March 16, 2010

Monday, March 16, 1931: Dow 180.78 +1.87 (1.0%)

Assorted historical stuff:

Editorial by T. Woodlock: It's clear the doctrine of laissez faire, laissez aller that has guided “classical” economists for a century, is now obsolete; the world economic system is so complex and interdependent that some coordination is needed. However, this doesn't mean that governments should do the planning, as is suggested anew with “each succeeding depression in recent times.” A better alternative would be, despite our antitrust laws and the vestigial attitude behind them, to find a way for industries to achieve better coordination and control, without surrender of individual initiative.

Sir Josiah Stamp, British economist, agrees with J.M. Keynes' plea for 15% British duty on manufactured imports and 5% on raw materials; believes proposal's risks less serious than doing nothing; favors tariff not for protection but to raise price levels, so it should be removed when price index reaches appropriate level.

In year ended Mar. 29, 1929 Britain had 500-600 millionaires, a larger number than the US. Highly recognizable names included the Lord Derby, the Aga Khan, and Lord Dewar.

T. Shotwell of H.L. Horton & Co. sees weakness of Communism not in redistribution of wealth, since "there is plenty in the world for everybody," but in its elimination of "individuality of thought and effort" and reduction of the crowd to machinery, so that "once the master goes wrong, the whole machine is worse than useless. ... either success or failure in the Five Year Plan threatens to put the common people back into the serfdom from which they were so recently released."

Editorial complaining that "Congress is determined to maintain the subjection to 'death duties' of every conveyance or trust which might conceivably have the effect of avoiding inheritance taxation."

Washington report: US agricultural interests seen favoring Philippine independence since it would allow protecting some US products with tariffs. Little practical effect seen from Progressive committee on special session of Congress. Based on Gen. Hines figure of 1M applications for veterans' bonus loans, it's clear cost will be well over $500M.

Postmaster Gen. Brown announces daily air service will expand 10,750 miles starting Apr. 1, to 75,555 miles/day, including first through service between coasts.

B. Balchen of Bergen County Chamber of Commerce recommends the County buy Teterboro Airport, now under contract to be sold to GM; believes Teterboro and not Newark destined to become center of Eastern aviation activities.

Washington landmarks now posing a danger to planes. 550-foot Washington Monument is serious menace to night flyers, being close to the main airports; several pilots have reported narrow escapes, and a beacon is to be placed on top. Recently a night airmail flight avoided crashing into the Capitol dome by inches during heavy fog; this is now lighted during night and fog.

Boulder [Hoover] Dam preliminary construction work to begin May 1.

Dr. H. Eckener, Graf Zeppelin commander, says little chance of joint US-German operated transatlantic service before 1933; establishing service will depend on action by Congress on mail pay.

Dr. J. Wilson predicts leather industry will be released from 11 years of depression by newly developed leather floor covering that will use the 1M surplus hides now in storage; also sees possible use as shock absorber in automobiles and railcars, where it will prove superior to rubber.

General Baking Corp. to incorporate Vitamin D in leading brand of bread.

Bank of NY & Trust Co., first bank in the city, was established 147 years ago on Mar. 15, 1784; Alexander Hamilton wrote the bank's constitution.

Entertaining story by H. Alloway about a day in the life of Diamond Jim Brady: he made $759,000 by acting as middleman in a stock buyout deal, but also lost $500 on another stock one of the participants in the deal was sponsoring. This loss was to be the subject of endless complaint; whenever the subject of stocks came up, James said he would have nothing to do with the market; he had "played, staked, was cured forever!"

A new street "racket" plays on strong emotions on both sides of the Prohibition issue.A clean-cut "state agent" gets equal numbers of blue and red buttons, the blues labelled "Strict Enforcement" and the blues "Repeal." Quickly sizing up approaching prospects, he sells them the appropriate button for their sentiments. Furthermore, each button gives buyer the privilege of signing a "petition to Congress," demanding enforcement or repeal as the case may be.

Market commentary:

Market wrap: Stocks rallied moderately, avoiding the dreaded bearish signal that would have occurred had they fallen below trading range established in the past two weeks. Strong spots included utilities, motors, and Woolworth. Bond trading quiet, US govts. down slightly; foreign steady; corp. high-grade steady to firm; low-grade irregular. Commodities irregular; grains mostly off slightly in confused market; cotton barely changed.

Week in review: Stocks unsettled by NY Central and other dividend cuts, actual and expected. However, fair support came in and even reaction in rails remained within technical bounds; fact that stocks have remained in current trading range for so long seen favorably; resistance to bad news indicates market is in "liquidated state." Earnings mostly bad, but some good economic news: sharp rise in silver increases buying power of some 900M people; at home, various trade reports were moderately encouraging, and retail trade felt "stimulus of soldier bonus expenditures." Rise of $34M in Fed. Reserve credit seen as encouraging indication of expansion in credit. In spite of stock decline, security loans to brokers and non-brokers both rose, the latter for the first time this year; this may have been due to temporary factors including tax payments and new bond issues. High-grade and foreign bonds continued to show strength, and another $262M of new issues was easily absorbed, but rail and speculative issues turned sharply weaker on Thursday. Berlin stocks strong, while Paris market rallied Friday after sharp losses earlier. Grains traded in narrow range in spite of news rather bearish on wheat and bullish on corn. Cotton mostly sagged. Steel production continued gradual advance, but observers expecting a price hike were disappointed by Carnegie Steel's announcement of no changes.

Conservative observers still cautious, on sidelines; believe this week will be important, may indicate next major move; would see favorable sign if leading stocks hold above last week's lows and break upward on higher volume.

Considerable selling has developed in stocks whose dividends have recently become suspect. Issues affected include Baltimore & Ohio RR, Bethlehem Steel, and Westinghouse. Even GE is said to have suffered some cancelled buy orders as customers wait for the company's report. Several brokers are recommending preferred stocks that have ample dividend protection.

Selling has come into some low-priced stocks that just a few weeks ago were in favor on the theory they could rally by large percentages.

Various technical factors seen favorable for stocks: short interest up substantially in the past 10 days; some of the more fast-paced trading tactics using combinations of options and stocks have been discontinued as bull traders grew discouraged; most traders again are looking for a wide open break in the market. Market is now in the "most liquidated position on record"; thus, we're not likely to repeat last fall's experience when many were forced to sell regardless of price. Indeed, stocks have shown surprising calmness in face of recent bad news. Unlike last year, number of new yearly highs has been exceeding new lows.

With poor expectations now firmly established, "the market would depart from precedent should it display great alarm when the concrete figures are published. For this reason, it appears unlikely that demoralized liquidation will again be seen." Pessimism over slowness of business revival seems excessive; "recoveries from severe depression are traditionally tedious."

Economists are awaiting a statement on taxes due the Federal govt. today; most expect a decline worse than recent estimates.

Editorial: The high valuation assigned the Michigan Central Rwy. will doubtless be seized on by "railroad baiters" (NY Central is to pay $1,550/share for remaining stock). However, this is a special case; the railway was almost entirely owned by NY Central; with that powerful railway at its back, it had no need for independent financing, allowing the stock base to remain small.

Broad Street Gossip: Much of recent reaction in stocks has been due to profit-taking, but short-selling is also a considerable factor, some of it "amateur." Rails have fared worst in the decline, and are now only a little above 1931 lows; industrials have done better, and utilities relatively best. Feb. copper production was down 39% frm Mar. 1929, and lowest in a number of years; however, reduction in surplus inventories is moving slowly. A leading chain store with a large cigarette business believes a price hike is imminent that would give manufacturers 20% more after taxes. New bond issues are largely financing construction, and so "will put many idle dollars to work."

W. Cumberland, former State Dept. advisor, defends US entitlement to war debt payments; points out 1929-30 payments of $215M were only 0.5% of debtor countries' national income and 2.5% of their budgets.

Col. Ayres of Cleveland Trust says while first quarter “continues to produce evidence that the bottom of the business depression has been reached,” signs of real upturn aren't evident; improvement in most lines is no more than seasonal; recovery likely to be a slow process.

Economic news and individual company reports:

Friday the 13th passed without any untoward occurences, though in Wall Street's tradition of superstition, brokers report hundreds of their customers won't trade that day and some get out of the market the day before.

C Schwab, Bethlehem Steel chair., likely to appear before Pennsylvania House Utilities Investigating Commission to answer questions about his alleged domination of city of Johnstown through steel interests.

Fisher's wholesale commodity index remained at 76.0 after gaining slightly in prev. week for the first since Dec. 5.

Arkansas situation seen improving; while state has been in distress after almost total crop failures due to 1930 drought, 62 of the 144 banks that closed after July 1 have already reopened; in addition, Federal drought relief loans and the Agricultural Credit Corp. program are expected to help substantially.

Statement of Pres. Hoover on need to curtail East Texas oil production seems to have spurred state officials into action.

Capital gains [from sale of real estate, securities, and other assets] in 1929 were $4.556B, or 15.84% of total income, only slightly below the peak 1928 year despite the late-1929 slump. The 1930 total will be much smaller, which will be one factor in reducing tax revenues.

Foreign bonds offered in the US in 1930 were $905.3M vs. $671.2M in 1929; British total was $557.6M vs. $541.5M. Of the 1930 total, $333M was Canadian, $254.5M South American and $232M European.

S.W. Straus reports Feb. building permits in 545 cities were $111.4M, up 6% from Jan. but down 14% from a year ago; usual seasonal increase is about 9%.

Negotiations for French loan of $39.2M to Poland almost complete; loans to Yugoslavia, Greece, Italy, and German interests also pending.

Northwest railway experiments in lowering passenger fares to increase traffic have so far been disappointing.

Calif. Grape Control Board suggests immediate destruction of enough vines to reduce next crop approx. 240,000 tons.

Improvement in auto industry is particularly sharp for Studebaker and Oldsmobile; Studebaker's sales this quarter will only be down about 15% vs. 35% for the industry, while Oldsmobile March production is scheduled to exceed the March 1930 level. A high Ford official says he expects to be back to normal production by mid-April.

Companies reporting decent earnings: US Pipe & Foundry, Standard Cap & Seal, Pet Milk Co., Telephone Invest. Corp. (Philippine phone system).


'But Madam, you have no claim. Your husband didn't insure his life; he took out a fire insurance policy.' 'Well, that's what I'm claiming. I just had him cremated.'

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