February 3, 2010

Tuesday, February 3, 1931: Dow 168.71 +1.16 (0.7%)

Assorted historical stuff:

Editorial: Letters recently received from farmers and rural bankers recall the extreme pessimism and resentment of the 1890's, "when populism stalked the land." As one Minnesota banker put it, "When circumstances dropped that gold into the lap of Wall Street, they did not recognize it as a stewardship but as a means to make more gold." These letters make it clear that "troublemakers in the House and Senate represent the folks back home more faithfully than is commonly realized." But farm communities must put aside emotionalism and realize that "capitalists, manufacturers, merchants, ... wage workers alike are taking the consequences of business reaction ... there is, therefore, no justification for civil war, in the political arena or anywhere else."

C. Mitchell, Nat'l City Bank chair., warns Glass committee that $3.5B bond issue for veterans' bonus would cause many small bank failures due to decline in bond values. Says current Fed. Reserve rates shouldn't be raised before recovery is clear, though in 1928-29 Fed. was slow to use higher rediscount rates to counter inflation. Cites capital gains tax as cause of both bull market speculation and bear market liquidation. Reasons for 1929 collapse in business included maldistribution of gold and war debts. Favors bringing all banks into Fed. Reserve system; against attempts to earmark credit for business rather than speculation; against most new regulation of bank affiliates.

Editorial: While the stock market speculation in 1929 probably had several causes, Congress should consider whether one of them was the capital gains tax, which may have made investors and traders with large profits unwilling to liquidate, instead holding on to stocks [on margin] and straining banks in the process.

Labor Sec. Doak charges many contractors on govt. projects have imported cheap labor and cut wages, contrary to agreements with Pres. Hoover.

Peru to seek moratorium on $100M foreign debt payments; govt. to follow conclusions of Kemmerer mission now studying country's finances.

German Reichstag to reconvene; Berlin stocks strong; political sentiment seen positive, though consideration of budget may prove difficult; Chancellor Breuning “has demonstrated his ability to control an unruly Reichstag and his determination to adhere to a sound program.”

Editorial by T. Woodlock: British Commission on Transport has common-sense recommendations that apply to the US as well: Railroads should stick to the rails, not enter highway transport field; lower fares to attract more passengers; reduce unnecessary competition; trucks should be taxed to pay their way but no more.

Income tax facts: Tax return forms have been sent out, but failure to receive a form doesn't relieve a person of the obligation to file on or before Mar. 16. Persons with income mainly from salary and wages, with total less than $5,000, can file form 1040A; others file form 1040.

NY State Chamber of Commerce opposes current NY City transit unification bill in spite of past support for unification, because plan would put the transit system under political control.

NY City's Third Ave. Rwy. [street railway] reports recent introduction of one-man car operation has actually lowered accident rates vs. two-man cars. Management attributes this to training and physical exams for one-man car operators; also, air-brake response time was reduced to 1 second from 3 seconds.

Col. J. Ruppert, NY Yankees owner, buys 36-story building that housed main Bank of US office for $9M (NE corner of 44th and 5th).

Survey of 475 Columbia Univ. graduates reports average annual income of $20,151.

34 major domestic airlines, operating over 50,000 miles of airways in North and South America, carried 385,910 passengers in 1930, up 133% from 1929; miles flown were 28.834M, up 42%. Less than 7% of the 53,000 trips scheduled were not completed; bad weather accounted for 91% of incomplete trips. There were 3.9M passenger miles flown per fatality. There were 1,113 US airports in use on Jan. 1.

Market commentary:

Market wrap: Stock trading very dull and in professional hands; stocks fractionally lower most of the day but recovered in late afternoon, leaving many stocks with net gains; some trading favorites including Auburn and Vanadium rallied sharply. Bonds mostly lower on dull trading; US govts. down; Peru bonds down sharply, but other foreign govts. steady to firm; corp. mostly down. Commodities quiet; grains mixed in narrow range; cotton little changed. Copper offered secondhand at 9 5/8 cents. Silver down 1/2 cent to new record low of 28 1/8 cents; dealers at a loss to explain decline.

Conservative observers continue to advise staying on sidelines, permitting "the market to indicate its next important movement before adopting a position."

More reasons that investors are staying on the sidelines: Congress still in session, political unsettlement, decline in silver, expected poor 1930 earnings, expected poor first quarter earnings.

State and municipal bonds, ordinarily very stable in uncertain times, have joined other bonds in reacting sharply over the past week due to the veterans' bonus. High-grade utility bonds have shown best resistance to recent pressure.

Reduced short interest in past week probably has weakened the market technically.

Car makers are said to be cutting expenses so that a 4M-car year will show satisfactory earnings.

Frazier, Jelke report their list of 100 representative stocks rose $1.557B or 7.5% in Jan. Largest gains were in amusements, 19.2%, oils, 15.4%, and rails, 10.5%.

Stocks of companies that recently reported poor earnings have been relatively steady, indicating the bad news had largely been discounted. However, shares haven't shown any tendency to rally either, as investors may be hesitating due to expected poor earnings early this year.

Broad Street Gossip: C. Denney, Erie Railroad pres., sees increasing public recognition and support for railroads; points out that in 1930, railroads invested $1B in their plant equipment though it wasn't needed to handle existing business. Many traders are now studying balance sheets closely, finding that many corporations did better in 1930 then one might conclude from the income statement alone. Managements of leading corporations including US Steel, AT&T, GE, NY Central, etc., are the most efficient in the world and should know what they're doing; "they continue to build, knowing that in time consumptive requirements will exceed present capacity. If everyone could forget the past and concentrate on the future, prosperity would be with us again in short order."

Baker, Weeks & Harden say indexes of economic activity declined almost uninterruptedly from April 1930 to end of Nov., but have shown a zigzag pattern since; business appears to have hit bottom; while recovery may not be under way, there's every reason to believe it's just a matter of time, probably a short time.

Harvard Economic Society repeats prediction business decline will end in first half, probably in current quarter, and “ensuing recovery will not be long delayed.”

W. Dickerman, Amer. Locomotive pres., says 1931 has "opened in satisfactory manner and things look much brighter for 1931, although progress will be slow for the first few months."

T. Watson, IBM pres., predicts not only IBM, but every “business appliance” co. will have a better 1931 than 1930.

G. Verity, Amer. Rolling Mill chair., discusses the depression. Business history of past 100 years is replete with “peaks of progress and valleys of depression”; fortunately, periods of progress are 3 to 4 times as long as depressions. Businesses “make hay while the sun shines” during active periods, then retrench and get rid of excess costs in depressions. Both progress and depression may become more intense as technology progresses. 1924-1929 was one of strongest periods in past 30 years; business began declining in July 1929 but was given a “hypodermic” in the fall through govt. and business action; this stopped the decline temporarily but it then had to enter the usual period of readjustment. Today, “business has paid the full price of its overdoing and has cleaned house thoroughly.” Consumption now exceeds production, wear and tear is going on as usual, inventories are low, and money is available; buying is ready to resume when confidence returns.

Economic news and individual company reports:

Testimony heard at Bank of US hearings on purchase of bank stock units using money loaned to bank affiliates by the bank; C. Stanley Mitchell, chairman, testified he had told Bernard Marcus, pres., and Saul Singer, exec. committee chair., this was "the worst banking practice he had ever heard of."

Chase National Bank retains title of largest in world, with deposits of $2.074B on Dec. 31 vs. $1.852B on Sept. 24. Of 75 largest US banks, 52 showed gains in deposits for the year and 43 showed gains since Sept. 24. Second largest US bank is National City, with $1.460B deposits; third is Guaranty Trust, $1.342B.

NYSE total transactions in Jan.were 42.5M shares vs. 62.3M in 1930 and 110.6M in 1929.

Opposition to oil tariff presented to Senate by A. White, Assoc. Industries of Mass. pres., and by H. Walker, representing the Amer. Automobile Assoc.

Preliminary estimate of 1930 domestic gasoline consumption shows 5% increase over 1929, down from 13.2% gain in 1929.

Canadian imports in 1930 were $1.008B vs. $1.299B in 1929; exports $883.9M vs. $1.182B. Canadian steel production in 1930 was 1.012B tons, down 26.6% from record 1929 level; Dec. total was 56,101 tons, down 22% from Nov. and 33% from Dec. 1929.

Cuban Pres. Machado orders limitation of 1931 sugar output to 3.1M tons, a cut of 33% from 1930, as part of world sugar curtailment plan.

Standard Oil of Indiana cuts quarterly div. to 50 cents from 62.5 cents, though previous div. was earned; says current oil industry situation requires highly conservative policy; co. may be concerned with effect of oil tariff on Venezuelan oil production.

Woolworth made noteworthy showing in 1930; sales and earnings were within 4.5% and 2.6% of record 1929 levels; profit on sales was 12.01% vs. 11.77%.

Companies reporting decent earnings: Penn Water & Power, Pacific Lighting, Wm. Wrigley, Mead Johnson (baby food), Lindsay Light Co.


Camille – Revival of play by A. Dumas, fils., starring Eva Le Gallienne. Gives a new up-to-date interpretation of the title character; “Camille no longer coughs. Instead, Miss Le Gallienne has laid her emphasis upon the more modern qualities of disillusion, half-mocking tenderness, and restrained emotionalism.”


"Irate Ball Player - I wasn't out. Sarcastic Umpire - Oh, you weren't? Well, you just have a look at the newspaper tomorrow."

'Why are you in jail again?' 'Mistaken identity.' 'Who did they mistake you for?' 'They didn't mistake me for anybody. I mistook a prohibition agent for a good customer.'

A Scotsman, having bought a radio set for his home, came back to the shop the next day with a dour face. 'What's the matter,' asked the salesman, 'doesn't your radio work?' 'Aye, after a fashion,' replied the Scotsman, 'but the tubes don't give enough light to read by.'

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