June 5, 2010

Friday, June 5, 1931: Dow 134.73 +4.36 (3.3%)

Assorted historical stuff:

[Note: Hmm ... isn't this the third or fourth iteration of this story?] "Thanks to the prompt measures taken by central and private bankers to defend Austrian exchange [currency] and to extend credits to the Austrian Creditanstalt, there is every chance now that Europe will weather successfully the storm which was produced by what has been described in responsible banking quarters as the biggest bank failure in history. There was serious danger at one time of financial panic throughout Central Europe." Large sums were placed at the disposal of the Austrian central bank, and the schilling has been kept stable. To date, the Creditanstalt has lost $60M in deposits, but it never closed its doors. It's likely the bank's entire capital, of which large blocks are held in the US and England, will be lost, and it will be reorganized on a smaller scale to operate within Austria. "There is no evidence of any irregularity ... but the institution had been over-expanded." There is an outstanding question of about $100M in loans from foreign creditors to Creditanstalt; they may be asked to extend them or accept Austrian treasury bonds instead.

Editorial: The midweek rally has "set the financial community to asking itself eagerly whether 'the turn' has arrived." The sometimes dubious reasoning used is less important than the apparent change in state of mind. A year ago it was often said that "the depression is chiefly psychological"; while this was certainly wrong then, it's become truer now. Of particular note, business men now seem to be changing their opinion, "which had amounted of late almost to conviction, that the present depression is wholly unlike any of its predecessors in origin and nature, and must therefore follow some unpredictable course to an unimaginable outcome." To quote from a recent remarkable advertisement, "Periodically, the country suffers from business depressions, during which the public abandons all hope of future growth. History shows, however, that the public has always been mistaken in such cases ... At the present time, talk is heard of adverse factors never before present, but this is the normal psychology of acute depressions." While recovery may be "slow and halting," it will again be accomplished through "vitality and ingenuity."

Washington report: Both supporters and opponents believe NY Gov. Roosevelt is in his best position yet for 1932, a little over a year before the Dem. national convention. He “seems so far out in front as to be almost alone,” and opponents have been unable to unite on an alternative; he's also helped by the increasing prominence of the economy over Prohibition as the main political issue. It used to be political tradition that the candidate far out front long before the convention was handicapped, becoming a target for the opposition; however, Alfred E. Smith “knocked the tradition into a cocked hat” in 1928 and Roosevelt appears set to repeat the feat. Gov. Pinchot's speech attacking the utilities failed to arouse much Washington interest; his views have been known for some time, and it's been generally thought he would try to use them to gain the 1932 Republican nomination. Gov. Roosevelt's speech on govt. initiatives to meet the depression drew more interest, particularly as a contrast with Pres. Hoover's speech condemning legislative panaceas.

"The summer of 1930 will long be remembered as the season of prolonged heat and excessive drought throughout the greater part of the US." Boston suffered the warmest June in a 58-year record; record high temperatures were recorded in many places, including 106 one day in Memphis, Tenn.; highest US temperature of 122 was as usual recorded in Greenland Ranch, Death Valley, Calif., though it didn't match the all-time US record of 134 recorded there a few years ago.

Over 1,400 representatives of Western German industry urged Chancellor Breuning to rule nation as dictator, forming a directorate of the most competent men. Dr. Schacht repeated plea for suspending reparations, pointing to breakdown of national economy and industry.

Editorial by T. Woodlock: Urge for government control of business comes from jealousy aroused by fact that “in every domain of human activity we find a few individuals standing out at the top, manifestly superior to the great mass of the community.” This arouses particular pain in the case of business since the successful gain “the things that men most desire, wealth and power, both not merely visible but flaunted before the public eye.” Naturally, the strongest advocacy comes from those “furthest removed from the business struggle”; it's only the fact that most of the US remains gainfully employed that prevents general acceptance of govt. control, since from personal experience they observe that businesses “penalize incompetence, whereas they observe no such operation in politics, rather, indeed, the reverse”; in spite of the current depression, “they seem to have the impression that even the frying-pan is preferable to the fire.”

W. Green, AFL pres., suggests Pres. Hoover call conference of all groups concerned in order to stabilize employment and wages before huge funds are necessary for relief. Advocates six hour day with no cut in wages.

Pan American Airways has started regular air express service to 17 countries, soon to be enlarged to 32; service reduces time for merchandise shipments to 1/3 - 1/2 of that required by the fastest steamships, enabling US shippers to get their goods into markets faster than any European competitor.

Charles Lindbergh is planning to fly across the Pacific and tour Japan and China with his wife; however, will do so by easy stages avoiding a long over-water flight to avoid exposing Mrs. Lindbergh to danger.

The Northernmost power plant in the world is at Porjus, Lapland [region of Northern Scandinavia] - well North of the Arctic Circle, it's a 78,000 hp hydro plant.

Francis Pearse, London physician used the same car to make professional calls for 30 years; when the time finally came to discard it, he had it buried in the cemetery with all the usual honors. [Note: one of the most amazing items I've seen yet. Imagine ... a doctor making house calls!]

William Childs opened third in his new chain of restaurants, “Old London” at 130 W 42 St (following “Old Algiers” on 102nd St and the Old Mill Inn in NJ). The premises, formerly occupied by Chase Nat'l Bank, have been refitted with a $1M Gothic interior and decorated “in the English manner”; the large bank vault downstairs is to be converted to a private dining room.

Market commentary:

Market wrap: Stock action was encouraging as rally followed through for a second day. Stocks opened irregularly, and a group of prominent bear operators skeptical of the previous day's rally as a technical recoil resumed pressure on Steel and other leaders, forcing some setbacks. However, strong support appeared on these declines and the rally resumed in late morning. Major rail shares moved sharply higher; buying broadened across the list, producing spirited rallies in almost every section; leading industrials worked steadily higher; Woolworth led advance in merchandising shares; trading favorites including Auburn, J.I. Case and Worthington Pump ran up sharply. Bonds moderately active, prices higher across the list; US govts. firm; foreign mostly higher; corp. highest-grade up slightly while strong rallies took place in lower-grade, with rally in rails "most sensational ever recorded." Commodities very strong; all grains up sharply, with wheat rising about 2 cents on reports of Canadian crop damage and strength in the stock market; cotton up very sharply on continued short covering. Copper rose to 8 1/4 cents; foreign buying heavy as price was reduced to parity with domestic; however, outlook seen weak due to high inventories and likely lower consumption.

Conservative observers began recommending buying at the end of the first hour, "when it was evident that the market was moving ahead in good shape." After the close, they advised protecting purchases with stop loss orders somewhat above the Monday lows.

Brokers reported buying by the public was substantially larger. Some of the sharp advances in various stocks attributed to short covering by the public who "had been playing the short side day by day" and "scampered to take in their commitments."

Copper shares were higher in spite of record low price for the red metal. Mack Truck and National Cash Register reported improved earnings in April and May have more than offset Q1 losses, putting the companies in the black for the year. American Can rose following positive statements by H. Phelps, pres.

Asst. Commerce Sec. J. Klein estimates new Canadian tariff affects $25M annually of US exports, or only about 4% of total value.

"Persistent selling in the past few weeks baffled many in Wall Street." However, many are now watching for signs of stabilization and establishment of base for subsequent recovery; first sign of this would normally appear in bonds and rail shares.

A currently popular long-term view on Wall Street calls for a further rally into Q2 earnings reports, which may be followed by another reaction leading to a double bottom in August. "Discrimination is urged in making selection when a rally appears imminent."

[Note: Hopeful signs Dept.] Stock market observers, on detailed examination, found encouraging indications of at least a temporary turning point. Recent day-by-day movements were highly similar to the start of the good-sized rally that followed the decline from Sept. 10 - Dec. 17 last year. Additionally, belief the selling movement had reached a climax on Wednesday was bolstered by relatively high volume seen earlier in the week. Total of 9M shares in the first 3 days, considering low state of brokers' loans, was seen as "large enough to suggest that liquidation had proceeded in sufficient volume to constitute temporary completion of the cleaning out process." Extent of the recent decline suggested "a rally of several weeks was in the making if the market proceeded along normal lines." Most remarkably, the rally followed 27 days after the NY Fed cut its rate to 1 1/2%, exactly as the bear market began 27 days after the NY Fed raised to 6%.

Editorial: The impact of Canada's most recent tariff increase is likely to become the subject of heated debate. However, the direct effect of this particular action is less important than the question of whether "the US ... set in motion worldwide tariff wall building that will delay the general recovery." As PM Bennett said, "Can Canada, in a protected world, be other than a protected country?" While other countries may have raised tariffs regardless of US action, we do know that many protested the Hawley-Smoot tariff and then quickly followed its example. "If the US set the example for making this a 'protected world,' it should take steps for conferences and agreements to lower the walls and unshackle trade."

D. Friday, economist, predicts “boiling” bull market in bonds by Sept., to run 18 months; says Treasury likely to issue bonds at 2 1/2%.

L. Pierson, Irving Trust chair., praises declaration of Nat'l Foreign Trade convention singling out rise in commodity prices as most essential factor for recovery.

H. Phelps, American Can pres., says “I believe we have passed the bottom of the business depression.” Sees business stimulus “as soon as manufacturers stop selling their products at prices below the cost of production.” Company orders somewhat behind last year but expects satisfactory year. Statements drew particular interest on Wall Street due to the company's well-known conservatism.

Economic news and individual company reports:

Leading NYSE brokers followed banks [see yesterday] in reducing margin requirements from 25% to 20%. Although expected, move was seen as positive; "in view of the drastically liquidated position of the stock market, there was nothing surprising in the stand ... that borrowings could now be assumed on smaller collateral requirements than would have been conservative when stock prices were substantially higher." Several important brokers also allowed margin for all listed shares selling above $5 (previously shares selling below $10 had to be bought outright); this was expected to increase public buying of low-priced issues.

Books were closed on $800M new issue of long-term 3 1/8% Treasury bonds; total subscriptions over $6B in spite of record low rate for long-term issue.

Fourteenth suit filed by East Texas oil operators against production curtailment. Almost all major oil purchasers have withdrawn posted buying prices in East Texas; oil is reportedly selling as low as 15 cents/barrel. Wholesale gasoline in the Chicago market continued decline to 2 1/2 - 3 cents/gallon vs. 2 5/8 - 3 1/8 previously; outlook seen weak. Independent Oklahoma oil operators ask support of Gov. Roosevelt for tariff protection after drastic purchasing price cut.

Van Dusen Harrington report on Northwestern crop conditions shows spring crops 7-10 days behind normal progress; high winds and earlier lack of moisture have taken toll, but few areas have damage that can't be remedied by continued rain and seasonal temperature. Rain badly needed in Western North Dakota and Eastern Montana.

Money in circulation June 3 was up $39M to $4.673B, total Reserve Bank credit outstanding up $52M to $938M. Member banks in NY City report brokers' loans down $35M to $1.539B; loans on securities to non-brokers down $27M to $1.751B.

Foreign currency drifted generally lower; marks made a new low for the year. Weakness in marks has forced Reichsbank to sell foreign exchange in the past few days. Brazilian milreis strong on "rumors regarding the possible solution of Brazil's economic problems," particularly that a payment moratorium might be avoided. Foreign stock markets were generally higher on rally in NY and apparent solution of Creditanstalt affair.

Farm Board chair. Stone denies rumors the Board stopped supporting wheat because it ran out of funds.

Prospects for international silver conference seen "definitely ended" by letter of Pres. Hoover to Sen. Smoot saying important nations were opposed to a conference at this time; this was seen as official confirmation Britain would not agree to any conference.

The Bond Buyer reports new municipal financing in May was $167.2M vs. $107.4M in Apr. and $142.4M in May 1930; first 5 months $727.4M vs. $589.4M.

Representative Trust Shares, a fixed investment trust [similar to ETF], has a comparatively small "loading charge" (premium paid over actual cost of underlying securities) of only 5 1/2% compared to 9%-14% for many other trusts of this kind.

May sales vs. 1930: [Note: sales declines partly due to one less business day in May 1931 and to Memorial Day falling on Saturday.] Woolworth $21.117M, down 4.7%; S.S. Kresge $12.123M, down 5.1%; W.T. Grant $6.606M, up 7.3%.

GM has shown noteworthy ability to maintain profit margin in face of declining sales by cutting expenses. Gross profits from operations (after all expenses but before depreciation and taxes) were 21.8% of sales in Q1 1931 vs. 22.7% in 1930 and 21.6% in 1929, in spite of sales declines of 24% each year.

G. Eastman, Eastman Kodak chair., says sales so far in 1931 not up to banner years of 1929 and 1930 but about at 1928 level; anticipates maintaining dividend.

Companies reporting decent earnings: Pacific Tel. & Tel.


[Note: Wish I had a time machine Dept.] The Band Wagon - Revue starring Fred and Adele Astaire, Frank Morgan, Helen Broderick, and Tilly Losch. A triumph, combining wit and clean intelligence with unstinting production, including a "double revolving stage"; "effect is brilliant without ostentation ... wise, gay, glittering. Fred and Adele Astaire are the finest dancing couple - comedian and comedienne - of all time, and their 'Sweet Music' and 'Hoops' dances are masterpieces." Tilly Losch is outstanding, and the lighter numbers with Morgan and Broderick are entertaining and at times deliciously pointed. "The most handsome and amiable of shows."


A Free Soul - starring Norma Shearer and Lionel Barrymore, at the Astor. "Highly melodramatic story of racketeering, free love, and a gangster's downfall" is uplifted by Barrymore's performance as "brilliant but dissolute lawyer." [Note: it's a good thing they didn't overuse that theme in later movies ...] Clark Gable again plays a racketeer, this time a relatively subdued one confining his activities to gambling.

Economist joke:

[Note: a nice variation on the current joke about an economist not picking up a $20 bill because the market is efficient.] Commodore Vanderbilt was once walking up Fifth Avenue when a friend called his attention to an important-looking individual on the other side of the street and said "Commodore, that is a remarkable man - he is one of the most astute economists in this country." Vanderbilt replied disgustedly: "Economist be d---ed, that man would bust a $14.00 pair of breaches to pick up a cent." (Story told in the context of a letter castigating Congress for "crass stupidity" in uniformly maintaining its "pound of flesh attitude" toward Germany).

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