May 21, 2010

Thursday, May 21, 1931: Dow 137.74 -1.12 (0.8%)

Assorted historical stuff:

Editorial by T. Woodlock on Prof. Irving Fisher's modest proposal to stabilize purchasing power of the dollar by adjusting the amount of gold it corresponds to based on the cost of living. This would not help directly with fluctuations of various commodities compared to each other, which many economists believe is the crucial problem; for example, it wouldn't prevent prices agricultural products fluctuating widely compared to other goods; this results "from an unstable equilibrium in the productive structure, lack of balance in which seems to be the chief cause ... of our current depression." Fisher's proposal might stabilize debts compared to value of goods and services, making the doubtful assumption that lenders wouldn't start stipulating payment in gold. However, it seems likely that whatever is ultimately done by gold standard countries "will be done ... under the pressure of inexorable necessity rather than ... rational planning. When it is done, moreover, we shall probably see a good many curious happenings which at present are beyond the capacity of the imagination to predict."

Editorial: Statesmen at the League of Nations Council in Geneva "averted another of their recurring political crises." Agreement to submit Austro-German customs union to World Court replaces political agitators with an impartial tribunal, and offers hope of ultimate agreement after some delay. However, German reaction has been unfavorable, with some Germans at Geneva predicting withdrawal from the League in despair, and German press blaming French war psychology for blocking "the one means that Germany and Austria have to rescue their peoples from destitution." Matters not helped by French bankers' action to link loan for the Creditanstalt rescue to abandonment of the union. While European scene is a little more encouraging than last week, main impression from the Council is that until Europeans disarm their mutual suspicions and move towards peace, "there will be little use in their looking across the Atlantic for help."

Acting NY Gov. H. Lehman urges extensive study of unemployment insurance and stabilization of employment "under state auspices and with the full cooperation of industry and labor." V. Ridder, NY State Board of Social Welfare pres., warns old-age relief may soon cost the state over $1M a month; believes industrial depression has added greatly to volume of applications for pensions since law became effective Sept. 1; total now 60,600.

Textile strike in northern France intensifies, with 110,000 of 125,000 workers out. M. Langeron, prefect of northern France, fears a long strike since workers are resisting wage cuts rather than claiming increases as in past strikes.

Soviet authorities begin preparations for second five-year plan starting in Jan. 1933; this means first five-year plan will be completed ahead of schedule in 4 1/4 years. Private cables to several grain brokers with European connections report internal dissension in Russia, with one suggesting imminent revolt. Authenticity of reports considered very dubious, but grain circles believe any disturbance might retard Russian wheat exports.

Cuban Pres. Machado acknowledges revolutionary conditions prevailing in Cuba; says will again suspend Constitutional guarantees if necessary.

A number of swindlers have reportedly taken advantage of the Depression to work a clever racket in both the US and England. From disgruntled employees of reputable brokers, the sharpers got lists of people who had invested in legitimate securities; they then induced them to trade worthless paper for legitimate. The more ambitious conmen then ran the swindle for another round, getting victims to put additional money in for "reorganizations" of the worthless securities.

The Post Office is being enlisted as detective by creditors to track down deadbeats who vanish for parts unknown. For a mere 23 cent additional charge, a letter can be sent "return receipt requested showing address where delivered." If the Post Office succeeds in delivering the letter using a forwarding address, a receipt will be returned to the sender showing the new address.

The next Congress will be asked to provide a memorial for Samuel Wilson, buried at Troy, NY. Wilson, of course, is said to have been the original "Uncle Sam"; he was known as such by friends, and when he supplied the U.S. Army with meat during the war of 1812 in barrels stamped "U.S." a natural misunderstanding occurred. Wilson, also of course, is said to have been a tall, spare, dignified but kindly man who usually wore a tall hat, striped trousers, and a frock coat.

Market commentary:

Market wrap: Stocks rallied moderately in early dealings; Steel advanced to par (100), and active issues rose. Early improvement was largely eradicated by noon, as renewed selling broke out in many sections of the list; selling was not heavy across the list but was severe in some individual stocks, including GE, GM, Continental Can and AT&T; the latter hit a new bear market low. Market was heavy in the last hour and hit day's lows late in the session. Highest-grade bonds continued firm while lower-grade and convertibles rallied modestly; S. American issues worked lower though liquidation eased. Commodities firm; grains steady to firm, wheat up moderately; cotton up sharply on technical rally. Copper remained at 9 cents most of the day, but two producers sold at 8 3/4 late, setting a new record low two years after peak of 24 cents; foreign buying remained fairly active and domestic quiet. Silver rose 1/4 cent to 27 1/2.

Conservative observers continue recommending sidelines; believe market will indicate change of trend; expect bears to continue testing the market.

Many investment advisers contend that buying becomes less risky as the market declines, but few of them are actually advising buying and the public hasn't been buying in any case. Huge increase in savings bank deposits so far this year seen reflecting "conservatism prevalent all over the country"; much of it "has been banked by persons who have lost confidence in securities, temporarily." However, this money on the sidelines will, sooner or later, be released; it represents "underlying demand which will make itself felt, when sentiment brightens." Short position seen possibly growing overcrowded; many "outsiders" who frequent brokerage houses have been able to profit by selling short and have been gaining confidence; on the other hand, some [professional] bear traders have been quietly taking in part of their short positions. Fortnightly settlement [I believe bank] takes place in London today. There have been recent "disquieting rumors" on conditions in London, reportedly leading "more than a few" interests here to sell stocks. Passage of the settlement without problem would probably help the market at least temporarily.

Delaware & Hudson RR has sold off along with other rails in spite of strong position; stock has sold below 125, while co. has securities valued at $126/share (mostly US and Canadian govt. bonds), and earnings from railroad and coal properties of $4.60/share even in the poor year of 1930. Coca-Cola declaration of another extra dividend of $0.25/share seen as reflecting management confidence in both current and future operations (Q1 1931 net was higher than 1930).

Editorial: Conference of 11 wheat exporting countries in London has so far only produced one tangible plan, a Polish one for an international organization to control exports from each country. This is similar to previous plans for coffee, rubber, silver, etc., all of which "exploded" and left matters far worse than before. A little study would reveal that the world is not oversupplied with wheat, but that there are obstacles to its distribution. The chief one is tariffs; one example is Germany, where the tariff on bread wheat was raised from $0.62 to $1.62 in the past year; this "tariff epidemic" has spread throughout Europe. If wheat importers could be persuaded to remove this obstacle to free movement of wheat, this might give permanent relief to the wheat market. G. Ferguson, Int'l Wheat Conference chair., says delegates appear to be generally agreed on what steps “should be taken to dispose of the world's surplus wheat and otherwise to solve the economic crisis. He did not, however, reveal the nature of the steps.” Russia says will cooperate with other nations in solving wheat crisis as long as no efforts are made to prevent her return to prewar status as exporting power.

Farm Board critic Sen. Brookhart (R, Iowa) says Board powers should be extended to allow creation of its own cooperative banking system; Federal Land Bank system has failed in mission of aiding agriculture; interest rates to farmers are rising while funds for “speculation and gambling” are at record lows.

H. Sinclair, Sinclair Consolidated Oil chair., says believes oil prices very close to bottom; gasoline consumption up slightly over 1930 but industry as a whole "not making any money." Proration (curtailment) hasn't accomplished much over past 2 years; while production has been prorated, prices have also been. Drilling should be stopped to permit oversupply of oil to be absorbed; industry has too many companies and requires consolidation.

A veteran trader who's been through every depression since 1890 says scores of explanations for the current depression have been advanced, with almost as many suggestions for cures. Asserts true cause, as in past depressions, is "overproduction, brought on by one thing or another"; cure is underproduction for some time, as is currently occurring.

Dr. J. Klein, Ass't Commerce Sec., says improved US credit facilities have prevented percentage of business failures from reaching level of previous depressions.

Baar, Cohen & Co. say if stocks in 1929 were held on too much borrowed money, it's equally true that they're now "going through the wringer." Brokers' loans keep declining, and banks keep forcing liquidation of security loans; eventually, amount of borrowed money will be negligible. "In the meantime, our credit structure becomes stronger and stronger every day ... billions of dollars would like to be invested in securities ... but the deterrent is lack of courage and inability to see ahead. It is our opinion that we are laying a wonderful, solid base for the next bull market." While skeptics may question when it will come, US "industrial leaders are solving the depression by being on the job more than ever"; a number are already starting to get results and this will be reflected in their stock prices.

Irving Trust mid-month review says poor stock market in past month has obscured some encouraging developments, including striking improvement in auto industry, better than seasonal improvement in rail traffic and various lines of trade, fewer business and bank failures, and improving high-grade bond market.

Dow industrial average closed at a new bear market low; there were 4 new yearly highs and 99 new lows [Note: all new highs were preferred stocks except Alaska Juneau Gold].

Economic news and individual company reports:

Mayor J. Reich, of North Bergen, NJ, says next steps "in connection with our deplorable financial condition at this time" are reassessment of all taxable property and immediate adoption of refinancing plan. Hialeah, Fl. plans refinancing of existing bonds over a period of 30 years; bondholders said generally approving of plan. City has cut operating budget and assessments to reduce tax delinquency, which increased from 40% in 1926 to 85% in 1930.

Rail freight report for May 9 week was disappointing; decline of 27,842 cars from previous week was far more than seasonal, while percentage decrease from 1929 was greatest this year. NY Central's report for the following week indicates a still greater decrease. ICC member G. Eastman is noncommittal on the ICCs response to a possible rate increase request, but does observe that “managements must consider ... whether it is wise ... especially at a time when all other industries are suffering and when no other is contemplating an increase in prices.” Extent to which Western rails have had to cut maintenance to preserve earnings is seen in reports of seven main rails operating out of Chicago; five of the seven showed Q1 operating income below their decrease in maintenance from 1930.

Wheat growth was good to excellent in much of the country but heat, lack of rain, and wind damage was reported in some areas including in Western sections of Nebraska, Kansas, Oklahoma and Texas, and in the Northwest. Farm equipment decline in manufacturing is partly seasonal, but also reflects continuation of very slow domestic sales that characterized the first quarter. Inventories are still large enough to prevent a real production increase until sales rise; sales are being inhibited by current state of rural credit, which has led manufacturers to reduce prices and extend more liberal long-term loans that would have been thought inadvisable a few years ago.

US electric output for week ended May 16 was 1,614 GWHr, down 3.3% from 1930, vs. a 2.4% decline prev. week and 3.0% two weeks ago.

US Employment Service reports employment in outdoor labor improved in April, but "considerable idleness" was apparent in some sections; curtailed schedules continued in many establishments, affecting a large number of workers.

Several NY banks reduced interest paid on thrift and "compound interest" accounts from 3% to 2%.

Weekly steel reviews had little constructive news; steel market drifted lower in spite of comments a week ago that decline had been checked; construction demand sustained but automotive sagging; reviews continued to predict decrease to mid-summer would be relatively small; some price weakness in finished product clouding profit outlook. National machine tool index for April was 105.1 vs. 117.6 in Mar.; further decline in orders expected in May; manufacturers practicing "rigid economy," postponing taking action on requirements. Percentage of blast furnaces active indicates steel industry in better condition than during the 1921 depression; low in this depression of 30% was hit in Jan., while the low in 1921 was 16% in midsummer.

BLS reports wholesale index of 550 commodities fell to 73.3 in April from 74.5 in Mar. and 90.7 in Apr. 1930.

Texas Railroad Commission writes to Gov. Sterling warning of serious oil overproduction in East Texas, and asking for wider powers to enforce curtailment; says current unrestricted production is causing great loss of oil and gas, and will cut total oil recovery by half.

Iraq Parliament ratifies oil pact with Iraq Petroleum Co. to build pipeline by 1935 from Kirkuk, branching at Haditha to Haifa and Tripoli, a distance of 1,200 miles at cost of 10M-12M pounds sterling. Company is partnership of French group, US group, Royal Dutch-Shell, and Anglo-Persian Oil; will be granted 70 year exclusive rights over parts of Mosul and Bagdad provinces.

Ten of the largest banks operating in Mexico, including Nat'l City and Chase Nat'l, have formed syndicate to trade in silver money with object of improving price.

Foreign currencies were quiet; sterling was steady close to the year's highs; market seen "marking time for a few days under the influence of various rumors circulating throughout the Street."

Commerce Dept. reports German business conditions showed seasonal improvement in April and May; exports gained while imports continued to fall, giving Apr. trade surplus of 236M marks; unemployment at end of April was 4.389M, down 240,000 in two weeks but a record high for this time of year.

Silver production down sharply; worldwide output in Q1 was 44.2M ounces, down 20.3% from 1930; US output in Apr. was 2.858M vs. 3.528M in Mar. and 4.627M in 1930, lowest total in recent years.

Earnings outlook for meat packers seen unfavorable; US and foreign consumption is down, and inventories higher; price situation appears relatively stable.

Chevrolet says sees no sign yet of sales decline in May; expect to match April total of 100,000. Woolworth reports sales steadily increasing since end of April. Glidden says turned profitable in March, outlook favorable.

Companies reporting decent earnings: Tuckett Tobacco.


Monsters of the Deep - at the Cameo. Documentary on fishing trip off Southern California with objective of capturing a giant ray, A.K.A. devil-fish, A.K.A. manta. Film includes scenes of uninhabited islands the party discovers; photography is excellent and “fight to land the fish, while overly drawn out and artificially acted in places, is interesting.”


[Note: I smell iPhone app ...] For golf players needing to unlearn bad habits, Golf at a Glance: The Pocket Pro by Bob MacDonald is “the greatest investment for one dollar to be had today.” Book is a mere quarter of an inch thick and half the weight of a pocket checkbook; it's meant to be carried around the links and referred to while playing [Note: if you like getting beaten up]. Coincidentally, the first “pocket” size books were published in the Netherlands, where golf itself is said to have originated in a similar game played on ice.


First Furniture Maker - That bookcase isn't an antique, is it? Second - No, but in another day it will be.

Maid - Are you going out in the car on Sunday, ma'am? Mistress - No. Maid - Then I'd like to ask for the loan of it; mine is being repaired.

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