March 30, 2010

Monday, March 30, 1931: Dow 174.06 -3.24 (1.8%)

Assorted historical stuff:

Pres. Hoover reportedly directed a group of Republican Senators to reorganize the Republican Nat'l Committee before departing on Carribean trip. Report is circulating that Pres. Hoover may pick Theodore Roosevelt, Jr., now gov. of Puerto Rico, as running mate in 1932.

Editorial: Although it's apparent that real estate is paying an unfair proportion of local taxes, practically no legislation for relief has been enacted. Possible sources of new revenue, including a state-licensed liquor traffic and adjustment of income taxes, are apparently too politically risky, while demand for "liberal" government expenditures only increases in hard times. "The payer of rent lacks 'tax consciousness,' but he wants every benefit that comes from government distribution of tax receipts. ... The fact seems to be that real estate will continue to be the goat."

Editorial by T. Woodlock: In the past 30 years, US Steel has accumulated a large surplus of undistributed profits. "This surplus belongs in the fullest sense of the word to the common stockholders." In times of depression, corporations should reasonably draw on surpluses to continue dividends; only if this is done are corporations justified in withholding earnings to accumulate a surplus in prosperous times. "Granted that stockholders will probably spend their dividends as they receive them, it may also be suggested that large sums of idle cash are a great temptation to managements."

Aviation trend toward integrated manufacturing and airline companies continues; this allows development of new designs to be coordinated closely with airline requirements. Most prominent example is United Aircraft & Transport, with its Boeing and National Air Transport subsidiaries; others are Aviation Corp.of Delaware, Curtiss-Wright, and the recent grouping of General Aviation with Western Air Express.

D. Replogle of the Jenkins Television Co. predicts television broadcasting will be underway in all large US cities by fall.

A British visitor to the Ford River Rouge plant's huge rustproofing (Bonderizing) area: "If I had all the rustproofing business of the British Empire I wouldn't have but a fraction of what I am now looking at."

Julian Huxley [brother of Aldous, later a major figure in the development of the "modern synthesis" version of evolution] notes Europe now has 18M more women then men, believes this will lead to a superior feminine sex since many women will remain single, and so direct their abilities toward betterment of their sex and the human race as a whole, instead of taking care of husbands and babies. Notes women in England "realize they are doing outstanding things now ... and they let men know they feel on an equal footing with them." Astonished at the "way the average American girl expects and gets presents from men. The fact that a woman is willing to receive gifts all the time, indicates she feels she is inferior."

NY Appellate Division unanimously reverses $35,000 verdict for damages sustained from tripping over NY City sidewalk doormat: "To require a license for everything whatsoever upon the sidewalk or street would work a decided change in the customs and habits of those dwelling in the City of New York ..."

Market commentary:

Market wrap: Stock selloff resumed at the open and continued for rest of the session with only minor pauses; heavy selling in leading shares including US Steel and GM; declines throughout the list; ticker ran one or two minutes behind most of the session; extensive public liquidation seen, while demand aside from short-covering was negligible; decline picked up steam in last hour. Bonds irregular; US govts. somewhat lower; Australian issues rallied again but foreign generally heavy; corp. highest-grade and utility issues steady, but rails heavy; speculative and convertible weak with sharp breaks in some issues. Commodities weak; grains very weak, unsupported wheat months down sharply, corn down to lowest levels since 1922; cotton down moderately on quiet trading.

Week in review: Stocks declined following mixed business news; dividend cuts by majors including Westinghouse, B.&O., and Anaconda apparently disturbed the market; however, “the action of the general list gave reason to believe that it was bumping along bottom rather than entering another period of general liquidation.” German stocks rose on “Reichstag's quick and successful work.” Money market quiet; call money was at 1 1/2% aside from brief flurry to 2% Thursday. Fed. Reserve reports indicated credit liquidation continues; reserve credit outstanding declined $40M to $858M, lowest since 1924. Bond market mixed; US govts. active in narrow range, slightly below previous week; foreign issues heavy, sharp break in Australian; corp. highest grade steady to firm, particularly utility, but rest of list irregular. Foreign currencies irregular; marks strong; loan to Spain announced to support return to gold standard. Commodities fluctuated; wheat slumped following Farm Board decision to stop stabilization; July wheat hit 58 1/2 cents, lowest since 1895, but rallied following announcement of 82 1/2 cent minimum price for selling surplus, ending week at 61 cents. Cotton absorbed heavy liquidation impressively, ending the week only moderately lower.

Conservative observers note generally more pessimistic sentiment, but advise watching developments closely this week, pointing out that if the decline meets resistance, astute traders might be able to profit by buying during periods of "outstanding weakness."

Bulls discouraged by 3% decline in Youngstown district steel rate, seen as indicating output may have peaked for the first half; steel shares heavily liquidated; decline in auto sheet demand was taken to indicate slowdown in car production. Poor action of rails on Thurs. and Fri. was also disturbing, since Dow rail average approached the year's low; rail earnings reports for Feb. have been poor and more dividend cuts are feared. Little attention was drawn by more favorable news items including weekly trade reviews and optimistic statements by GM pres. A. Sloan.

Reactions last week triggered large numbers of stop orders; these now seem to be more popular, with many longs using them to protect accounts and raising limits during rallies; this resulted in considerable selling on the first sizable reaction. Rumors of weakness in steel and iron scrap affected the stock market at times last week, since many students believe scrap price trends predict those in finished steel prices. Many transactions in the scrap market are done privately, and a large supply is believed hanging over the market.

Many big operators who were active bears much of last year are back on the job; one has a short line of over 100,000 shares. Majors including US Steel, GM, B.&O., Eastman, and Westinghouse are among the most heavily shorted. Short-term traders have also switched extensively to the bear side, influenced by return of the big bears and by bearish signal given by rail decline. However, the big bear interests were just as outspoken at the market bottom last Dec., when the current recovery began. While business conditions haven't justified continuation of the rally, there is “undeniable” evidence that business has hit bottom and is slowly turning around; strong hands are therefore likely to support stocks at about the yields offered at the 1930 lows. Meanwhile, short interest is again growing large and, due to increasing business confidence, it's unlikely bears can again get a period of “convulsive liquidation” in which to cover as in late 1930.

Broad Street Gossip: One banker believes that while it will take time for business to improve much, stocks will rise based on future expectations. “A few months from now will mark two years of business decline, and history teaches that business declines of the past have not lasted more than two years. This has been the longest period of market depression we have ever had.” If money was tight, we might expect recovery to be delayed, but corporations have more cash than ever, while people are increasing savings and absorbing over $500M a month in new securities. While the Dow industrial avg. is 12.61 above the year's low, many stocks are close to or at their lows for the year.

Editorial against two new prescriptions for farm relief that the "senatorial apothecaries, wrapping their togas about them," have come up with: the equalization fee (a sales tax on farm products, used to create fund to remove surplus production) and the debenture (export bounty). The latter, which is more likely to come before the next Congress, would be costly and might lead to foreign reprisals.

A. Sloan, GM pres., predicts gradual business recovery and good years in 1932 and 1933; says depression has demonstrated beyond doubt soundness of installment buying; GM hasn't cut wages and doesn't plan to at present, but continued low commodity prices would eventually require wages to be adjusted.

Economic news and individual company reports:

Youngstown district steel output will decline 3% to 48% this week, due to unexpectedly sharp decline in sheet manufacturing, slump in automotive bookings.

NY Central operating income, considered a good barometer for the rail industry, has dropped sharply so far this year. For first 2 months, net was $3.428M, vs. $9.722M in 1930, and loadings in March so far have been poor. Barring a turn in business soon it's unlikely that Central will be able to earn its dividend this year, even after the recent cut from $8 to $6.

Amer. Petrol. Inst. reports Jan. gasoline consumption in 46 states was 824.8M gallons, up 11.5% from 1930; a “ray of light in the present oil situation.”

Bethlehem Steel defends executive bonus system in court filings; says suing shareholders only represent 0.08% of stock; denies charges against system; notes approval of bonuses since 1917 will be put to shareholder vote at annual meeting Apr. 14. Lorillard stockholders place half-page ad against revision of employee stock plan lowering purchase price from $20-$30/share to $10; acknowledge co. is doing very well and favor “liberal provision” for officers and employees, but believe plan is unfair; ask for proxies to fight it.

Fisher's wholesale commodity index resumed decline to 75.6, after holding at 76.0 for three consecutive weeks.

Feb. meat sales by representative US packers were down 7% from Jan. and 28.5% from a year ago; decline was due to price declines for almost all meats and lower consumption during Lent.

Texas Railroad Commission continues hearings on oil curtailment with testimony that East Texas area is having disastrous effect on entire US market structure.

Crude oil purchasing prices in Calif. fields for better types are about 50% below a year ago; for example, 25-gravity is down from $1.20/barrel to $0.57-$0.67.

Australian bonds now subject of debate, with some in the bond community arguing the announced plan to default payments in London is merely a ploy to force adjustment of rates on Australia's war debt to Britain, now at about 5% vs. 3% for British war debts to the US.

Spanish loan for currency stabilization and return to gold standard was reportedly boycotted by British bankers who argued Spain could use its large gold holdings for that purpose.

NY City's emergency employment committee, now employing 21,500 with privately raised funds, won't be able to continue most employment after Apr. 8; Board of Estimate approves bill to be presented to Legislature immediately authorizing city to spend $10M to provide work.

Canadian Pacific Railway, despite sharp decline in 1930 earnings, continued policy of substantial spending on capital improvements; stock offering likely in 1931.

Douglas Aircraft (military planes) expects record sales in 1931.

Companies reporting decent earnings: Long Island RR, Cuneo Press (commercial printing), Centrifugal Pipe, National Distillers Products (medicinal whiskey), Mississippi Valley Utilities Investment (controlled by Middle West Utilities).


The Conquering Horde - Starring Fay Wray and Richard Arlen. Tale of corrupt politicians in post-Civil War Texas. "Plot steps ... are artificially motivated" and "acting of the principles is seldom any more convincing"; few of the "you-alls" are enunciated with "appropriate Southern understanding." However, stage show that accompanied the movie "more than compensated," featuring Bill [Bojangles] Robinson, Cab Calloway and his Cotton Club Orchestra, a large chorus, and two excellent comedians; the "stirring presentation" more than justified its name "Hot From Harlem."


Letter to a lawyer: "My husband got struck by an automobile, No. 6B4872. If the owner is rich, sue him at once. He wasn't bruised any, but on your notifying me that you have brought suit, I will hit him in two or three places with a hammer."

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