June 10, 2010

Wednesday, June 10, 1931: Dow 132.97 -2.95 (2.2%)

Assorted historical stuff:

German-British conversations apparently only resulted in decision to seek international collaboration to solve world economic crisis; possibility of joint presentation to the US seen. Meeting seemed overshadowed by upcoming European trip of Sec. of State Stimson, which has raised high hopes in German govt. quarters that he will advocate using US power to reduce war debts in exchange for European arms cuts.

Washington report: Administration appears to have settled on strategy for handing war debt revision: "sitting tight awaiting developments." US seen as interested but passive observer to current developments; will become active participant if debtor nations propose revision of their debts to the US. However, in this case Congress and not Administration would have final authority on debt revision. Therefore, "natural procedure ... for the present is one of sitting tight"; meantime, govt. officials will stay informed on conditions in debtor countries so they can make recommendations. Attitude of Congress seems likely to be problematical, particularly on linking war debts to reparations.

Editorial: Reticence has its place in public life, but the Administration is carrying it too far. Even the most astute observers seem to be hopelessly unclear about the Administration's stand on debt reduction; reports from three NY dailies give wildly different impressions, with Hearst's NY American saying the Administration was dead set against debt revision, the Times saying Pres. Hoover has been "shouting from the rooftops" that a substantial cut in arms might bring a positive US response on debts, and the Herald Tribune occupying a rather confusing middle ground. It's time for some clarity and "preparing the public mind for what is to come" on this essential issue. "It is impossible to believe that men like Mr. Hoover, Mr. Stimson and Mr. Mellon content themselves with such vacuities as 'hoping for the best and preparing for the worst'" or that they don't realize "the importance, in the present state of world financial strain," of US initiative to restore "confidence in the closely woven fabric of international credit."

British and French authorities disputed reports Pres. Hoover had made any remarks implying US willingness to reduce war debts in exchange for European arms cuts; while Hoover did stress the need for arms cuts, he made no mention of debts. French Foreign Min. Briand says govt. strongly opposed to any international debt conference as outgrowth of recent British-German conversations.

Editorial by T. Woodlock questioning how long business can maintain wages in face of possible bankruptcy, particularly in the case of railroads: "We all grant that the wage-earner has first claim upon industrial revenues [Note: Strangely unfamiliar dept.]; he holds a prior lien obligation. But, when after satisfying his lien the capital employed cannot get a new dollar for an old one, how long must it continue to operate before it asks the wage-earner to take less? Or, if the wage-earner will not take less, before it may cease to operate?"

Soviet industry reportedly threatened by serious coal shortage due to rapid growth of industries. Average coal production before the war was 29M tons; this fell to 8.5M in 1920; scheduled production under the five-year plan is 74.5M tons this year and 130M in 1933.

Interesting history of electric utilities and copper wire. First practical commercial use of electricity was in 1844, with Morse's telegraph line. This created demand for copper wire and hastened development of wire-drawing process, which came in handy when Edison's incandescent lamp arrived about 33 years later. First central power station, Edison's small plant on Pearl St. in NY City, supplied 220V direct current over a few blocks using copper wire; it had 500 customers in its first year of operation, 1882. The electric industry now consumes about 65% of total copper production; the two industries have developed hand in hand.

On June 15, final link will be made in international airway connecting Canada and Mexico.

E. Paine, sugar executive, says the industry recently received its "most encouraging news ... for many years." After 9 years, a process has been developed to turn sugar into "a new plastic substance" that can take forms of "a hard insoluble glasslike mass, white transparent rubber, ... and transparent package material."

The USDA estimates soil erosion each year removes 20 times as much "plant food" from the farms as is consumed in actually growing crops. Irreplaceable top soil washing out to sea is gradually reducing usable farmland; over 17M acres of land formerly cultivated has been eroded so badly that farmers can't afford to reclaim it.

Many of the big old New England hayfields have disappeared, and with them switchel, a traditional drink used by field workers to wash down dust and hayseeds on hot, dry days. Recipe was a mixture of molasses, ginger, water and a dash of vinegar; the jug was cached in the shade or a spring hole to stay cold.

P.G. Wodehouse recently spent a year in Hollywood, for which he was paid $104,000. However, he's not sure exactly why he was hired, since he was given little to do; he "polished the dialogue" on two completed scripts, and worked for 3 months on a musical script that his employers then decided not to use.

Market commentary:

Market wrap: Stocks opened strongly, extending Monday's gains on a broad front with rails and oils particularly impressive. Market fell sharply around 1 o'clock after reports of Chicago bank suspensions and Western Electric dividend cut; AT&T broke about 5 points and other majors sold off. Trading lightened in afternoon but no rally appeared; action in last hour "nervous and uncertain." Bond prices improved in many parts of the list; US govts. dull and steady near recent highs; foreign list featured rallies in German and Brazilian issues with other countries steady to firm; domestic corp. showed encouraging improvement in some recently weak issues, though convertibles fell late along with the stock market; oils, rails, and NY tractions showed particular strength. Commodities weak; grains soft on reports of Canadian rain; cotton closed down sharply after losing early gains. Copper buying moderate at 8 1/4 cents.

Conservative observers say market will be sensitive to developments, but warn against taking the short side since they still believe the market will reach a higher range before any important downtrend takes place; see "intermediate rallying movement" continuing with interruptions. Recommend stop orders for protection.

Brokers report customers "both in the metropolis and in other cities" have been more inclined to pick up stocks on dips since the recent rally. Bears have evidently been fighting the rally and probably will continue to resist further upturns. While many traders reportedly have deserted the bear ranks, some important operators continue to maintain their positions; huge profits in the past 20 months have given them confidence to contest rallies. "It must be admitted, however, that their efforts to hammer stocks have not been nearly so successful recently as during the period of necessitous liquidation." A change in sentiment has apparently taken place, and reactions seem likely to attract buying support in the immediate future. Market seen in stronger technical position to anticipate fall business improvement, thanks to extensive liquidation of brokers' loans.

Oil shares benefited from improved sentiment in the California oil industry, with producers apparently lined up to curtail daily production to target of 427,500 barrels/day (excluding Kettleman). Rise in crude prices is expected shortly. However, situation in East Texas remains "in a muddled state."

Being a corporate director isn't always "the enviable job ... often popularly pictured." R. Babbage was recently elected to the Board of Directors of the Missouri-Kansas-Texas RR; he has since attended one meeting, receiving a $20 fee, but has a paper loss of $1,500 on 100 shares of "Katy" he bought when elected.

US Steel report on unfilled orders as of May 31 will appear at noon. A substantial decline is expected, as is normal seasonally; a "slightly better than anticipated" showing might have a beneficial effect.

W. Alton Jones, Nat'l Elec. Light Assoc. pres., points out stability of utility industry in depression; in comparison of Q1 earnings with 1930, total of 259 industrials was 54.8% lower, total of 171 rails was 39.3% lower, but total of 76 light, power and gas cos. was only 1.6% lower.

Conflicting factors make local bank earnings hard to predict; profits are likely to decline due to poor business, low money rates, and "unusually liquid condition" but should benefit from marking up of high-grade bonds so far this year.

D. Friday, economist and Treasury advisor, predicted US business will reach normal by 1932 and continue progress to new era of prosperity in 1933; "Production cannot continue at a level of 35% below the peak if it is to meet the demand of consumers."

Interior Sec. Wilbur says economic conditions look to be in a state of convalescence. However, "Dr. Wilbur said there are factors in the economic situation that go beyond our present powers of accurate measurement and definite diagnosis."

Amer. Bankers' Assoc. says continued subnormal industrial activity in the past month is disappointing, but after adjusting for seasonality general trend now appears to be up; retail trade is gaining and consumption of many commodities is being maintained well above output. "Without attempting to prophecy the future, it may be safely said that the likelihood of continued, though slow recovery, seems much stronger than the possibility of a renewed declines to still lower levels of depression."

Economic news and individual company reports:

Investment Bankers' Assoc. committee decries real estate bond situation as one of the "blackest spots in our present financial outlook." Estimates total volume outstanding at $8B-$12B; about $400M in foreclosure in Chicago alone, similar conditions in most large cities. Rough breakdown of overall market condition: about $2B in good standing, $2B likely to work out without loss, $2.5B likely to foreclose with losses of 10%-25%, $3B with losses of 25%-60%, $500M with larger losses or should be entirely abandoned. Warn sharp curtailment of building possible until present situation has cleared; important to reestablish confidence in real estate securities so investing public would be willing to finance sound projects; suggest consideration of forming mortgage guaranty companies. J. Tyler of E.G. Tillotson & Co. said this type of bonds had suffered from the long-term public conviction that real estate is the safest form of investment; also blamed too much reliance on well-intentioned appraisals of value and called for greater margin of safety.

Bain group of 12 banks in Chicago closed due to "frozen real estate credits." Leading bankers "in close touch with the situation" said closings of 18 small Chicago banks in the past 2 days were not of great significance, and that settlement of the Foreman Banks' difficulties through merger yesterday eliminated the only major sore spot in the Chicago banking situation. The six banks that closed yesterday had total deposits close to $25M, while the 12 closing today had $13M.

Continued contraction in bank credit outstanding is disturbing, particularly since it's against normal seasonality; this indicates no early increase in business activity is likely. Security loans have been heavily liquidated; “all other” (commercial) loans are lowest since 1924; bank holdings of non-govt. securities have declined in spite of very low money rates.

Reichsbank has lost an estimated 200M marks of reserves so far in defending marks, but position still strong and seen able to avoid rate increase for some time.

Conference of Australian govt. and opposition leaders agrees all spending must be cut substantially to avoid national default; sacrifice must be shared by all; owners of internal bonds will be asked to accept cut of 22 1/2% in rate, to 4%; "suggestion that recalcitrant bondowners be coerced with threats of penal taxation was abandoned in favor of voluntary methods." Australian trade balance improved to surplus of $84.4M in 9 mos. ended March, from deficit of $163.8M in 1930.

Chicago school teachers' organizations fighting proposal to save about $1.5M/year by cutting school expenses and eliminating automatic pay increases. Mayor Cermak and Gov. Emmerson are in Springfield conferring on legislation to relieve Chicago's financial emergency; Cermak proposes to replace the elected Board of Assessors with an appointed committee of 3 experts to take charge of the tax situation; only 58% have paid 1929 property taxes with many protesting assessments.

Defense rests in Bank of US trial after 4 weeks and 13 witnesses; prosecution begins rebuttal.

Tennessee House clears Gov. Horton of impeachment charges.

Western Electric cut annual dividend rate to $3 from $4; 98% owned by AT&T. Sinclair Consol. Oil omitted dividend.

National conference of rail executives to be held in NY June 11. Southern rails apparently have decided to back Eastern and Western rails on any decisions on asking for rate increases reached at the conference; this is seen strengthening the rails' case before the ICC. Of 42 representative rails reporting earnings for the first four months, only 3 showed an increase in net operating income over the two preceding years. Rail freight loadings for holiday week ended May 30 were 710,931, down 44,137 from prev. week, down 17.3% from 1930 week, and down 28.9% from 1929.

Refineries ran at 68.8% in week ended May 30; stocks of gasoline fell 570,000 barrels to 44.225M. Crude oil production in week was 2.475M barrels/day, up 12,800 from prev. week and down 113,100 from a year ago.

USDA estimate of winter wheat crop based on June 1 conditions was 649.1M bushels, 25M below the average of private forecasts; low forecast came as distinct surprise to the grain trade. No estimate given for spring wheat, but condition of 67.9% was lowest June 1 figure ever reported. Permanent committee of wheat exporting nations to meet for the first time this month; breakdown of the cordiality established at May wheat conference feared. "All countries are agreed as to the causes of the present depression in the wheat market but differ widely on how to dispose of their huge surpluses."

Fertilizer Review reports usage in the US in 1930 was record of 8.110M tons vs. 7.975M in 1929.
International tin committee will meet in Paris June 16; will consider forming pool to withdraw important quantity of tin from the market.

Commerce Dept. reports seasonal upturns in a number of foreign countries in the past week, including France, Czechoslovakia, Japan, and Argentina.

Structure of Canadian newsprint industry seen threatened if bondholders refuse to go along with reorganization plan for Canada Power & Paper; one of the largest producers, it's now "on the brink of liquidation and dissolution."

US film producers open negotiations to relieve restrictions on French imports of US films; under current agreement, US producers must buy heavy percentage of French films in order to export US films to France. Negotiations await return of M. Petsche, "undersecretary of state for beaux arts."

D. Lawrence, publisher of the US Daily, reportedly negotiating for purchase of the Washington Post at price around $3M.

International Match [Ivar Kreuger-associated] earnings so far in 1931 reportedly "holding at record levels in the face of the world business depression." Woolworth earnings so far this year reportedly ahead of 1930; pres. Parson says expects June to almost make up the sales decline reported so far in 1931. Oakland-Pontiac enjoying one of finest years in its history; Pontiac 1931 business expected 50% over 1930, and Oakland 25% over. Glidden reports retail paint division increased May sales 15% over 1931; sees increase as encouraging indication general business is improving.

Companies reporting decent earnings: Novadel-Agene (products for bleaching wheat and flour).


A New Yorker "whose Western view had for years been obscured by the Hudson River recently was forced to make a trip to Chicago." He asked the Pullman porter what his average tip was. "About a dollar, sir," was the reply. The Gothamite obligingly handed out a dollar bill. "Thank you, sir," said the porter. "You're the first gentleman ever came up to my average."

"My husband and I find it's more economical to balance our budget in the evenings." "How's that?" "By the time we've finished it's too late to go anywhere."

1 comment:

  1. This comment has been removed by a blog administrator.