April 3, 2010

Friday, April 3, 1931: Dow 169.89 -0.93 (0.5%)

Assorted historical stuff:

Ford Motor is in a much stronger financial position during this "protracted depression" than the last one in 1921, when it ran into a cash shortage. 1930 earnings were about $55M, on world production of 1.5M cars and trucks, vs. $81.8M on 1.95M in 1929; cash resources are over $300M. Henry Ford seems serene in face of distressing conditions, and has been content to lose some market share this year rather than engage in intensive sales campaigns. Expansion plans are going forward as usual; plants are being built at "Bombay, Calcutta, Madras, and Multan" to assemble and distribute cars throughout India; further progress has been made on rubber plantations in Brazil; additional iron ore land has been acquired in Michigan, as well as natural gas prospects in Pennsylvania. Ford is also working on project to "agriculturalize industry" by finding new uses for farm products; scientists at the Dearborn lab are working on substitutes for many materials now used in auto production, and Ford recently bought several thousand acres in Michigan for use as an experimental farm, at which workers freed up by inventory taking in the summertime can be employed. The 20 million'th Ford car will come off the assembly line about April 14.

Editorial: The Justice Dept.'s recent campaign against trade associations including the Bolt, Nut, and Rivet Mfrs., the Asphalt, Roofing, and Shingle Institute, and, most recently, the Sugar Institute, is likely to hurt business confidence by making members of over 2,000 other trade associations unsure of their legal position. This is particularly true of the sugar complaint, which uses charged phrases such as "increasing profits," "coercion," "blacklisting," and "spies." The facts hardly support charges of excessive profit; the largest sugar refiner is earning less than in 1918-19, when the industry was under government control. If govt. is really interested in protecting consumers from high prices it might look into the duty on raw sugar imposed by a few Western Senators, which almost doubles price of refined sugar.

Editorial by T. Woodlock: No fewer than nine electric utility bills have been introduced in the NY State Legislature by Democratic leaders; these bills, together with the remarkable recent law that prohibited utilities from contributing to relief funds, clearly demonstrate "intense dislike and hostility toward" private electric power. Source of the emotion is plainly the industry's relative prosperity over the past decade. While abuses have occurred, there has been nothing like the checkered history of early rail development; in fact, there has been steady development of service and lowering of rates. Rather than excessive rates, the industry's chief offense is that it's earning 7 1/2% on invested capital of $12B, "and that is more than some of us ... can endure to see. ... 'But,' many may say, 'it is the same thing! Reduce profits and you will reduce rates.' It may be so, but all human experience is against it."

Campaign against Mediterranean fruit fly ends as Federal inspection in Florida is discontinued after no evidence of infestation found; campaign started in April 1929, when discovery of the pest appeared to threaten Florida citrus crops.

Port of NY Authority signs contract to insure Holland Tunnel and new Hudson River bridge at 178 St against damages; tunnel insured for $30M, bridge for $25M.

Scientific research into the formerly obscure metal aluminum, largely sponsored by Aluminum Co. of America which has half the world's production, has created hundreds of new uses. Initially popular in kitchen appliances, it is now used in "airplanes, ink, furniture, cables, paint, nails, tableware, pipes, auto parts, fireworks, welding powder," and for many building uses. US now refines 200M pounds yearly; it's estimated that aluminum forms 1/12th of the earth's crust.

Sir William Mills, inventor of bombs used by the Allies during the World War, is now experimenting with bulbs in a garden on the French Riviera. Over 75M Mills bombs were used during the war.

Number of German mark millionaires has declined from 10,000 before the war, inflation, and reparations "melted the country's wealth away," to 4,000 now.

American Locomotive has enclosed along with its Q1 dividend check a circular describing its new 780,000 pound, 108-foot locomotive that reads like a car brochure: “triumph of dynamic symmetry combining immense power, high speed, ... and grace of lines.” It boasts a “starting effort” of 85,060 pounds, which will no doubt appeal to the car enthusiast fond of “leading the charge after traffic lights change.”

Market commentary:

Market wrap: Stocks showed considerable activity in spite of influence of Passover and Easter holidays. Market sluggish in first two hours, with bears successfully attacking isolated stocks including Allied Chemical, Worthington, and Vanadium; utilities also weak. Selling intensified and broadened to leaders at mid-day, with Steel hitting a 1931 low below 138. However, bears were unable to force heavy liquidation, and a brisk rally broke out in the final hour as many traders covered short positions before the holiday. Bonds mixed; US govts. little changed in spite of announcement of large new issue Apr. 7 or 8; foreign mixed with European strong but S. American irregular; corp. high-grade in demand but rail, speculative and convertible issues heavy. Commodities soft; grains mostly somewhat lower; cotton off moderately. Silver declined 1/2 cent to 27 5/8; silver brokers puzzled, since statistical situation continues favorable; selling reported from China and India.

Conservative observers believe technical rally is overdue, may come Saturday; advise clients to take advantage by reducing long positions; continue to favor stop-loss orders. Believe market will be more selective when it does stage a lasting advance; advise sticking to companies that have good earnings and outlook.

Brokers report public attitude toward the market in the past few days has been one of "watchful waiting."

A repeat of the heavy forced liquidation that took place in late 1930 is considered unlikely; "stocks are in stronger hands, and many security owners have greater confidence regarding the long-term outlook," so are unlikely to "throw over their shares" as they did last fall, when banks were failing in many areas.

Berlin stocks continued higher in past week, though volume was low; discount rate cut of 1/2% to 4 1/2% expected soon.

Kreuger & Toll has been relatively well supported during recent declines; buying may reflect European interests betting on political improvement; reports of pool operations not confirmed. US Industrial Alcohol rallied after it cut dividend to $2 annually from $6 instead of suspending it as expected, and end of alcohol price was announced. Responsible brokers are steering clients away from International Nickel, since it appears to be under pool control. IT&T is subject of rumored foreign buying; a small pool is also believed operating in the stock.

Jackson Bros., Boesel & Co. note this is season when chain store sales increase; see interesting possibilities in Woolworth, Grand Union, and J.C. Penney.

Broad Street Gossip: The Street reports a large percentage of recent short selling has come from “three big bears” who were very successful last year. GE is said to be target of heavy short selling by several large operators, though “history teaches us that no one ever made money selling GE short for a long pull.” Recent market has been difficult to trade, with declines seven days in a row; traders averaging in or buying on signals such as decline in volume are out of pocket. Preferred stocks are leading the lists of new highs, though common stocks of the same companies are near the year's lows.

Rep. J. Parker (R, NY) says consummation of 4-party Eastern rail consolidation plan will be decided aid to recovery; predicts adoption would be followed by over $500M of spending on improvements; believes plan will be filed with ICC within 2 weeks.

Editorial: Now that the Farm Board has decided to stop supporting wheat after the current season, why continue supporting it now? This only adds to the huge surplus to be sold at a loss. At a time of Treasury deficits, it doesn't make sense to keep buying more wheat on which the loss will be about 40 cents/bushel.

Economic news and individual company reports:

GM balance sheet strengthened in 1930; inventories were cut $52.2M to $136.3M; cash and marketable securities rose $52.2M to $179.0M; working capital rose $29.7M to $281.0M. GE is keeping tight control of inventories; as of Dec. 31, they were $60.1M, down 24% from a year earlier, and lowest in 10 years. Ratio of inventory to sales was 16% vs. 19.5% a year earlier.

Interior Sec. Wilbur says oil importing cos. have shown "fine volunteer spirit" [in agreeing to curtail imports]; sees hope of solving present oversupply crisis in oil industry if oil producing state authorities and operators show same attitude.

US business failures in March were 2,604, a record for that month but only up 1.5% from Feb.; liabilities were $60.4M vs. $59.6M in Feb. Total failures for Q1 were 8,438, also a record for the period and up 15% from 1930; liabilities of $214.6M were up 27% from 1930.

Fed. Reserve reports money in circulation Apr. 1 up $74M to $4.621B, total Reserve Bank credit outstanding up $85M to $943M. Member banks in NY City report brokers' loans down $33M to $1.875B; loans on securities to non-brokers down $38M to $1.792B. Money market was quiet over the month-end despite brief firming in call money; easier outlook seen for next 10 days. Deposits of 21 largest NY City banks and trusts as of Mar. 25 were $9.049B, down from $10.075B on Dec. 31 but up from $8.231B a year earlier.

All member banks of the Los Angeles Clearing House Assoc. will cut rates on savings deposits 1/2% to 3 1/2%; similar reductions have been made or are expected in other areas, including Boston, San Francisco, and NY City. This is expected to strengthen the market for bonds that savings banks can legally buy, particularly municipals. Dow average yield of 20 long-term city and state bonds is now 3.87%.

Gold imports to NY in Q1 were $84.911M; only $100,000 was exported, for net gain of $84.811M; net gain in Q1 1930 was $111.985M.

Dow average of 8 iron and steel products was unchanged at $44.23, low for 1931.

Bank of England reserve position weakened sharply in past week, but this is believed due to temporary end of quarter factors.

Registered British unemployed Mar. 23 were 2.580M vs. 2.640M Mar. 16 and 1.639M a year ago.

World sugar conference in Paris adjourns until after Easter to allow Dutch delegates to reconsider demands; important details remain unsettled.

Annual meeting of the world's largest corporation, AT&T, costs about $25,000, of which $23,000 is for postage to mail the meeting notice and proxies.

Pennsylvania RR plans to buy and recondition four ships to operate weekly service between Philadelphia and Europe.

Final figures on March Chevrolet production show 79,603 cars and trucks, 4,000 above preliminary report, 18% above April, and most since May 1930.

Pullman (passenger rail cars) in Feb. announced its first monthy loss from operations in years.

Companies reporting decent earnings: United Gas Improvement, Peninsular Telephone, Assoc. Portland Cement Mfgs. Ltd.


The Finger Points - Second film to open in a week based on murder of Jake Lingle, Chicago reporter [shot dead June 9, 1930 in a crowded pedestrian tunnel under a Chicago train station - murder shocked the nation and Lingle was hailed as a martyr, until it was discovered he was on Al Capone's payroll]. Starring Richard Barthelmess and Fay Wray; once again, Clark Gable plays the gang lord who orders the killing. This time the writers come closer to telling the truth about events leading to the killing. However, though "the individual scenes are handled with resourcefulness and competently acted ... the trouble with the film is the incredibility of the plot and treatment of character."


Clergyman - Brothers and sisters, I will preach to you this morning on the present style of women's wearing apparel, taking my text from the Book of Revelations.

"The Smiths are on the balcony and can hear what a young couple are saying in the garden below. Mrs. Smith - 'I think he wants to propose. We ought not to listen. Whistle to warn him.' Mr. Smith - 'Why should I? Nobody whistled to warn me.'"

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