May 29, 2010

Friday, May 29, 1931: Dow 131.81 +1.05 (0.8%)

Germany special:

German consensus has developed even in “the most conservative minds” that drastic action is needed; problems include growing govt. deficits and debt, leading to interest rates of 8%-10% on formerly prime risks, new low records in stocks, and gains of Hitler faction in recent bye-elections; it's estimated a third of workers may be idle or working less than half-time this winter. Criticism has centered on injustice of Young plan reparations; it's argued the reduction in payments in that plan has been canceled by drastic commodity price declines since. Germany can suspend part of the payments, but doing so would have drastic consequences in practice, including capital flight and cutting off new credit; action from outside Germany would be preferable. European banking circles believe German govt. has "virtually decided" to use BIS mechanism for reopening reparations issue; Chancellor Breuning and British PM MacDonald will meet June 8, just before monthly BIS meeting June 10; Britain favors combining forces to win US support for cuts in debts to promote disarmament. French govt. strongly opposes any revision in reparations; points to costly military spending that could be cut instead.

Editorial by T. Woodlock [note: strange combination of obtuse and prescient]. Back in the good old day of wars between princes, combatants in wars maintained a limit on hostilities, making it possible although difficult to have a real peace afterward. The World War, however, was "between nations" making a real peace afterward almost impossible. Crux of current world economic problems is that the Versailles treaty "imposed upon Germany a continuance of war," putting it in "virtual subjection to the other powers of Europe" and also imposing an almost intolerable reparations burden. "We all are excited considerably ... about the 'Russian menace' but ... it is Germany and not Russia that may prove to be the real and immediate 'menace.'" The world faces an urgent problem of declining commodity prices, reversing a trend that lasted about 35 years; this is "sapping ... the foundations of the credit structure everywhere, and it is a question of how long that structure can escape a buckling of its principal girders." It's impossible to solve this "without first putting an end to the war." Responsible European statesmen realize change is needed, though they're "afraid to tell their masters the truth." Here in the US, "we are blind and deaf to the real and immediate difficulty."

Assorted historical stuff:

Letter to the editor disputing characterization that during the boom "all who entered a broker's office were wild eyed speculators ... there is a vast army of citizens who ... had the temerity - and as it now transpires, the bad judgment - to purchase outright in 1928 and 1929 stocks of leading corporations. ... But all you hear about in the after dinner addresses is the impecunious bootblack, widow and orphan whose speculations all but ruined the country, via Wall Street."

It's believed many members of Congress will oppose any proposal to substantially increase the number of taxpayers, "as many ... will be working to rebuild their fences for election day"; they are likely to prefer increasing corporate and surtax rates.

High Administration officials are looking to crop prospects to forecast economic improvement; in past depressions, favorable crop outlook has improved farmer buying power and led to general business uptrend within 6 months. Low point has apparently been reached in buying and see some improving economic factors, but reluctant to forecast upturn at this time due to previous false starts. Labor Sec. Doak notes "slight and gradual" but definite upswing in employment during May. Wall Street has been favorably impressed with recent Administration comments on the economy. While hopeful, "they have broken away from the tendency to 'whistle in the dark'" of a year ago. Spokesmen now emphasize futility of forecasting a definite upturn, pointing to past positive indications that later turned out to be false starts. Administration is looking to crop prospects for clues on the outlook, but there may be good news on company earnings first; some are reporting an uptrend, and comparisons later in the year will be with a period when profits were falling rapidly.

Editorial: The Nat'l Foreign Trade Council meeting has produced extremes of opinion on tariffs, ranging from US Steel pres. Farrell's "stand-patism" on the unconvincing grounds that exports only consume 10% of our total production, to Nat'l Council of Amer. Importers pres. Fletcher's demand for an immediate extra session of Congress to reduce duties by 25%-50%, a "manifest political impossibility." In fact, trade barriers are "a large part of what ails this country and the world." A reasonable middle course might be for Pres. Hoover, at the next regular session of Congress, to propose a 10% cut in all tariff rates provided that a given number of major trading nations agree; "this might or might not be coupled with a limited suspension of war debt and reparations payments."

Another editorial arguing Farm Board plan to reduce wheat acreage by 20% could endanger domestic supply in case of bad weather or breakout of crop pests.

Packard diesel-engine plane sets world non-refueling endurance record at Jacksonville Beach [6,600 miles in 84 hours 33 minutes].

Washington, DC had an average of 450 phone calls per person last year, almost twice the US average of 231; there were 32.7 phones per 100 people vs. 16.4 for the US; however, highest density of phones was in San Francisco, with about 40 per 100.

Newspaper printing has become tremendously more efficient thanks to improved equipment. A 16th century printing shop would have required 6,000 man-hours to turn out 10,000 copies of a four-page newspaper; this job would now require 175 man-hours. The first US newspaper was started in 1704, but no daily paper had a circulation of over 900 for the following century. By 1896, total daily newspaper circulation was over 8M; in 1929 it was over 66M.

Great cities like NY and Chicago have been trying to eliminate air pollution. Electrification of railway terminals and adoption of smokeless fuels have helped; the most hopeful recent advance is substitution of natural gas for coal. In San Francisco natural gas is now almost universal, leading to a "decided improvement in the clearness of the atmosphere, with proportionate improvement in health and comfort, and with lower laundry bills for the fortunate residents."

Market commentary:

Market wrap: Stocks showed some relief from pressure, allowing moderate recoveries in many leading shares; trading was largely professional, with many traders evening accounts before the holiday weekend. Early price movements were mixed and based on individual company news, with NY Central weak on poor April earnings, Westinghouse strong, and Steel breaking to a new low just above 90. However, other leading shares including Can, GM, and AT&T drew good support, and a general recovery set in about noon; upturn was moderated as nervousness over the Creditanstalt situation caused some irregularity, but market maintained a better tone. Bank stocks sold off sharply in late afternoon. Bond trading active, prices "highly irregular"; US govts. and highest-grade utility issues were relatively steady but almost all other parts of the list "were disturbed," with many record lows; foreign list weak after sharp break in German issues; liquidation continued in lower-grade rails. Commodities mixed; wheat and corn up sharply on reports of urgent need for rain in Canada; cotton closed little changed after hitting new lows during trading. Copper now available at 8 1/2 cents; buying quiet. Zinc and lead back at long-time lows. Cocoa again hit record lows, with July at 4.53 cents. Silver up 3/8 cent to 26 7/8.

Considerable selling has continued from Austrian interests in the past few days; the selling is said to have represented "necessitous" liquidation, and orders have been "at the market." Foreign liquidation may have also caused some of the demand for stocks in the loan crowd normally attributed to short sellers; much of the foreign selling was by phone or cable, and brokers had to borrow shares for delivery until certificates arrived from abroad. Recent liquidation in bonds has been disturbing to many investment interests who had anticipated an improved market leading up to new govt. financing.

GM has been exceptionally active lately, trading well over 100,000 shares for several consecutive sessions. This reflects a contest between a strong bear crowd pressuring the stock on reports of a recent decline in auto production, and "interests close to the management" who've been accumulating based on outlook for a satisfactory second quarter, with some even expecting Q2 earnings to match those in 1930. Weakness in cotton prices has affected shares of railroads operating in areas dependent on prosperity of growers, including Southern Rwy. Baar, Cohen note that in almost every previous depression, before a bull market developed again in industrials and rails it first came in gold mining stocks; this is a natural result of "people wanting to put their money into securities where the income is definite ..."; note strength of Alaska Juneau and recommend Dome Mines.

With holders of some Florida municipal bonds inclined to dump them regardless of price, some are now trading at very low levels (West Palm Beach 42-45, St. Petersburg 48-51). Some investors have been attracted, feeling difficulties may be worked out over the next few years; an intriguing feature of the bonds is that Florida real estate owners can turn them in at par (100) to pay taxes.

Investment trust [similar to mutual fund] heads say rumors they are selling are efforts to imply forced liquidation due to "embarrassing situations" [financial trouble]; insist that isn't the case, "other than the embarassment that any investor feels over holding stocks at prices two or three times what they command now."

T. Chadbourne, negotiator of international sugar agreement, says at a loss to explain recent weakness in sugar prices; believes agreement will be enforced, "and that is the difference between this ... and any other international agreement that has ever been tried."

Gen. C. Dawes, US ambassador to Britain, disputes idea that the stock market is in any way an accurate index of current economic or business conditions; says action of the market no longer reflects feeling of the masses. Recovery will be slow, but will begin when there is a general change to optimism, which is about due; stock market will lag this change, as it did the change to mass pessimism in 1929.

Asst. Commerce Sec. J. Klein disputes idea US is suffering from trade reprisals; says “we have held our export trade as well as any nation, and have suffered a smaller relative loss in export than in domestic sales.” Notes that in 19 representative countries, US share of total imports in 1930 was 20% vs. 20.7% in 1924-27.

R. Stephenson, Amer. Bankers Assoc. pres., says US will move on to greater industrial and agricultural prosperity than ever before; denies bankers backing move for wage cuts. E. Stevens, Chicago Fed. chair., says country at bottom of depression, signs pointing to start of recovery.

Economic news and individual company reports:

Goldman Sachs Trading Corp. is close to its record low around 5; a large part of its assets "consist of enterprises whose shares are not listed on any exchange" [this was an investment trust started by Goldman Sachs at the end of 1928; as in current times, GS sold the product it created to unfortunate buyers and it lost almost all its value; as in current times, it did provide an opportunity for a dramatic Congressional grilling of a GS bigwig, in this case Mr. Sachs himself in 1932].

It's reported that the failed $8M Newfoundland bond issue that started the recent crisis there found no bidders "due to unwillingness of banking interests to sponsor a loan which apparently would have been used merely to pile up ... indebtedness." After a deficit of $3M in the last fiscal year, the govt. budget had called for another huge deficit this year. Negotiations are under way for "a bond issue on terms which would meet with the approval of banking interests."

Austrian Chancellor proposed bill under which the state would assume responsibility for any new funds needed by the Creditanstalt and "practically guarantee all Creditanstalt deposits"; “persistent withdrawals” of deposits continued. BIS and leading European central banks promised help for the schilling [Austrian currency], but the crisis is now seen taking "much time" for the Austrian govt. to resolve. British banks involved are expected to “take concerted action” to support Creditanstalt. German bonds and currency have been weak, though capital flight is reportedly small; however, other foreign currencies were generally higher, except Spanish pesetas which hit a record low on continuing inflation fears. Wall Street remained nervous about further foreign liquidation while the situation remained unsettled.

Proposals for Australian difficulties include reducing all adjustable govt. spending by 20%, reducing interest on all govt. securities by 22 1/2%, cutting old age and soldier pensions, and raising various taxes.

AFL pres. Green estimates unemployment reduced by about 1.5M since reaching 6.3M in Jan., but sees more serious situation during summer layoff period.

Money in circulation May 27 was down $5M to $4.634B, total Reserve Bank credit outstanding down $8M to $886M. Member banks in NY City report brokers' loans down $57M to $1.574B; loans on securities to non-brokers up $23M to $1.778B.

First 64 rails reporting April earnings were down 37.2% from 1930; the same rails reported an 23.5% year-over-year decline in March. Nat'l Retail Drygoods Assoc. strongly opposes efforts to increase rail freight rates.

Dow average of 8 iron and steel products held at $43.58, post-1922 low. Scrap market weak but "more talk is being heard that bottom has really been reached."

Loans to veterans under the new 50% bonus loan were $745.7M as of May 23; total applicants were 1.959M, of which 1.951M have been acted upon.

1930 losses of 62 stock casualty and surety insurance cos. licensed in NY were a record $41.5M on $642.6M in premiums, more than previous 5 years combined.

Former Bank of US pres. Marcus testified bank had loaned $17M-$20M on unsecured real estate paper and also held $7M-$8M in mortgages when it failed.

Calif. oil industry takes important step toward stabilization as operators' committee accepts plan to cut output quota to 427,500 barrels/day from 500,000.

Several thousand coal miners strike in Penn. and West Va. charging low wages and poor working conditions.

Over 2,600 workers responded to general strike call in the pocketbook industry, over demand by employers to cut wages 25% and lay off 20% of workers.

NYSE seat sold for $210,000, down $20,000 from previous sale. NYSE Governing Committee adopts resolution praising R. Whitney's success in piloting the Exchange through the “great crisis of 1929” and the current depression.

Westinghouse Electric and Matheison Alkali said showing improving earnings trend, benefitting from expense cuts and some improvement in orders.

Companies reporting decent earnings: International Match [Ivar Kreuger-associated].

European theatre special:

Since The Adding Machine [1923 play by Elmer Rice; acclaimed revival in 1989 using puppets; accountant at large faceless company is to be replaced after 25 years by adding machine; snaps and kills boss; experiences afterlife] US audiences have seen "a procession of plays" concerning man's conflict with the machine; the Machine Age has now arrived in Europe and drama has followed. Munich's festival season features the pessimistic Chase Him - He's a Human Being, that "has for its premise the machine-made doom of man"; it has some parallels to Oswal Spengler's recent statement that the "white race stands on the threshold of extermination ... nature is taking fearful revenge by making man the slave of his own machines." On a lighter note, the latest French revues have dancing episodes glorifying electricity, and a tractor at center stage, imitating the latest theatrical "novelty" from Moscow, and the Foire de Paris at the Porte de Versailles features 32 countries exhibiting every variety of labor-saving device, including multilingual typewriters and wine presses so delicate they won't bruise the acidic grape skins. Some European dramas are also more optimistic on the role of machines, but the "preponderance of opinion" is in the gloomier Chase Him camp.


Two New York brokers recently went out for lunch, and in crossing Broadway noticed an open manhole. Surrounding it was the usual iron fence, with the painted notice "Men at Work". Said one to his companion: "Don't pay any attention to that sort of junk. "It's just Hoover propaganda."

She - What an elegant overcoat you have. But I can't understand why you wear such shabby trousers. He - I never take off my trousers in the restaurant.

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