May 25, 2010

Monday, May 25, 1931: Dow 137.90 -1.59 (1.1%)

Assorted historical stuff:

Editorial by T. Woodlock: "The case of Germany ... is doubly difficult." Burden of reparations is depressing living standards to a dangerous degree, and real peace hasn't been made yet with France; relieving these two conditions would do the most to get world business going. We could afford to modify our allied war debts in proportion to the relief of German reparations; benefit to the US and world economy would be worth the cost (total reparations are about $250M/year). US position of refusing to recognize any connection between allied debts and German reparations may be correct in theory, but "is plain nonsense" in reality.

Editorial: Pres. Hoover's quick rejection of Sen. LaFollette's demand for an extra session to tackle unemployment relieves least one anxiety that's been hanging over business. Previous experience with the extra session called by Pres. Hoover shortly after he took office proved conclusively that it's impossible to confine extra sessions to their designated purpose. Moreover, Congress has been in session much of the time since April 1929, and the only action it took to relieve unemployment, aside from public works appropriations that still have only been partly applied, was the ill-advised veterans' bonus.

Investment Bankers Assoc. of America hears proposals for safeguarding US investors in foreign securities by providing better information on conditions abroad; report charges that for over a year foreign govts. and bankers have been accumulating foreign bonds from US investors at low prices; US investors have "exaggerated the adverse conditions" abroad thanks to "lack of information"; if this "exaggerated lack of confidence continues," depression will be prolonged.

Treasury Sec. Mellon has made it clear the Administration is leaning against asking for a tax increase at the next Congressional session. However, Treasury officials haven't closed the door on doing so, and stress that an increase may be needed in the long term if deficits continue. If so, Treasury will seek broadening of the tax base rather than higher rates, pointing out that only 2.5M individuals out of a 120M population pay income taxes, and 380,000 pay about 97%.

Interesting editorial on free-speech decision by the Supreme Court on the case of one Yetta Stromberg, convicted under the California "Red Flag" law. This law made it a felony to display a "red flag, banner, badge, or device of any color ... as a sign of ... opposition to organized government" (1), or "as an invitation to ... anarchistic action" (2), or "as an aid to propaganda that is of a seditious character" (3). Conviction was overturned; however, editorial argues press coverage of the decision was misleading since only the first clause was found to be unconstitutional.

Washington report: Att'y Gen. Mitchell has suggested Congress might, as a temporary and emergency measure, allow combinations of natural resource producers to restrict production under govt. supervision. Labor Sec. Doak's expressed views are strongly against wage cuts, but not all Washington opinion is as categorical; while there's general hope wages can be maintained, there's also recognition of “inevitable working of economic forces” if the depression continues very long.

Dr. C. Wang, Chinese Foreign Min., predicts all China will be open to foreign residence when new treaties are concluded.

Prison breaks may be a thing of the past thanks to an "electric eye" device invented by E. Vedder of Westinghouse. In a recent demonstration, a mechanical “prisoner” crept up a wall; when he came in range of the "eye," a pistol was fired at the "prisoner" and an alarm bell went off. For the less sporting prisons, the device can also trigger machine guns and floodlights.

The first gas range for cooking on an aircraft is now under construction for the giant US dirigible Akron ZRS 4, and it's a beaut. Made mostly of aluminum to conserve weight, it has trimmings of nichrome, magnesium, cast iron, and bronze; it can cook for up to 50 at a time.

Work progressing on gas pipeline from Kettleman Hills to Long Beach, Calif.; at 210 miles, 26 in. diameter will be largest gas main yet built.

The new RCA Building may start a trend thanks to its well-received design idea of making color and architecture of outer walls blend with neighboring skyscrapers.

NY City Board of Estimate gives businesses right to "invade Lexington Avenue area," rejecting efforts by Murray Hill Assoc. to keep them out.

R. Hartley of National City Bank won men's championship in the annual adding machine contest of the Amer. Inst. of Banking, NY chapter; his time for listing 150 checks was 2 min. 3.2 sec. 4-man relay event winners listed 300 checks in 4 min. 39.8 sec.

Week in review:

Stocks continued "relentless quest for rock-bottom" in first half of week, with Dow industrial avg. breaking to post-1926 low of 137.74, and rails hitting post-1922 low of 75.58. "Various rumors of financial disturbances abroad were heard"; general relief was felt after fortnightly London settlement passed without incident. Support appeared in second half of the week, providing some "welcome relief" for "frayed nerves of the speculative element." Highest-grade bonds were generally firm but rest of the list was subjected to heavy liquidation early in the week; list turned generally higher at week-end; European issues generally firm but S. American suffered sharp fluctuations. Steel operations continued lower, and prices showed further weakness. Grain prices trended moderately lower; some corn months hit new season lows. Cotton followed stocks lower early in the week, hitting new 16-year lows; partial recovery later in the week. Foreign currencies ended week generally higher; Spanish pesetas broke on inflation fears. Fed. Reserve cut bill rates for fifth time in a month, to 1% up to 90 days. However, call money remained at 1 1/2%, and Fed. Reserve figures as yet fail to reveal serious efforts to follow up rate cutting with "serious efforts to expand the volume of credit outstanding." Paris stocks, after wide fluctuations, closed week mostly lower on large textile strike and forced selling by speculators worldwide; banks particularly weak.

Market commentary:

Market wrap: Rail stocks continued uptrend early; major industrials including Can and GE were firm with the exception of Steel, and retail shares rose. However rally petered out and market reversed about 11 o'clock as individual issues including Westinghouse, Can, and Steel weakened. Trading turned dull and narrow for a time, but AT&T and Steel sold off sharply near the close, and the whole market was irregular. Bond trading active, prices generally higher; rails continued strong with second-grade issues again rallying; foreign govts. featured rallying in S. American issues; US govts. slightly irregular awaiting news on new Treasury financing. Commodities very weak; grains down sharply with corn hitting new season lows in several months; cotton down sharply to new season lows. Silver down 5/8 cent to 26 1/2.

Conservative observers remain extremely cautious, say no new market developments encourage taking long side. Many brokers are now also advising against short selling due to increased resistance seen in past few sessions.

Considerable irregularity seen in coming weeks as bears are expected to strongly fight any market recoveries. Many observers believe a turn in commodities must come before stock recovery, pointing to precedent in the 1921 bear market; silver seen as particularly important due to monetary use. Copper shares have sold off due to pessimism on low prices and curtailed production.

General Foods has drawn some bearish commentary and pressure, but “those intimately acquainted with the affairs of the company state that no basis exists for this pessimism”; sales and earnings are said to be doing exceptionally well recently. Optimists on Caterpillar point out only 10% of business is farm-related, while almost 2/3 comes from “crawler tractors” used in road building.

Over the next two months, "a great deal of unfavorable news" is inevitable on business and earnings; US Steel pres. Farrell's "vitriolic remarks" give a clue of the trend in one industry, and similar conditions exist in others. However "the complete absence of the element of unexpectedness ... should rob the second-quarter figures of most of their sting." The stock decline since Feb. has been one of the most severe in the current bear market, and has discounted much bad news. This can be seen in the ability of Steel stock to recover and close slightly higher after Farrell's remarks, and the subdued reaction of some rail stocks to dividend cuts.

Steel price competition said to be as severe as 30 years ago, when Andrew Carnegie coined the phrase "steel is either prince or pauper." At that time steel makers were large debtors, whereas now they have large cash holdings, but this won't last if current deficits continue for a prolonged period.

Another commentary on how record low copper price will force curtailment of output since no mines now can make profits after taxes and depreciation.

Rails closed higher Friday for the fourth straight session, the most sustained streak since Jan., which was followed by a good rally. Market students will be closely watching the rails in view of their good predictive ability during the bear market.

Interesting comment in Inquiring Investor column on movie industry: "Once regarded as virtually depression-proof," but that status was lost when the industry became too "inflated," as seen by the "huge 'luxury theaters'" and prices "obviously beyond ... reach of unemployed workers or families" with restricted incomes.

Sir A. Balfour, British steel mfr., says US economic condition worse than Britain; "frantic" speculation has hit almost every home in America; doesn't anticipate real recovery in US for some time.

H. Biddulph, Nat'l Assoc. of Mutual Savings Banks pres., points to $10B of deposits in savings banks and additional $13B of savings accounts at commercial banks as “great reservoir of liquid capital” that will provide basis for renewed prosperity.

S. Dunn, Railway Age editor, disagrees with Pres. Hoover's theory that wage levels must be maintained to hasten prosperity.

J. Farrell, US Steel pres., says US must find overseas markets for at least 10% of farm and industrial production; traces drop in exports to consequences of war. However, convinced “our worst experiences are behind us,” and trade will gradually increase. W. Green, AFL pres., praises Farrell's statement against wage cuts, says management obliged to find ways to reduce costs without cutting wages. Sen. Couzens disagrees with Farrell statement that higher steel prices are needed; also says producers should cut costs other than wages.

Guaranty Trust survey says business picture irregular; note strong resistance to usual seasonal decline in business activity, but disturbing weakness in prices.

Economic news and individual company reports:

International wheat conference ended without approving quota or curtailment plans, but did approve creation of international advisory committee.

Dr. W. Gordon, Pennsylvania State Sec. of Banking, says heavy withdrawals from First Penn. Savings Bank due to false and malicious rumors, bank condition is sound; general banking picture in Pennsylvania “not black”; assets of failed banks this year are only 0.81% of total state bank assets.

Peru will default on June 1 bond payments, after earlier failing to make Apr. 1 payments.

Florida enacts new refunding law seen in investment circles as "highly constructive" for both bondholders and communities; will allow refunding existing bonds over extended time of up to 60 years, and end requirements for earlier repayment of principal. Everglades District sued by holders of defaulted bonds. California adopts measure to relieve many irrigation districts now on verge of financial disaster.

Retail sales of cars began to decline in early May, possibly due to the stock market or to seasonal factors. Some companies are maintaining production schedules for May while others have begun to curtail output, and it's now estimated June output will decline 18.5% from about 355,100 units produced in May. Auto executives continue to be confident due to low inventories and high proportion of older cars on road [wearing out and needing replacement]. Commerce Dept. reports world auto production in 1930 was 4.109M vs. record high of 6.277M in 1929; total exports were 373,731, down 51.2%. US was by far the largest manufacturer, producing over 14 times as many as England, the second-largest.

Assoc. Against the Prohibition Amendment estimates annual US bill for alcoholic beverages steady at $2.848B ($2.2B spirits, $395M beer, $253M wine); finds no indication "illicit liquor trade has been seriously handicapped by the present business depression."

With Western and Southern rails undecided about asking for rate increases, the Eastern rails are considering whether they should be "forced into line" by having the ICC or some other agency ask all roads for data on "what a freight increase would do to restore prosperity." Meanwhile, the ICC is in the midst of allowing or enforcing a number of freight rate cuts on steel and livestock.

Bradstreet's weekly report shows retail trade somewhat improved over previous week, partly due to better weather and seasonal merchandise; wholesale remains gloomy. Dun's less optimistic; progress of trade about at recent levels, some scattered improvements, but difficult to judge the complete picture; sales promotions intensified but customers showing "pronounced disposition to be critical and exacting."

Fisher's wholesale commodity index decline regained speed; it hit another postwar low of 71.0 vs. 71.8 prev. week, 72.0 two weeks ago, and 88.4 a year ago.

FTC starts investigation of price fixing in building materials supplied for govt. construction contracts.

T. Campbell, owner of largest wheat farm in the US (95,000 acres in Montana) says will not plant any wheat this spring due to surplus and low price; suggests farmers grow flax instead.

US tobacco production in 1930 was 1.510B pounds, up 11.3% from the 1925-29 average.

Wholesale candy sales were $21.6M in April, down 1.7% from Mar. and down 13.1% from Apr. 1930.

Cuban govt. employee salaries to be cut 50%, and number reduced to a minimum as part of measures to reduce budget by $10M.

English chemical trade council agrees to wage cut of 10% affecting 100,000 workers.

Subscribers take only $19M of $50M Indian loan offered in London.

Mayflower Hotel in Washington put into receivership after defaulting on bond interest Apr. 1.

Baldwin Locomotive shipments so far this year are well below half of the 1930 period; no immediate pickup in sight.

Aviation special:

Army air manouvers took place over NY City Saturday, with 672 Army planes soaring over the city, displaying all four types of military craft - pursuit, attack, observation, and bombing. The Curtiss-Wright co., [note: formed by merger in 1929 of companies started by the Wright brothers and Glen Curtiss - this ended many years of patent battles] in addition to being the largest maker of commercial aircraft, is the only co. producing all four type of military craft. United Aircraft & Transport prominent in military aviation; cos. in group include: Boeing, maker of the P-12 pursuit plane capable of 192 mph at 8,000 feet and up to 350 mph in a power dive; Pratt & Whitney, prominent engine makers; Northrop, and Sikorsky. North Amer. Aviation has subsidiaries in almost every phase of the industry; key company is Sperry Gyroscope. Bellanca was only commercial aircraft mfr. to show increased sales in 1930, though it was unprofitable. Best known product is the "Pacemaker," a 6-person monoplane.

Airplane industry is making substantial progress in adopting shatterproof safety glass, following its widespread adoption in the auto industry. Goodyear Zeppelin VP J. Hunsaker says transoceanic airship service will supplement and not compete with steamship travel, providing faster service for a small percentage willing to pay a premium. Airplanes have advantage over airships for shorter flights or land routes. Pan American Airways traffic growing; service from Eastern US saves weeks off previous travel times, going through Miami to Cuba, the Caribbean, and down the East Coast of S. America to Rio de Janeiro.

Watres bill, which became effective about a year ago, seen as successful in promoting passenger operations; the bill reduced rates paid per mile paid by govt. for air mail and promoted updating of aircraft. Passenger traffic was 417,505 in 1930 vs. 173,400 in 1929 and 52,500 in 1928, as numerous small passenger lines were started. US airplanes manufactured in Q1 totaled 672, up 87 from previous quarter, of which 342 were for domestic civilian use, up 89. C. Keys, North Amer. Aviation chair., says most air transport cos. now well supplied with equipment, but any general economic improvement would probably catch them short of planes. Compilation of balance sheets for 6 major aviation cos. shows severe effect of depression; total working capital decreased 30.8% from $97.0M to $67.1M.


Der Grosse Tenor - starring Emil Jannings, to be shown by Ufa Films of Germany in its newly leased Cosmopolitan Theatre on Columbus Circle. Picture is said to present Mr. Jannings in a more positive light than "his recent films, in which he has portrayed parts of middle-aged men whose characters have disintegrated under evil influences" [Note: for example the professor memorably ruined by Marlene Dietrich's character in The Blue Angel]. Mr. Janning's own beautiful estate at St. Wolfgang is used in the film, along with the entire village population in some scenes. Title of main song, translated, is "I Am So Happy, I Am So Gay."

Everything's Rosie - Robert Woolsey attempts to stand apart from partner Bert Wheeler [of the famed comedy team of Wheeler & Woolsey], with mediocre success. Leans heavily on "decrepit puns and cheap humor as a solo comedian," though this also characterized his material when teamed with Wheeler. Film "will interest few persons outside of the rapidly diminishing Woolsey cohorts," although burlesque stunts provide an occasional laugh.


Visitor - Well, Joe, how do you like your new little sister? Joe - Oh, she's alright, I guess; but there are lots of things we needed worse.

An Evening World reporter was once sent to interview a man who not only refused to talk but kicked him out of the house and down the front stairs. The reporter phoned his editor and said "He won't say a word, he abused me, and he kicked me down the stairs. I can't get that story." The editor replied angrily: "You get back in there and see him. That so-and-so can't intimidate me!"

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