bill to be used as basis for further hearings at next session of Congress in Dec. 1931. Proposed bill likely to meet strong opposition; committee likely unsure how far it can go. Attempt at unifying banking under Federal control probable.

Editorial in favor of the Kendall bill restricting imports produced by forced labor. Bill is a reasonable compromise, giving the Treasury wide discretion in applying the ban. For example, US cigar makers, who currently import wrappers produced in Sumatra by indentured labor and are concerned about a possible cutoff of imports, can probably be given a pass until Sumatran growers adjust their system to conform with US law.

Newly created State financing board says city of Fall River, Mass. [recently defaulted on loans] must cut salaries 20%-32%.

Morning reports of Hitler revolt in Germany turned out to be unfounded; later updates said 'revolt' was but minor riots by Communists, not Nazis, and police had situation in hand. Chancellor Breuning asks Reichstag for blanket power to adjust tariffs; seen as stand against farm demands for high tariffs.

Japanese govt. introduces bills formally legalizing trade unions and providing for compulsory arbitration.

At Briand European grain conference, Austria, Holland and Switzerland promise in principle to buy grain from Eastern European states, but France and Britain exclude themselves. Wheat conf. ends with resolutions to buy up Danubian wheat surplus estimated at 3M tons; no discussion on reduction of acreage.

G. Le Boutillier, Pennsylvania RR VP, reports 99.4% of the 60,100 scheduled passenger trains in NY zone in Jan. arrived at destinations on time. Penn. RR broke all records for Washington's Birthday seashore travel; over 50,000 estimated travellers between NY, Philadelphia, and Atlantic City.

Dr. W. Schroder, NY City Sanitation Commission chair., recommends establishment of 33 scientific sewage disposal plants throughout city at cost of $377M.

Sale of NY World newspaper significant politically; it has long “been regarded as the outstanding Democratic organ in the US”; sale would put it under control of political independents who supported Hoover in 1928.

Watsongraph device for transmitting typewritten messages by radio demonstrated by Glenn Watson of Detroit.

Foggiest spot in the US in 1930 was Moose Peak, Maine, with 1,562 hours or over 4 hours/day. Maine also had the second and third foggiest spots; the fourth was Point Reyes near San Francisco, with 1,398 hours. These totals, however, were nowhere near the 1907 record of 2,734 hours at Seguin, Maine.

Sen. Sheppard (D, Tex.) introduces bill barring making of intoxicating fruit juices in private homes; designed to counter campaign of grape juice makers to sell kits for fermenting at home.

Market commentary:

Market wrap: Stocks opened weakly, then rallied. Selling intensified as the morning progressed and eventually brought another reaction, with sharp setbacks in stocks that had been strong for the past few days. However, leading industrials drew good support on the decline, and the uptrend resumed in some specialties in late afternoon. Bond trading dull; US govts. somewhat lower; foreign active, strong, French at record high; corp. mixed, speculative and convertible weak. Commodities mixed; grains up moderately; cotton down somewhat. Copper unchanged at 10 1/4 cents; foreign buying heavy. Silver down 1/2 cent to 26 5/8 cents.

Conservative observers continue to advise buying standard stocks on declines, avoiding trading favorites and using stop-loss orders for protection.

Strong spots included mail order shares, Best & Co. (chain stores), Air Reduction (metal cutting and welding), and Goldman Sachs Trading Corp. Entertainment shares were especially weak.

Brokers are warning customers to be discriminating in selecting stocks, and to be particularly wary of some that have rallied spectacularly under pool operations. Stop-loss orders are increasingly popular; at times the price limits have been set too close to existing prices and uncovered during small reactions. Bethlehem Steel has been subject of strong buying interest on possible diversification through acquisitions.

Impending adjournment of Congress considered favorable, particularly for utilities; danger of extra session seen small.

Weekly steel reviews noted overall increase in production but uneven picture; strong points included tin plate and automotive, while structural and rail appear to be improving. Rail freight traffic, on the other hand, showed no sign of turning up.

Warning to investors on various small unattached oil companies deceptively taking the Standard Oil name, including Standard Oil of Alabama, Rhode Island, etc.

European currencies mostly higher; London sentiment reportedly more optimistic on hopes for British-French cooperation, possible Bank of France rate cut.

Broad Street Gossip: One banker cites plenty of evidence that the backlog of consuming power is largest its been in years: corp. inventories are down 20% from a year ago, and even more from 2 years ago; corps. are holding more cash; production of many products is below requirements; products have been wearing out for 18 months of deferred buying; security values up $20B since Jan. 1; easy credit; record-breaking savings deposits. Last year there were few rallies on which to sell; this year there have been few dips on which to buy. Public interest has grown this year, but is still small compared to 1928 and 1929; “a market with a growing public interest is a dangerous market to sell short.”

One trader was buying oil shares 3 years ago, based on predictions the US would exhaust its reserves in 10 - 20 years; recently, he switched to shorting them based on the belief oil is too abundant, with one authority estimating a 500 year supply.

Editorial: Agriculture Sec. Hyde claims credit for the Farm Board's maintaining domestic wheat prices well above the world level. If the total costs of this effort were counted, this would clearly be seen as a misguided effort; in particularly, it will be hugely expensive to continue the support through this year's crop.

S. Insull, utility leader: "While we suffered from a very great depression of business last year, we suffered more from the fact that people lost their heads and indulged in a hysteria of despair ... This fear seemed to disappear with the close of 1930," and confidence is starting to recover. Business improvement is slight but visible; "I think there is enough improvement in general sentiment and in business generally to justify saying that we feel hopeful as to 1931, and that is all that can be said at this time. I think everybody can do his part toward restoring business ... by taking an optimistic view of the situation."

Economic news and individual company reports:

Fed. Reserve review for Jan. 1 - Feb. 15 reports bank suspensions declined sharply in first half of Feb., and a number of closed banks resumed operations. Industrial activity increased slightly less than usual seasonal amount, while factory employment and payrolls declined.

Refineries ran at 63.6% in week ended Feb. 21; stocks of gasoline increased 749,000 barrels to 43.608M. Crude oil production in week ended Feb. 21 was 2.159M barrels/day, up 28,526 from prev. week but down 540,312 from a year ago. Oil production in new East Texas fields doubled last week to 25,300 barrels/day; potential seen much greater; major company officials concerned about effect on prices; many of the leases are small, with owners looking for "immediate and complete exploitation." Standard Oil of Calif. reduces wholesale gasoline price 2 cents/gallon to 14 1/2 cents.

Steel production in week ended Monday was at 52% vs. 50.5% prev. week, 49.5% two weeks ago, 80% in 1930, and 83% in 1929; US Steel rose to over 53%, highest rate this year. Weekly steel reviews report continued gradual increase in production, though buying still cautious; some price rises in finished products being discussed, though outlook is unclear; scrap prices slightly firmer.

NY County Grand Jury continues Bank of US probe; now considering whether directors were guilty of misconduct. Directors and officers of failed Bancokentucky named defendants in suit for $60.8M filed by receiver.

Agriculture Dept. reports weather favorable for crops in past week; rains have continued in most sections.

US electric output for week ended Feb. 21 was 1,680 GWHr, down 3.6% from 1930, vs. a 4.7% decline prev. week and 5.9% two weeks ago.

Northwest Bancorp. reports 1930 gross revenues of 184 non-utility corporations operating in their territory were $639.4M, down 9.2% from 1929.

R. Gibson, Commonwealth Bank of Australia chair., says it's not function of banks to appeal to the community not to send funds out of the country; “It can be pointed out, however, that those who indulge in this direction are definitely increasing the difficulties which are facing the country in meeting its overseas obligations.”

Texas rails seek permission from ICC to compete with truck lines by cutting freight rates on cotton. Western rails to discuss problems of passenger traffic at meeting Thurs. in Chicago to be attended by ICC Commissioner Mahaffie. The ICC has been reluctant to help the Western rails by granting higher freight rates until they take steps to fix conditions in the passenger field.

On a list of 40 representative cos. reporting higher earning per share in 1930 than 1929, there were 9 utilities, 7 food and beverage cos., and 5 tobacco cos.

Companies reporting decent earnings: Consolidated Gas of NY, Public Service of Northern Illinois, American Safety Razor, Mortgage Guarantee of Los Angeles, Butterick (sewing patterns).

Entertaining-sounding books:

Real Wages in the US, 1890-1926, by Paul H. Douglas; Unemployment Benefits in the US, by Bryce M. Stewart; League of Nations, Ten Years of World Cooperation, by Secretariat of the League.

Poem by A. Ellard:

"Out of the gloom that covers me, dark and dank as grave's grim sod,
I thank what lucky stars there be, For my imperishable 'wad'. ...
It matters not how fares the soul, So sorely tried by Wall Street's god;
I am the master of my 'Roll'; I am the captain of my 'Wad.'"

[Note: This is a much better version of the poem 'Invictus,' by W.E. Henley:
"Out of the night that covers me, Black as the Pit from pole to pole,
I thank whatever gods may be, For my unconquerable soul. ..."]

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