June 11, 2010

Thursday, June 11, 1931: Dow 136.82 +3.85 (2.9%)

Assorted historical stuff:

[Note: Under capitalism, man exploits his fellow man, whereas under communism it's exactly the opposite ...] Soviet govt. starts "tremendous publicity and agitation campaign" on behalf of new internal loan of 1.6B rubles "in response to the insistence of workers who demand the privilege of contributing at least three weeks wages." M. Kalinin, Soviet official, reminded workers they must subscribe since the govt. had graciously yielded to their demands and issued the new loan. T. Watson, IBM pres., speaking to the Financial Advertisers Assoc., calls for more active education on current investment opportunities: "Speaking to you toward the end of this depression we are going through - and in my judgment we are near the end - things generally are showing some improvement. It would help tremendously if the financial advertising profession could devise a plan ... for placing before the public the investment opportunities which exist today."

Former Belgian Premier G. Theunis urges US cooperation with Europe in meeting the Russian problem.

AFL pres. Green says labor won't accept general wage cut, even if driven until its back is against the wall; urges industry to assure job security and rehire the idle as quickly as possible; says unemployment has destroyed buying power of 25M people and curtailed buying of another group due to fear. Labor Dept. reports 146 strikes and lockouts in Q1 vs. 653 in 1930, 903 in 1929 and recent low of 629 in 1918; 14% of the disputes occurred in NY City.

War veterans meeting at Chicago June 12 will reportedly launch nationwide campaign for full payment of veterans' bonus.

Editorial by T. Woodlock rather sarcastically questioning avowed good wishes of the National Grange [farm organization] toward the railroads. “Somebody once defined 'charity' as a lively feeling on the part of A that B should at once do something to meet C's necessities. Whatever 'benevolence' ... that the Grange has entertained toward the railroads in its 70 years or so of life has been well-dissembled to date.” Recalls that “early repressive legislation against railroads is commonly referred to in the history books as 'Granger legislation.'”

Rep. Dyer (R, Mo.) tells Pres. Hoover nothing would do more to relieve unemployment and restore confidence than legalizing beer.

Treasury Sec. Mellon says trip to Europe is for purpose of seeing son graduate from Cambridge, and has no official significance whatsoever.

The Amer. Institute of Architects warns termites are causing heavy annual losses to buildings and their contents. "There is no section of the country, and no type of building immune from termite attack. These insects have destroyed valuable papers filed in non-combustile vaults of steel, concrete, and masonry. ... In locating their food - wood, papers, etc. - these insects, usually eyeless and wingless, show an uncanny knowledge or instinct, and soon get access to it, always remaining undercover, and often displaying an engineering ability hard to believe." The first hint of their presence may be "the failure of a floor, ... or the picking up of a book and finding nothing there except the exterior surfaces." Termites live in colonies like ants and bees, with a highly developed social order including queens, workers, and other castes. Each colony is self-sufficient, not maintaining connection with any other colony or any permanent opening to the outside world.

Saloons and bakeries were once public utilities in England; in the 17th Century, the price for bread and beer was regulated at the Bread and Beer Assizes.

War Dept. won't allow construction of proposed rail and highway bridge across the Hudson River at 57th St.; decision leaves B. & O. RR with no immediate plans for bringing trains directly into New York to compete with the Pennsylvania RR.

First bank in NY City was launched Mar. 15, 1784 under leadership of Alexander Hamilton; first public mention was in small advertisement in the NY Packet inviting those interested in starting "a bank on liberal principles, the stock to consist of specie only" to meet at the Merchant's Coffee House the next evening. Known then as the Merchant's Bank, it merged with the NY Life Insurance & Trust Co. in 1922.

Market commentary:

Market wrap: Stocks fluctuated irregularly on lower volume most of the session, but turned generally higher in the afternoon. Urgent short-covering broke out around end of first hour after NY Central's maintained $6 dividend rate; majors advanced sharply but as abruptly declined again. US Steel report of unfilled orders was followed by brisk rally in Steel common; general list was uncertain in mid-day but well supported on setbacks; Woolworth report of sales increase brought further encouragement; strength spread across the market in afternoon trading, with rails leading. Bonds featured strength in foreign list; German issues were slightly lower, but almost all other countries showed rising tendencies, with sharp rallies in Brazilian and other S. American issues and in Australian bonds. US govts. and highest-grade corp. were firm while rails and convertibles were irregular. Commodities mixed; grains soft, losing early gains after reports of widespread Canadian rain; cotton up substantially on irregular trading. Copper buying small, sales at 8 - 8 1/4 cents.

Conservative observers still cheerful; point out market has resisted pressure much better lately; advise customers anxious to adopt long side to gradually buy standard stocks and to protect accounts with stop-loss orders.

Technical market observers were encouraged by lower volume and by favorable recent action of the Dow rail and industrial averages. A change in sentiment was indicated by the market's recent resistance to selling after disturbing news. "Responsible quarters" believe some liquidation is still to come from the banks, though it's probable the selling will wait until the market moves somewhat higher.

American Can has been well supported in recent weeks; it is one of the issues that made its bear market low in the initial break in Oct. 1929 and has not been that low again. Woolworth remains a trader favorite, while Westinghouse remains a popular bear target. National Biscuit earnings, according to "usually well informed" interests, have been running somewhat below last year.

Better cooperation seen by rail-related interests including rail officials, security holders, and banks. Belief is also "growing that suggestions will be given more than the usual amount of attention by government authorities."

Editorial: Govt. report on wheat condition as of June 1 was "a bullish surprise to the market," indicating total crop of 834M bushels, about 60M below previous private estimates. This is still above the 10 year average of 820M, but there are other bullish factors including poor condition of spring wheat and Canadian drought.

Editorial: Endorsement by the Investment Bankers Assoc. of the NYSE's code for investment trusts [similar to mutual funds and ETF's] is significant, since the committee that approved the code consisted of bankers experienced in the field. This refutes complaints that the NYSE rules are too restrictive. It's clearly necessary for some recognized principles to be adopted for this new investment field, "where standards had been almost nonexistent." The NYSE code is "designed to insure investors a full and continuing knowledge of the ways in which his funds are employed," including revelation of capital losses and of the sources from which dividends are derived. One controversial feature "prohibits the use of calculations showing how a given trust would have fared if organized a number of years before its actual origin." The code seems likely to become a standard for investment trusts; "advantages of its formal acceptance by sponsoring houses will be obvious."

A report listed factors contributing to weakness in securities including malicious rumors, foreign political unsettlement, falling commodity prices, decline in foreign trade, labor's disregard of lower living costs, frozen loans, etc. The report was "from the Wall Street Journal of June 24, 1921, when things looked more clouded than they do now. Then, as today, wise counselors were saying: 'Buy now.' A few weeks later the long upswing began." Ernst & Ernst survey of over 400 companies finds 1930 depression had slighter effect on business than that of 1921.

F. Bernard, Indiana Bankers Assoc. pres., says business applied new scientific approach to increasing production and distribution but not to keeping forces properly balanced. “Business should no longer be the haphazard, catch-as-catch-can thing we once thought it was.” Says one of major factors contributing to current situation was “maladministration of our credit structure,” for which bankers bear a major responsibility.

J.M. Keynes, in the US for a series of lectures, expressed amazement over US indifference to falling commodity prices. "The continued fall cannot go on month after month. People do not seem to understand its significance. It is bound to upset our whole economic stability." Similar predictions of disaster were made by Sir George Paish recently. However, veteran observers here were more composed, arguing that "whenever conditions have reached such an acute stage, the expected never happens, but some measure of recovery sets in."

Economic news and individual company reports:

Nat'l Bank of Hungary reportedly obtained emergency $8M credit from BIS to protect against repercussions of the Creditanstalt collapse; withdrawal of US funds from Central Europe said increasing strain on central banks there.

Berlin stocks broke sharply Wednesday; decline attributed to foreign selling and nervousness over attitude of political parties. Reichsbank has had to actively support marks for the past two weeks, first as result of the Creditanstalt crisis and then due to “political uncertainty.” This has caused significant loss of reserves, but reserve position remains strong. A looming difficulty is possible failure of a Reichstag special session to approve austerity decrees; this could lead to new elections and renewed capital flight due to fear of radical gains. German press has been attacking the BIS for its lack of effort to make long-term credit available in Germany, pointing out prime commercial and mortgage borrowers have been paying 7%-10% for long-term loans.

Leading bank authorities in the Midwest reportedly believe the local banking situation is practically cleared up by the recent closing of a number of small banks, though "there may be some additions to the number already announced"; mergers effected on Monday prevented any real difficulties and larger banks are believed sound. Three more outlying Chicago banks failed, bringing the week's total to 22 with deposits of about $57.5M; larger Chicago banks have offered support to some outlying banks that are believed sound.

Bank of US trial featured appearance by Grand Jury stenographer to confirm statement at the Grand Jury by I. Kresel, main defense witness, which he later denied making. Statement was to the effect that "something was suspiciously wrong" with the $8M transaction on which the indictment was based.

Steel production for week ended Monday was about 39% vs. 41% prev. week, 43% two weeks ago, 70% in 1930, and 96 1/2% in 1929. US Steel reported decline in unfilled orders of 277,277 tons during May; however, this was in line with predictions and below the average May decline for the last 7 years. Weekly steel reviews had little constructive to say. Decline attributed to lower automotive production. Current rate appears unlikely to hold, since no gains are seen likely in any line and automotive demand appears set to fall further; summer minimum in production to be lower than expected. Prices of finished products are not being tested much since users are showing little interest in placing contracts for the third quarter.

NY Central declared regular quarterly dividend ($1.50), as did seven subsidiaries.

Woolworth reported sales in first week of June were 7.7% over the 1930 period, first sales increase in nearly two years. Woolworth is to receive $27M in cash and shares valued at $77M as a result of spinoff of its British subsidiary.

Sales of East Texas crude oil made as low as 12 cents/barrel. Gasoline in Chicago wholesale market sold as low as 2 3/8 cents/gallon; most sales at 2 1/2-2 7/8. Experts estimate total potential oil recovery from East Texas at 2B to 5B barrels, and from the great Kettleman Hills field in California at 2.4B.

US electric output for week ended June 6 was 1,562 GWHr, down 2.9% from 1930, vs. a 3.8% decline prev. week and 4.4% two weeks ago.

Class 1 rails put 5,330 new freight cars in service in the first 4 months of 1931 vs. 34,987 in 1930; as of May1 there were 8,554 new cars on order vs. 33,723.

Govt. reports weather favorable for cotton and corn; wheat conditions more mixed with rain needed in much of spring wheat area.

British unemployed June 1 rose to 2.630M vs. 2.507M on May 18; however, German unemployed May 31 declined to 4.067M from 4.389M on Apr. 30.

Spanish pesetas rose on rumors of possible French credit and that Spanish Socialists favor stabilization. Brazilian milreis rose on rumored debt plan. Uruguay Administrative Council voted not to suspend debt payments as suggested by Pres. Terra.

Brotherhood of Railway Trainmen closes convention at Houston; lasted 37 days at cost of nearly $1M.

History of the Insull utility empire. Starting with a struggling Chicago electric co. that had trouble selling its securities when Samuel Insull became president in 1892, utilities controlled by Samuel and associates including brother Martin and son Samuel Jr. have grown into empire extending from East Coast to the Rockies and into Canada and Mexico. Annual operating revenues approach $400M, and total capitalization is over $2B. Quickly adopt newest and most efficient generation methods and interconnection of systems. Threat of takeover by unfriendly interests warded off through holding company structure.


The Five-Year Plan, Russia's Remaking - Russian production, with a talk in English, at the Central Theatre. Subject of this long film is now "attracting an unprecedented share of world attention, for a news subject that is neither war nor flood nor a Lindbergh flight." However, the film is disappointingly little more than a routine travelogue, tending to repetition and lacking the impact of previous Russian films that have appeared in the US. So much news and analysis has been published on the subject, and so many photographs and newsreels circulated, that the film has little to add. There is some interest in scenes concerning social play, geographic features including vast timber stands, and the work of American technologists in Russia.


"' I would like to marry your daughter.' 'One word first. Can you support a family?' 'Certainly, sir.' 'Very good. I must tell you there are seven of us.'"


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