March 28, 2010

Saturday, March 28, 1931: Dow 177.30 -4.40 (2.4%)

Assorted historical stuff:

Report of a party of Japanese business leaders after recently completed tour of 26 US cities: "Our outstanding impression in our tour of the US has been the manner in which the American people are looting their natural resources. We, of Japan, who have been trained from infancy to save the smallest piece of coal, were amazed at the manner in which the Americans waste their resources of gas, power, water, paper and minerals."

Editorial: "Kangaroo Finance" - Govt. of Australia's proposal to exit the gold standard, put Australia on a purely "paper standard," and use gold reserves to pay debts "compares with some of the freak ideas that frequently appear in Washington. ... Apparently the greenback fallacy so vocal in the US over a generation ago has emigrated ..." However, it's unlikely the govt. will gain approval for the measure; in fact, it's likely the move will lead to new elections and the govt.'s downfall.

M. Gandhi wins backing of All India Congress, named head of delegation to second round table conference.

Editorial: The proposed Austro-German economic union has drawn fierce French opposition, but will likely be debated in a more reasoned way at the League of Nations council. US interests would be helped by any local adjustments that would improve European conditions. "Whatever the final settlement of these technicalities, Germany has boldly challenged the unavowed but dominant French theory that future economic relations must enshrine the memories of 1914-18." This conception of peace is impossible to defend. France reportedly will cancel 1927 Franco-German commercial treaty in reprisal for Austro-German union.

Washington report: Battle of the Democratic and Republican publicity handouts has now turned from farm relief to the relative corruption levels of NY City's Tammany Hall and Chicago's Mayor Thompson; for the first time in months, Democrats seem to be on the defensive. Fed. Reserve Board now has 2 vacancies; if G. James leaves as planned, it will be down to a bare minimum, making it urgent for Pres. Hoover to appoint a new member. This may be difficult considering the small salary and expected Senate confirmation grilling. Of course, new appointments aren't likely to result in policy changes since “the course for the board to pursue is plainly marked in the present situation”; however, the board still must meet to take care of routine business. Proposed antitrust modification will probably have to wait until after the 1932 election. Resignation rumors concerning Treasury Sec. Mellon and Interior Sec. Wilbur discounted.

Pres. Hoover, on Caribbean trip, says Puerto Rico has potential but Virgin Islands are "an effective poorhouse" that US was "unfortunate" in acquiring for $25M and will have to support indefinitely.

Asst. Sec. of War Davison warns that in case of emergency, the US can currently muster only 425 planes to repel enemy attack.

Western Union system on Dec. 31 included 217,458 miles of pole lines, 1.911M miles of wire, 30,757 nautical miles of ocean cable, and 24,298 telegraph offices.

De Forest Radio sues RCA for patent infringement; suit directed at newly introduced "theremin" musical instrument.

Sword carried by Sir William Wallace during his 13th-Century struggle for Scottish independence has been sold in Glasgow for 280 pounds.

Safe transit through NY Harbor for thousands of foreign steamships each year is in the hands of the Sandy Hook Pilots Assoc., a privately body operated under charter from NY and NJ with 119 licensed pilots whose services are available at all times. Yearly income of pilots reportedly runs into surprisingly large figures.

Market commentary:

Market wrap: After narrow fluctuations in the morning, stocks weakened further on heavier trading. Leading industrials sold off under "hammering" bear attacks, bringing heavy liquidation across the list; selloff eased off in final hour but continued, and day's lows were reached at the close. Bond trading more active; US govts. firm in spite of large new issue; Australian rallied sharply from previous break but rest of foreign list heavy; high-grade rail and utility bonds firm but general corp. list receded, convertibles particularly irregular. Commodities narrowly mixed; wheat somewhat higher, corn moderately lower; cotton barely changed. Copper remained at 10 cents, buying quiet. Silver declined 3/8 cent to 29 cents/ounce.

Market observers “sentiment has changed entirely” due to abrupt decline; no longer advise buying on reactions.

Bears encouraged by rail weakness Thursday, as Dow rail average approached the 1931 low. Bulls discouraged by market's renewed sensitivity to bad dividend news. NCR broke sharply after unexpectedly suspending dividend on “A” stock. Some high-priced shares that were prominent during the week's rallies declined sharply; Aluminum Co. of America was down 13 to 191.

In spite of renewed bear attacks, "it was evident from the resistance ... encountered, that the character of the support in the market was far better than it had been last autumn." In view of the extensively deflated market, "a strong belief prevails in important banking circles that no recurrence of the general liquidation of the final months of last year is likely to be seen."

Trading seen “becoming more 'professional' each day”; the public, “puzzled over conditions, ... are holding back purchases.”

Broad Street Gossip: Federal tax payments for the first quarter have been lower than estimates, and over $200M below a year ago. However, the govt. can take solace that traders' profits show a big gain so far this year. The Street is hopeful the 1930 experience of a good first quarter and bad rest of the year won't be repeated; "If it is, the government will be out of luck." The stock market has shown fair improvement in the first quarter based on the outlook for 1931, though few believe business progress will become substantial before the second half. Preferred stocks are in increasing demand, with some buy orders taking days to execute and many issues selling at $140-$150.

In spite of generally poor 1930 earnings, a number of large industrials maintained very strong balance sheets with net quick assets exceeding total obligations, including Texas Corp., Chrysler, and Allis Chalmers.

As long as copper stays about 10 cents/pound, few producers will earn their dividends.

Opposition of important Dutch producers to rubber restriction was disappointing; a week or two ago the trade was hopeful “another commodity would be stabilized which would, consequently, have a constructive effect all over the world.”

Dominick & Dominick say high US standard of living largely due to fact that US, with 6% of world population, uses over 50% of world industrial machinery. US now uses as much electricity as rest of the world combined; as a result of power driven machinery, productivity of the average US worker increased by 53% in the past decade vs. only 4.7% in 1899-1919. However, other countries, particularly those least developed industrially in Asia and S. America, are recognizing advantages of industrial machinery and increasing its use.

Economic news and individual company reports:

In spite of "extraordinary strength of the banking situation," credit liquidation continues. Fed. Reserve credit outstanding declined to $858M, lowest since before the war with exception of brief period in 1924. Member banks show no disposition to use Fed. Reserve credit, in fact tendency is to reduce it due to lack of demand. Decline attributed to light demand for commercial bank credit, increasing gold holdings, and low volume of currency outstanding.

NY State Banking Dept. has produced about $48M in cash from liquidation of Bank of US assets. However, other immediately liquid assets only total about $15M and outstanding deposits are over $120M. Protective bill to segregate thrift (savings) accounts in commercial banks looks blocked in NY State Legislature.

American State Bank of Detroit, with $43M in deposits, along with chain of related suburban banks, is under investigation following a “silent run” that developed Mar. 12. Peoples Wayne County Bank took over the bank the following morning, and the other Clearing House banks agreed to guarantee the deposits.

Dun's and Bradstreet's weekly reviews report continued increase in retail activity, though largely of seasonal nature, and improved sentiment. Bradstreet's reports continued “gradual ... but none the less perceptible gain in industrial operations”; Dun's “continued unsatisfactory aspects, but the hopeful phases are multiplying.”

Conference between main Eastern rails and union representatives ends in “jubilant” mood as good progress seen on addressing labor issues with proposed consolidation. It's confidently expected a plan will be jointly submitted to the ICC within 3 weeks.

Bond offerings so far in March are $635.5M, highest monthly total since Apr. 1928; good reception for recent offerings has revived discussions of new issues.

Joint French-US 18-month loan of $60M will be extended to Spain to stabilize currency and return to gold standard.

Underwriters left with 84 1/2% of 2M sterling Greek public works loan that fails to sell.

St. Petersburg bondholders committee urgently asks deposit of defaulted bonds so they can represent bondholders at upcoming Florida Legislature session.

Mahoning Valley steel makers concerned about price situation as Apr. 1 approaches; announcement that leading producers in the district would follow Carnegie Steel's price rise hasn't significantly driven new orders. Prices on heavier steel products are firmer than car sheet steel prices in spite of increased car production.

Farm Board encouraged by large cuts of 12%-24% in planned spring wheat planting, but it's doubtful this will be enough to meet their goal of confining production to domestic requirements. Board probably can't sell its huge surplus barring a dramatic crop shortfall, but grain trade is urging a definite announcement on the matter.

Agriculture Dept. announces has approved 133,874 drought relief loans totalling $20.440M, out of $45M appropriation.

Attorney Gen. Mitchell reports has started investigation requested by ICC, which charged all steel cos. are quoting the same price for rails.

Auto parts industry in Feb. continued improvement; index of shipments was 93 vs. 84 in Jan., 69 in Dec., and 138 a year ago.

World gold output in Feb. was 1.617M ounces vs. 1.554M in Feb. 1930; Transvaal produced 839,937 ounces, while Canada was next with about 200,000. First 2 months output was 3.377M ounces, up about 5% from 1930 and 1929.

French trade depression is reportedly causing consideration of general increase in tariffs to check losses.

Montagu Norman, Bank of England gov., arrives in US; won't comment on reports he's seeking US cooperation to establish bank to finance international trade.

Peru confirms will default on some bond payments Apr. 1.

Svenska Cellulosa to sell $13M of stock to Kreuger & Toll parent company to finance construction of plant.

Canada Dry announces completion of expansion program, will reduce retail prices 20% and launch advertising campaign to increase volume.

Company reports since Jan. 1: 257 companies reported higher earnings vs. 1930 and 1,015 lower; 1,015 dividends unchanged, 49 increased, 219 cut.

Companies reporting decent earnings: Otis Elevator, Knott Corp. (hotel operators).


Fifty Million Frenchmen - Adapted from the musical comedy by Herbert Fields and Cole Porter, but “shorn of its music and choruses by Warner Bros.” and presented as a straight comedy. “Administering such treatment to a brilliant musical show is little short of sacrilege, but ... the result might have been worse.”


"'Our son has great talent for boxing. What would be the best way to ensure his becoming flyweight champion?' 'Get a dishonest referee and bribe him.'"

"While eschewing mediocrity of expression through platitudinous phraseology, it behooves one to beware of ponderosity, and to be mindful that pedantry, being indicatory of an inherent megalomania, frustrates its own aim and results merely in obnubilation."

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