June 17, 2010

Wednesday, June 17, 1931: Dow 135.47 +0.21 (0.2%)

Sober common sense dept.:

Editorial by T. Woodlock arguing current security prices are a “golden opportunity” for investors.
Opens with oft-told tale of a Rothschild who advised a friend to buy bonds during a time of political “instability” in Paris. “'But,' his friend protested, 'the streets are running with blood!' 'Certainly,' was the banker's reply. 'If they were not you could not buy ... at these prices.'”

Three times so far in the bear market (Nov. 1929, Dec. 1930, May 1931) “we have had conditions in the market which can be described truly as ... unreasoning fear” or panic, with prices reaching lower levels each time. “But what is all this other than the golden opportunity for the prudent investor? ... How can he expect to get bargains except when most other people are, through fear,” selling for whatever price they can get? Bonds on which interest continues to be paid are selling to yield 6%-12% or more; stocks are trading at the value of short-term assets, with no value assigned to factories or future earnings prospects. There can be little doubt we now have a multitude of bargains on offer, barring “a really world-wide collapse of the financial and economic structure”; as dark as that structure looks when painted by “the most extreme among observers of today, precedent and experience” argue against such a collapse.

It seems easy looking back on previous panics to recognize all the bargains available then; as we can see now, it was not in fact easy because of “the tremendous power of the prices themselves (either at top and bottom) to inhibit the right action.” As the old Wall Street saying goes, "bulling stocks at the bottom is hard work."

There have been times in the past when "large portions of the planet suffered secular changes and what we call 'civilization' was temporarily eclipsed"; these may come again but it's futile to plan for this, "for there is no way to protect oneself in such a contingency." Short of another such episode, it's likely "at least the preliminary preparations for a beginning of the commencement of the foundation for a return to reasonably normal conditions are being made" [note: whew!] and that's all an investor needs to know.

Assorted historical stuff:

Pres. Hoover speaks to Indiana Republican Editorial Assoc. Rejects idea of advance "plan" for US development as infection from Russian 5-year plan; instead, "I am able to propose an American plan to you. We plan to take care of 20M increase in population in the next 20 years. We plan to build for them 4M new and better homes, thousands of factories ... to provide new parks, schools, colleges and churches for this 20M people. We plan more leisure for men and women and better opportunities for enjoyment ... we shall by scientific research and invention lift the standard of living and security of life of the whole people." [Note: Ya know, Hoover wasn't such a bad speaker ...] Favors "expansion of useful public works in hard times" but against huge bond issue or tax increase to finance public works since this would rob industry of capital. Opposes Federal unemployment insurance as leading to dole, instead advocates insurance through industry-labor operation. Opposes tariff revision, saying mechanism for correcting tariff problems is functioning. Condemns "raids on our [security and commodity] markets" by small groups who increase fear, but doesn't mention any preventive legislation. Does mention strengthening Fed. Reserve system and banking reform; condemns capital gains tax; real estate tax burden too heavy. Says revolutions in many countries have spent themselves; stability is increasing and forces of recovery are asserting themselves.

Editorial praising Pres. Hoover's speech rejecting idea of a "plan" for the US and offering instead an "American plan" based on flexibility and individual initiative. A planned economy in Russia "is the natural and even necessary successor to the ancient autocracy which decayed and disappeared." However, despite fear-mongering, the people of the US should stick to "their own flexible scheme of ideas" that has "worked marvelously well on the whole" over its history.

German crisis averted again as Breuning convinced members of Reichstag steering committee not to call special session. Observers feared recalling the Reichstag would lead to debate on the highly unpopular austerity decrees, and possibly to fall of the govt. and new elections; this in turn “would probably result in another startling gain in radical strength, probably precipitating another financial crisis.” As matters stand, Reichstag won't reconvene until Oct. 13, giving Breuning govt. several more months to work out difficulties without “political hindrance.” German govt. sources said would postpone declaring reparations moratorium until August, hoping to reach debt holiday agreement with creditors instead. Berlin stocks and bonds were higher, while pressure on the mark seemed to ease. However, continued heavy international transfers of gold took place Tuesday; attributed to Reichsbank's defense of marks.

Editorial: The NY Fed's report of Monday the 15th revealed over $41M in gold released from a foreign account, assumed to be by the Reichsbank to support currency; there have been other heavy releases of gold lately. Germany is hard-pressed, and making strenuous efforts to maintain her position. "When a horse is struggling to pull uphill a load that taxes his strength, platitudes and words of encouragement of those in the wagon do not help him. Real help would be to get out and lighten the load. The nations that are the most interested in seeing Germany get to the top of the hill are all in the wagon. ... Germany has shown that she deserves the world's faith in her; she also deserves something more substantial than mere faith."

Commerce Sec. Lamont appoints Donald Sawyer of NY City to new Federal Stabilization Board set up by Congress at last session. Board is to do advance planning of all Federal construction to prepare for future unemployment relief.

Pres. Hoover and former Pres. Coolidge dedicate memorial to former Pres. Harding; Hoover calls him a man of fine character whose administration had many accomplishments, but who was betrayed by a few he believed to be devoted friends. Hits betrayal of public trust as worst of crimes.

Herald Tribune reports William Randolph Hearst may make bid for the Washington Post; price put at about $3M.

"Henry Ford planting cantaloupes on experimental farm in effort to produce alcohol for automobile paint. Will attempt to grow every raw material necessary for an automobile."

Chrysler demonstrates new “vibrationless” 4-cylinder car; patented development “amounts to a basic change in the construction of a car,” approaching “smoothness of an electric motor.” Some observers believe “the innovation may rank equally with four-wheel brakes, the self starter, and the closed body.”

William Rockefeller's long-ago response to a hostile Congressman's question “What do you regard as Standard Oil's greatest achievement?” - “Dividends!”

Japanese women "recently won the right to become full-fledged Buddhist priestesses"; development seen likely to "revolutionize the priesthood." Training schools have already been established in Tokyo and Kyoto. Will not be required to shave heads.

The Seamen's Bank for Savings is exhibiting a collection of old toy savings banks showing a variety of ingenious strategems for inducing children to part with their coins. Coin-snatching figures include a circus elephant, a soldier with a cannon, an eagle guarding her eaglets, and William Tell "who shoots a nickel over his son's head, never braining that staunch lad regardless of how hopeful may have been the young spectators."

Market commentary:

Market wrap: Leading stocks opened weakly, with rails again subject of profit-taking. However, trading turned very dull on the decline, with volume in the first 3 or 4 hours reaching the lowest level since July 1926. Stocks turned "virtually motionless" through mid-day, with trading remaining very small. Firmer tone developed in afternoon; trading picked up quickly the moment prices turned up; rally gained considerable momentum in the last hour, led by strong comeback in rails. Bond market unsettled by severe slump in second-grade issues, particularly rails, while highest-grade rails only suffered small losses; US govts. steady to firm; European list featured continued strength in German bonds, steadiness elsewhere; S. American mixed with break in Chilean on default rumor while Brazilian and Argentine issues rose. Commodities mixed; grains narrowly mixed despite Farm Board announcement on continued sales; cotton up sharply on short-covering despite continued good weather. Copper remained at 8 - 8 1/4 cents with little buying; some consumers are asking for Q4 and Q1 1932 deliveries but are unwilling to pay more than 8 cents.

Conservative observers say market action satisfactory, continue to recommend careful accumulation on reactions, with stop orders for protection.

Low early volume was encouraging to observers who believed market "would have to pass through a period of intense dullness before it could be concluded that liquidation had run its course."

Financial district is convinced rails will receive an increase in freight rates, though it's likely to be less than the requested 15%. NY City traction [mass transit] shares declined after surprise action of IRT and BMT in rejecting Untermeyer unification plan as basis for hearings. Situation now unclear, with "several courses of procedure" now possible. Transit Commission will continue hearings without company participation. A broker reports information from a source accurate in the past that Woolworth will declare a 25% stock dividend and raise its cash dividend after completing offering of its British stores.

While business conditions haven't significantly improved, business sentiment appears better thanks to the market rally; businesses are making plans aiming at improving their operations; "view is held that the stock market may be reflecting an improvement in business later in the year."

Interest on the long side of the market seems to be increasing, though it's reflected more by inquiries from the public than any evidence of larger buying. Many interests continue to look for a secondary reaction; they will be more likely to adopt the long side if stocks draw impressive support near lows of the last decline.

Bond dealers and investment houses note investors are concentrating on best-grade bonds, marking them up to high prices while neglecting almost completely bonds not as widely known but offering reasonable security; this marks "swing of the pendulum to ultra conservatism from the late era of speculation."

G. Cortelyou, Consol. Gas of NY pres., cites "need for public understanding of the utility business"; calls for advertising to "create an intelligent and enlightened opinion." W. Hodge, Byellsby Engineering VP, hits "advocates of the collective ownership and operation of business and industry"; says they want to risk hundreds of millions of public money on unsound projects such as Muscle Shoals "merely for the sake of harassing the power companies and moving forward toward political control and the general scheme of socializing all American industry, including agriculture."

Sir James Salter, former League of Nations economics section director, says industry and finance must take collective action before next boom in business develops in order to avoid even worse depression afterward; calls for restraints on speculation and loans to unsound governments.

Economic news and individual company reports:

Weekly bank reports indicated “getting out of debt still seems to be the primary concern in finance.” Loans have declined almost uninterruptedly since start of year; earlier in the year both commercial and security loans were liquidated but lately commercial loans have only declined slightly. Fed. Reserve June bulletin reports commercial loan rates charged by banks have declined in much of the country, though trend is less visible away from “principal money centers.”

Review of 1930 gold movements shows unusually large addition of $600M to central bank gold reserves vs. total gold production of $400M; however, most of the increase went to the US and France, while “outlying raw-material producing countries” lost gold and “other large commercial countries” were steady.

Contrary to recent rumors of extensive layoffs, Ford Motor Co. factory employment is a little over 79,000, up several hundred from last week and compared to 84,000 during peak operations in April. About 50% of employees are on a 3-day week, 18% on 4 days, and 32% on the full 5-day week.

Supreme Court decides representation that City Trust Co. stock was worth $325 a share three months before the bank failed did not constitute fraud in selling stock, and stockholders who gave notes for their shares must now pay the defunct bank.

S.W. Straus reports May construction permits in 555 cities were $139.5M, down 30% from 1930 and down 18% from Apr.; average seasonal decline is 11.8%.

Rail freight loadings for week ended June 6 were 760,890, up 49,956 from prev. holiday week, down 18.6% from 1930 week, and down 27.9% from 1929.

Refineries ran at 67.5% in week ended June 13; stocks of gasoline fell 587,000 barrels to 43.410M. Crude oil production in week was 2.463M barrels/day, down 11,850 from prev. week and down 108,400 from a year ago.

Farm Board announced it would continue to sell wheat abroad as long as it doesn't disturb world markets; believe drought in Northwest and Canada will have bullish effect on wheat prices. Much of Canadian wheat acreage too badly damaged to recover regardless of rain. Farm price index as of June 15 expected to show further decline from 86% of prewar level reported on May 15.

Russia and France open negotiations on Russian demand for 2 to 5 year credits for purchases totalling 1.5B francs with 100% guarantee by French banks.

Spanish Fin. Min. Prieto says stabilization of currency needed, but due to its provisional nature current govt. is unable to carry out previous stabilization plan; must first insure stability of new Republican regime. In meantime, national spending will be drastically cut and all ambitious plans abandoned. Bankers state Spain represents “perfect example of the so-called gold fallacy”; large gold holdings don't ensure stable currency unless monetary authorities are ready to freely use it; contrast Spanish attitude with unhesitating action of Reichsbank to support marks, avoiding “chaotic condition.”

Canadian income tax receipts in May were $36.8M vs. $50.1M in 1930; customs and excise taxes $19.8M vs. $25.8M; imports $73.5M vs. $101.5M; exports $48.5M vs. $64.1M.

Many Mexican workers' organizations have petitioned the govt. to replace 8-hour shifts with 6-hour to relieve unemployment, pointing out the 6-hour system is being used successfully in many US industries.

As it already has in the US, transport by trucks is making increasing inroads on rail freight revenues in Japan and Mexico; gain attributed to better highways.

Production of new life insurance in first 5 months of 1931 was 12.3% below 1930.

Nat'l Confectioners' Assoc. says Russian candy of inferior quality and with misleading labels is flooding the US market.

A firm and competitive municipal bond market has led to some premature gray hair among syndicate men charged with submitting sealed bids for new issues. In a recent auction, one group outbid another for a $5M issue by one cent per $1,000 bond.

NYSE seat sold for $207,000, down $5,000 from previous sale.

IT&T will take “a dominant interest” in L.M. Ericsson Telephone of Sweden, buying 600,000 nonvoting shares for $7.1M.

General Foods earnings for first 5 months about at 1930 level; new flavors help Jell-O sales; distribution of Birdseye quick-frozen products extended to 6 Eastern states. Scott Paper expected to report record highs for both sales and earnings in the first half; record 1930 business attributed to intensive advertising and sales campaign. US Tobacco seen having good prospects of adding to its record of 16 straight annual earnings increases; sales are running even with 1930 and the company is operating more efficiently. Vacuum Oil has rebounded to over 40 from low of 22 1/8 before govt's favorable merger action.

Companies reporting decent earnings: General Foods, Scott Paper, US Tobacco, Telautograph (machines transmitting diagrams by wire), Sweets Co. of America.


Just a Gigolo - MGM film, at the Capitol. Career of star William Haines continues to take off thanks to the talkies; in this film, he plays Lord Robert Brummell, "a bounder, even though a charming one ... He prefers the company of married women, although there ... is the risk of encountering errant husbands." His affairs "come to a climax" when his uncle refuses to support him further unless he settles down and marries Roxana. Brummell makes [somewhat mystifying] counterproposal that he will agree if he's unable to seduce her within a month; promptly falls in love. "A charmingly executed film."


Appearing at the Palace: Willie and Eugene Howard reunite, adding "new and amusing gags" to their "Interview" act; Willie repeats "his familiar characterizations of George Jessel, Al Jolson, Eddie Cantos, and Maurice Chevalier." [Note: I think that Willie guy is still appearing in Vegas ...] Audiences are equally enthusiastic about the return of Cab Calloway and his Missourians; the band leader is "continuously more resourceful in eliciting unusual harmonies from his players and in producing curious blues effects with his wailing, high-pitched voice"; band closes with "the ever popular 'St. James Infirmary Blues.'" New acts include J. Fred Coots, the song writer, sitting at the piano reciting "lyrics introducing Frances Upton, tall and pulchritudinous 'Whoopee' girl discovered by Florenz Ziegfeld."


'Why did you call your second twin Encore?' 'Well, you see, he wasn't on the program at all.'

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