May 7, 2010

Thursday, May 7, 1931: Dow 149.73 +0.84 (0.6%)

Bear rumor special:

The bear camp seems to be splitting up to some extent. At least two of the largest operators "continue to anticipate further immediate declines" based on seasonally unfavorable business prospects. However, some of the more technically oriented bears who turned aggressively short in Aug. 1929 have covered based on the prevailing extreme pessimism, and on the view that the extent of the depression is already well known; these interests believe a good-sized rally may be more likely than a further bad decline; recent low trading volume is also seen indicating an oversold position. As still another wrinkle, some of the bear traders who reportedly covered last week and went on vacation [see May 5] are now sneakily putting sell orders in again from their vacation resorts. To complicate matters even further, some large foreign interests who were short most of last year but covered two months ago are said to be heavily selling again.

Assorted historical stuff:

Editorial by T. Woodlock: "Post-War War" - Bank of England Gov. Montagu Norman's "dark secret" that he successfully concealed during his recent visit turns out to be a plan for an international bank offering long-term credit to European countries in need. This is a hopeless project when the two countries (US and France) with the most resources are unwilling to join. Simplest way of describing current world economic condition is that end of fighting 12 1/2 years ago didn't end the war, since "the power which dominated the making of the treaty did not intend that it should end it. The treaty left Europe covered with an ice mantle of war psychology, much as it was buried thousands of years ago in the last glacial period." In other words, the "war to end war" didn't even end itself; it's now being fought with debts, tariffs, and closed purse strings. Ferrero warned this would be the result of wars between peoples instead of princes; these wars might be harder to start but would be infinitely more difficult to stop, since they would be ended by imposed treaties, which settle nothing. A better alternative for an international bank would probably be for big international corporations such as GE, Kreuger & Toll, the German dye trust, etc. to combine their resources to finance loans to smaller govts. Finally, recalls remark of "a shrewd American 'observer'" who said the current determination of America to avoid all foreign entanglements "was in fact the surest way to becoming 'entangled' in foreign affairs at the worst possible time and in the worst possible manner"; the US needs more of a "planetary consciousness."

Editorial: British Chancellor Snowden reopens the Domesday Book [list of land owners compiled by William the Conqueror in the 11th Cent.], this time for the purpose of taxation. The tax is very small, but "the camel's nose is in the tent." The House of Lords is threatening resistance, but is certain to lose in a showdown. This is another milestone in the funeral procession of the British ruling class. Until a generation ago, there was a "certain fundamental homogeneity" in the members of this class, whether they call themselves Whigs, Tories, Liberals, or Conservatives; things seem to have started disintegrating when members of the House of Commons started recieving a salary. "But a tax upon landed estates! That strikes at the heart of the 'ancien regime' with a vengeance!"

Pres. Hoover's speech to Int'l Chamber of Commerce [May 5] greeted very enthusiastically in Germany; "It is believed the present Washington discussions on world affairs will facilitate international understanding about reparations." US Ambassador to Germany visits White House; sees improvement in German economy, though unemployment is still high.

Market apparently reacted unfavorably to Sec. Mellon's speech Tuesday, with heavy selling breaking out afterwards. Reference to readjustment of prices and production costs seemed to be taken badly, though "a detailed study of Mr. Mellon's speech reveals no reason for fresh concern over the economic situation."

Commerce Dept. reports China is likely to start a five-year govt. controlled industrialization plan.

Los Angeles - Kansas City section of midcontinent airway to be first equipped with visual radio range beacons, a device for guiding pilots by radio beams.

A creative theatre manager has started offering, free of charge, a small packet of cough drops to patrons who have colds. If someone in the audience, having failed to procure this safeguard, inadvertantly coughs an usher "rushes first aid to him in the form of the soothing menthol candies."

When gaslight was introduced over a century ago, it triggered an intense conflict. Some “conservatives” refused to embrace the 'new-fangled gas lights,' sticking to candle and crude oil lamps. One incensed “progessive” wrote to the US Gazette in Jan. 1828, "If any of these old-fashioned gentlemen would visit NY or Baltimore and contrast the light of the gas there, equal almost to perfect day, with our own murky, dismal streets, their opinions might ... change. - Old Citizen". A century later, the current “modern street flooded with electric light” would surely delight “Old Citizen.” [Upon seeing Times Square today, he'd probably go back to candles].

Thomas Jefferson is credited with inventing both long pants for men (before which knee pants with stockings were the style for both boys and men), and the swivel chair. The next Congress will be asked to appropriate funds to restore Jefferson's workshops at Monticello, including the tailor shop and woodwork shop where the aforementioned were invented.

Market commentary:

Market wrap: Leading industrials opened under pressure, with US Steel dropping below 111 to a new post-1924 low and severe pressure also directed against American Can. However, efforts to broaden the selling were frustrated, and trading slowed progressively; the general list settled into a narrow range. Another spurt of selling came into Steel in early afternoon on news of likely drop in unfilled orders, but weakness again failed to spread; some short covering appeared and a better tone developed in the last hour. Bonds generally weaker; US govts. quiet, firm; foreign fairly active and weak, particularly German and S. American; domestic corp. list lower, with some softness extending to high-grade issues. Commodities strong; grains firm with corn up sharply; cotton up substantially after early dip. Copper sold in small amounts at record low of 9 cents/pound; buying demand uncertain; larger producers still asking 9 1/4 - 9 1/2. Cocoa hit another record low of 4.90 cents/pound.

Market observers continue to favor waiting attitude, advising against both long and short sides; "many admittedly are puzzled by the developments."

Some chart students have been accumulating stocks the past few days on the theory that short, sharp swings over the past week point to change of trend. While believing the rally will be technical, they contend the present market position calls for rally regardless of longer-term trend. The Dow, after hitting a high of 194.36 on Feb. 24, has lost about 25% since; this has typically been followed by a rally recapturing about half of the loss.

Although freight car loadings report for Apr. 25 week was disappointing since it failed to show the usual seasonal increase, May 2 week is likely to be higher based on individual rail reports. Rail equipment makers have suffered severely from the depression; orders for cars and locomotives have almost disappeared, and many shops are working at 5%-10% of capacity. However, fundamental forces suggest an improvement is now likely, though it may start unimpressively; situation seen similar to 1921; there's a large surplus of cars but many deteriorate while idle. Oil observers perturbed by dividend cuts, including Vacuum reduction from $4 to $2 rate, and Ohio Oil omitting dividend; recent reductions in gasoline prices also disappointing since consumption should be seasonally increasing.

Great Northern was probably the only major rail showing a gain in first-quarter earnings vs. 1930 [benefits from new East Texas oil area]. W.T. Grant seen doing relatively well this year; has consistently reported higher sales. Nat'l Cash Register reports upturn in business and return to profitability in April. Pullman experiments with weekend bargain fares to increase ridership are showing some promise; present status of railcar building industry indicates Pullman will have to look to its sleeping car business for most of its earnings this year. Montgomery Ward seen likely to have returned to profitability in April based on sales figures.

Outlook for second-quarter earnings "not bright" for many major industries; in particular, steel, copper and oil are suffering lower output and price shading.

German bonds fell sharply this week, with many issues down 5%; attributed to upcoming treasury financing and 150M mark Post Office issue.

Yet another opinion piece by D.C. Harrower decrying price-fixing by the Farm Board [this now appears to be a daily feature].

Inquiring Investor column responds to beginning investor's question on stocks vs. bonds; seems to give preference to sound bonds and preferred stocks under current conditions, though in a good-sized investment account "it would not be outside the bounds of conservative investment policy to place 30% or more of available funds in common stocks, a limited proportion of this to include issues of a somewhat speculative nature." Another question concerns Argentine bonds; response notes Argentina's top place among S. American countries in investors' esteem; has met every obligation promptly since 1901; "there appears to be no danger of default through financial weakness."

Many advisers in the financial district are now recommending companies that have already cut dividends and wages, in preference to ones maintaining them.

Historical study of investment trust [similar to mutual funds] development some 60 years apart in England and the US finds striking similarity in conditions; in both cases, investment trusts gained momentum during the boom years following a war, when the countries were established as creditor nations.

Editorial: The "traditional American management rule of 'plowing back earnings into the property' [rather than paying them out in dividends] is seriously under fire." This worked well in the past, because the typical company could over time "be sure of satisfactory returns upon a constantly increasing capital investment." However, if we are now at the point where we've built all the facilities currently needed, the fiscal policies of many corporations will have to be reexamined.

J. Parmentier, Credit Foncier of France dir., says consumers benefit from organization of cartels thanks to guaranteed quality, lower cost of production, elimination of wasteful transport, and restraint of the role of middlemen.

A. Meyer, European Steel Cartel pres., hits US high wage theory as out of economic balance and giving poor results in Germany and Britain. Conversely, G. Swope, GE pres., defends worker protections, higher wages, and improved machinery as lowering unit production costs.

Economic news and individual company reports:

Florida Bankers Assoc. deplores current local bond situation within the state, calls for solution to repay defaulted obligations in full and maintain state credit. West Palm Beach Bondholders' Protective Committee says it will launch drive to compel city officials to enforce tax payments. Chaos threatens Nebraska finances after July 1 as Gov. and legislature deadlock on upcoming budget; Gov. has refused to compromise on campaign pledge to cut state taxes and budget.

April auto production is now estimated at over 340,000 cars and trucks; this is a gain of 18% or more over March, the best April gain since 1922. Based on April and prospects for the next 2 months, it's likely Q2 production will be 900,000 - 1M units, up 30%-40% from Q1; a normal seasonal trend over the rest of 1931 would then give total production of about 3M units vs. 3.5M in 1930.

Fed. Reserve cut buying rate on bills for third time in 2 weeks, by 1/8% to record lows of 1 1/8% - 1 1/4%. After the close, the Fed. Reserve of Philadelphia cut its rediscount rate 1/2% to 3% and Boston 1/2% to 2%; this raised expectation of a cut in the 2% NY rate at the meeting late this afternoon. These actions were seen as a concerted effort to drive away the “enormous quantity of funds choking” US money markets; gold has also continued to pour in due to the favorable US trade balance. Other money market departments were extraordinarily easy; call money had large offerings below the official rate of 1 1/2 percent. Sterling was up strongly after the Fed. actions, though other currencies didn't respond as much.

Steel production for week ended Monday was 47% vs. 48 1/2% prev. week, 49% two weeks ago, 76% in 1930, and 97% in 1929. US Steel seen likely to show decline in unfilled orders as of Apr. 30 despite curtailed production; decline estimated at 75,000 - 100,000 tons; report on Saturday. Weekly steel reviews report mixed demand picture; automotive appears stable and construction higher, but tin plate and rail lower; overall production seems to be nearly stable. Scrap prices continue to weaken, while finished product prices appear somewhat soft, with planned increases not holding and some discounting.

US electric output for week ended May 2 was 1,622 GWHr, down 3.0% from 1930, vs. a 3.1% decline prev. week and 4.6% two weeks ago.

Market value of NYSE-listed shares on May 1 was $48.470B, down $4.866B from Apr. 1. New bond offerings in NY in April were $440.3M vs. $661.9M in March and $581.1M in 1930; half of the total was in utility issues.

Rail executives reportedly leaning toward asking ICC for "emergency" 10%-12% general increase in rates. At hearing on petition of Western rails for injunction against ICC order to reduce grain rates, L. Wetting, statistician for the rails, estimates new rates would cut total revenue from grain transport by 11.3%.

Oil States Advisory Committee approves tentative plan for conservation of oil and gas; plan will be studied with view to drawing up uniform laws for oil states at next meeting of governors' representatives Aug. 10. Gasoline price cuts made by Standard Oil of NJ and by Sinclair Refining in Chicago. Importance of new natural gas field in Tioga County, Pennsylvania should be established soon; at least 50 wells are now being drilled over a wide area.

Reports from 25 cities to President's Emergency Committee for Employment showed little change during last week in April. Detroit index of industrial employment Apr. 30 was 83.5 vs. 83 a month earlier and 110.5 a year earlier.

Australian govt. announces about 13.5M acres to be planted with wheat in coming season vs. 18M last year.

Soviet Commissariat of agriculture reports 33.7M acres of grain planted up to May 1, or only 13.7% of plan for 1931, vs. 81.4M or 51.1% a year earlier. Poor showing attributed to late spring, insufficient industrialization and collectivization.

About 6,000 workers now on strike at 40 silk mills in Allentown, Pa. and vicinity.

Companies reporting decent earnings: Public Service of NJ.

New books:

Wall Street and Lombard Street, by F. Hirst - history of the almost coincident Hatry crash in London [Sept. 1929] and US market crash of late 1929, covering events leading up to the crashes, the crashes themselves, and consequences up to a year later.

Success in security operations, by F. Bond - "Written for the nonprofessional speculator who hopes to profit from the secondary movements in listed stocks."

Practical Stock Market Forecasting, by W. Dunnigan - Fuses eight barometers into a "composite major trend barometer."

Forecasting Business Cycles, by W. Persons - "Presents data aiming at estimating future business trends."


Student Sein, wenn die Veilchen Bluhen (Student Days When Violets Bloom) - German musical, based on story by Joseph Buchhorn, at the Little Carnegie Playhouse. "The kind of wholesome entertainment that makes a 57th Street pilgrimage pay pleasurable dividends." Set in university city of Wurzburg, with its “student prince” atmosphere of “duels and drinking bouts set to melodious music”; story of a romance between Gert Simmers, son of a wealthy industrialist and Aenne Winter, daughter of his landlord at the university, and another between Lisbeth, Gert's sister and Fred Droysen, a penniless student. Film ends on sad note as Gert must leave university and sweetheart due to reverses in father's business. “Lacking the usual ornate Hollywood embellishments and unbowed by the weight of a lengthy scenario, but possessing a delightful score and capable cast of songsters." Sure fire hit in Just Say That you Love Me. Mary Wigman, leading German modern dancer, performs on screen for the first time in a series of four dances; her Witch Dance is “singularly effective.”


Ed Wynn is MC at the Palace this week, "appearing before the curtain after every number to tell a crazy story, explain an 'invention,' or enact a sketch." His piece de resistance is the "Drug Store Scene" from Simple Simon [a broadway musical he wrote in 1930], assisted by four Ziegfield showgirls, whom he embarasses with adlibs, and Harry Shannon, to whom he offers to sell his amazing mousetrap with no doors, sure to drive mice away in frustration at not being able to get at the bacon. Acts include "new sailor act of Buster and John West, the comic songs of Rosetta Duncan, the romantic singing of Peter Higgins and the noisy jazz of those '21 girl Paul Whitemans of syncopation,' called 'The Ingenues.'"

Paris report:

Interesting history of circus and sideshow “freaks.” Current case in the French courts concerns US woman claiming share of her French father's 2M franc estate; said father was known “a generation ago in half the tiny hamlets of Europe as the 'man with a head like a cow.'” Deformities have attracted the curious for many generations, inspiring Victor Hugo's tale of “the man who laughed,” the star of a nomadic cirque whose face had been distorted into a “hideoous and perpetual grin” by a knife wound; John Barrymore later starred in a dramatization [note to Hugo estate: possible lawsuit concerning the Joker]. Sideshows have become less popular in the US, giving way to the “healthier entertainment” of movies, but in Europe and particularly France the travelling circus and its traditional sideshow accompaniment remains in style. Sideshow salaries vary widely. Small people were and still are the stars; “Tom Thumb” and his wife drew $1,000 a week each, and “Admiral Dot” $700. Giants also have been in demand, including Chang ($500), Hassan ($400), and the double threat giant-strongman Joe Dortel ($400). Unusual rearrangements of body parts can command high fees, including Millie Christine “the two-headed nightingale” ($1,000) and Francisco Lentino, the three-legged boy ($350). By contrast, the “old side show favorites, such as the ossified man, the man with rubber skin, ... the tatooed man,” etc. only commanded $30-$50 in prewar days. Of course, many fortunes were also made by fakes created by Barnum and imitators, including 40 copies of Jojo, the original “dog faced boy.”


A British epitaph in the village cemetary of Dagenham Essex: "Here lies John Steere, who when living, brewed good beer. Turn to the right, go down the hill; his son keeps up the business still."

"'What kind of a fellow is Brown?' asked Smith. 'Well,' replied Jones, 'if you see him carrying an umbrella, you are safe in betting the owner ... is getting wet.'"

The players - an Omaha wholesaler and a merchant in an "Iowa cross-roads town." The merchant rejected a shipment of goods. The wholesaler, incensed, took decisive action, writing to to the town's bank president about the merchant's financial standing, to the mayor asking him to recommend a good lawyer, and to the merchant himself, threatening suit, if he didn't pay at once. The reply: 'I received your letter telling me I had better pay up. I am the president and sole owner of the local bank and can assure you as to my financial standing. As the mayor of the city, I hesitate to refer you to a lawyer, since I am the only member of the bar in this vicinity. As to your request, if I were not the pastor of the only church here, I would tell you to go to hell.'

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