July 29, 2010

Wednesday, July 29, 1931: Dow 141.53 +1.89 (1.4%)

Assorted historical stuff:

US Steel announced first dividend cut since 1915, to a $4 annual rate from $7 previously. For Q2, Steel reported earnings of $7.391M or $.12/share vs. $3.02 in 1930; almost none of the quarter's profits were from operations. Directors also announced salary cuts for officers and white collar workers, indicating "question of reducing the wage scale in the plants will be decided shortly." Earnings this year look to be smallest in history of the company. Govt. officials reportedly discussed wages with a number of steel makers; officials made clear their view that wage cuts in a basic industry like steel might influence other industries, and they “are loathe to see this take place, but it was emphatically denied that any pressure had been brought to prevent it.” Officials denied knowledge of a report that Pres. Hoover had personally appealed to US Steel on wages. White House officials including Labor Sec. Doak denied any change in Administration policy on wages. Commerce Sec. Lamont, whose recent letter on the possible need for wage cuts had drawn much attention, was on vacation; officials made no attempt to explain the letter.

One man was killed and thousands endangered by an exploding oil tank that created a "lake of flames" within two blocks of the business district of Kilgore, Texas.

Dr. Nicholas M. Butler [philosopher, pres. of Columbia U. 1901-1945] says that unless postponement of war debt payments is quickly followed by progressive policies reconsidering “the whole present disastrous situation, conditions will be worse in June, 1932, than they were in June, 1931. There is no time to be lost.”

French Minister of War Maginot says France has reached limits of disarmament unless guarantee is granted at upcoming Geneva [disarmament] conference providing for mutual assistance through coalition of all forces against any aggressor.

Editorial warning that, while details of Mexico's new currency law (dropping the gold peso and adopting silver as the single currency standard) are as yet unclear, it's likely to be unsuccesful in its objectives of improving the price of silver or conserving Mexico's gold supply. Central Banking commission appointed in Mexico. Rate of exchange not yet determined for silver pesos; "quotation boards blank." Mexican press praises move abolishing gold as legal tender. NY bankers regard move as purely internal and without great significance outside Mexico.

The monsoon rainfall, because of its economic importance to India, is the subject of intense efforts at prediction. For the past 45 years, British meteorologists have attempted to predict the amount of rainfall; they have now reached a "fairly accurate" level, based on "weather observations in numerous distant regions."

A leader in the truck field is developing a new design of large motor bus featuring aluminum body construction that it claims will travel 70 mph.

Alaska leads the world in airfields per capita; with about 60,000 people and 65 airfields, it has an airfield for every 908 inhabitants.

Banks are heavy users of airmail in order to save interest. They generally want mail to be flown at night since checks can be then cleared in cities 1,200 miles away the next morning and mail can be moved between the coasts with a loss of only one business day. It's estimated airmail saves banks one to three day's interest on $10B a year.

General Iron Works of Cincinnati and Frigidaire are now marketing a unit that can provide comfortable temperatures for the small home in both summer and winter; unit is called the Hot-Kold and is an "automatic gas-fired system of the forced air type."

New Zealand govt. has prohibited all forms of trading stamps and gift coupons, including cigarette coupons, as "uneconomic."

The London Evening Standard reports US Shakespeare investigators are more original than British ones, who tend to concentrate on proving Shakespeare "did not write his own works." One Illinois professor has spent years researching Shakespeare's income, and found that in his best years it averaged about 250 pounds sterling ($1,250). This isn't as pitiful as it sounds, since it would be about $10,000 in 1931 dollars.

Germany special:

Germany postpones reopening of banks to Monday, though amounts permitted for withdrawal were increased to allow for rent and interest payments. Delay was attributed to concern that month-end payments might cause new run, and to desire to finish negotiating maintenance of foreign credits in order to avoid keeping a moratorium on foreign payments. Second objective will be difficult due to large number of small creditors. Private German banks will establish new institutions to give credits against securities (for small bankers with no assets except securities) and to liquidate assets of savings banks. Savings bank illiquidity seen possibly necessitating 1B mark credit from the Reichsbank before bank reopening; total savings balances amount to 12B. German govt. issues new emergency decree in effort to determine extent of Germany's foreign debts; all people and cos. owing more than $12,000 to foreign creditors must report full total within 10 days.

Collapse of Nordwolle, Germany's largest woolen yarn and fabric plant, which came at height of the recent crisis and caused "a sensation in the banking world here and abroad," attributed to speculation in wool prices by the Lahusen brothers using a Dutch subsidiary apparently unknown to Nordwolle's board of directors.

British Premier MacDonald and Foreign Sec. Henderson met with German officials in Berlin.

Foreign currency market was “at a complete standstill” pending definite news on the proposed French loan to the Bank of England; the Bank continued to lose gold, but at a slower pace. Reports from Paris and London on the loan were conflicting. It appears that French bankers are prepared to offer the loan, but reports from London indicate it's unpopular in banking circles there and the British Treasury has failed to approve it; it's believed the Bank of England can overcome the crisis through regular banking measures, and accepting the loan might “reflect on the standing” of the Bank. However, with French banks still in a “jumpy” state, it's believed there's danger of the gold drain resuming if the loan falls through. French financial circles are critical of Bank of England Gov. M. Norman, blaming him for scuttling the previously proposed French loan to Germany; on the other hand, British bankers are giving “much unfavorable criticism” of the “hasty French attacks on sterling,” contrasting it with restraint shown by NY banks.

Sec. of State Stimson calls for complete change of national psychology in Germany if the country is to recover from its economic ills. Stimson "pointed out that any nation which has fallen into the habit of excessive complaining naturally finds it difficult to reverse its methods ... It is difficult to persuade a man to lend money to another man or a nation which continually says it is broke, was the thought Mr. Stimson brought home." However, feels German themselves are realizing "that although the crisis is not over, conditions are considerably bettered already." Stimson will now go to Scotland for a few days of hunting and fishing, after which he will spend two or three weeks in Europe before returning to the US.

Editorial on Dr. H. Schacht's (former Reichsbank pres.) recent book on the "reparations muddle"; "for all his national and personal bias," the book "throws a bright light upon a German financial situation which still, under the surface, defies the glowing urbanity of half a dozen mobile premiers and secretaries of state." Dr. Schacht's argument that Germany has been paying reparations by borrowing isn't exactly news, but, while criticizing govt. extravagance, he shows almost conclusively that this foreign borrowing was Germany's only choice. Dr. Schacht estimates total value of German reparations payments at 88B marks, or 220 percent of peacetime "annual national income" (he contrasts this with the milder reparations assessed by the Germans against the French in 1871 of about 25% of national income; in addition, he appraises value of lost colonies at 80B-100B marks). With Germany almost stripped of convertible capital and running large balance of payment deficits, foreign borrowing was inevitable; much was short-term, which is "notoriously sensitive to ... instability." It's hard to avoid concluding that a large part of remaining reparations claims are worthless. It's therefore unfortunate that at least some at the London conference "were instructed not to go into the one question which must be answered before Germany, or Europe, can again get its feet on solid ground." Asst. Commerce Sec. Klein said US entered no "political engagements" in offering Germany relief but simply acted in "vital interest of our people as producers and as investors."

Market commentary:

Market wrap: Stocks "meandered along in an aimless way in another apathetic session and volume was at the lowest proportions"; "the entire Street was waiting for the result of the meeting of US Steel directors" (released after the NYSE close). Prices opened irregularly, fell a little and were heavy around noon, then "gradually crept back" and displayed a firmer tone in the afternoon. Bond trading unusually dull, but showed reversal of recent trends. German issues rallied sharply on reports banks would reopen shortly; most European and S. American issues also rose substantially though Chilean bonds were irregular. Domestic list very quiet; highest-grade issues steady while second-grade and speculative sagged. Commodities weak; grains lower, with Sept. (50 1/4 cents/bushel) and Dec. (54 1/4) wheat dropping to lowest levels in CBOT history and corn down sharply; cotton down sharply to only slightly above season lows hit in early June. Copper remained at 7 3/4 - 8 cents with buying somewhat better.

Trading on San Francisco Exchanges turned down sharply after announcement of the US Steel dividend cut. Over-the-counter securities also broke sharply in the final hour of trading after the announcement; bank and trust stocks were heavily pressured.

Street sentiment was pessimistic after the US Steel announcement, since new rate of $5 had been anticipated. Conservative observers advised clients to "wait for a good-sized reaction" before gradually buying stocks.

Retail chains drew some buying, with J.C. Penney and Safeway particularly strong. A large short interest reportedly exists in steel shares. Rails were irregular, with NY Central selling off in response to estimate of sharply lower share earnings.

American Can has been sold by interests who claim this year's earnings won't match those in 1930 as expected; however, the stock has drawn good support on reactions. McKeesport Tin Plate is likewise subject of downward estimate revisions on lower canning activity. National Biscuit has drawn some concern on possible overexpansion and problems coordinating new divisions; it's made some important executive changes in the last few months. American Tobacco continues to be well supported when selling appears; recent cigarette price increase believed beneficial; many important brokers have recently recommended the stock, bringing in some public buying. B.F. Goodrich operations have reportedly improved in recent months; first half results are expected to be considerably better than in 1930, showing an operating profit before inventory adjustments. Loews has drawn buying in anticipation of good earnings report; seen as most successful of the amusement cos. Bigelow-Sanford Carpet rose to a yearly high following surprisingly favorable first half earnings of $1.91/share vs. $1.41 in first half 1930 and a sizable loss in second half 1930. However, at about 30, the stock was still selling only a point or two above net quick assets.

Brokers again complain of lack of business as customers remain on sidelines. However, leading brokers also report that the public bought considerable stock when the market was strong in Feb., and many have continued to hold stocks since; this has raised fears of renewed liquidation "if conditions are disturbed seriously." No evidence recently seen of "bank sponsorship" of stocks; many observers don't expect this "until a definite change comes in domestic and foreign conditions. In recent weeks, the leading bankers of the world have been giving most of their attention to the affairs of Germany."

Municipal bond dealers believe very light volume of offerings in recent week has given "market an opportunity to digest" and put it in good position to absorb upcoming offerings; remaining supply on dealers shelves is believed very low, not exceeding $50M.

Street sentiment improved regarding the foreign situation thanks to slowing of British gold drain; little news came from Germany, "but in this instance no news was regarded as good news" and it's believed "German bankers now cooperating ... will work their way out of the present situation."

Economic news and individual company reports:

Fed. Reserve member banks weekly report showed loans and investments fell to a new yearly low; "this continued contraction of bank credit ... clearly indicates that deflation is still the order of the day, despite Fed. Reserve efforts to stop the movement."

Texas House investigation of oil industry likely to conclude Wednesday, but "the mass of testimony introduced ... differs so widely in many of its essential statements and the recommendations of the witnesses are so lacking in uniformity that the Legislature is confronted with the problem of what kind of laws to enact ..." Oklahoma City report says Gov. Murray has threatened to shut down all wells in the state except stripper [small] wells unless price reaches $1/barrel by Saturday; order is to be enforced by military police. Refineries ran at 69.0% in week ended July 25 vs. 67.8% prev. week; stocks of gasoline fell 88,000 barrels to 37.289M. Crude oil production in week was 2.487M barrels/day, up 40,150 from prev. week and about the same as a year ago; increase due to East Texas area, which rose 96,100 barrels/day to a new high of 504,900.

Northwest crops suffered severe crop damage due to heat wave and drought; numerous spots in the Dakotas and Minnesota reported temperatures over 100 degrees. Plains states and central valley also need rain. Nebraska and Western Iowa badly infested with grasshoppers; extent of damage to grain unclear. Canadian govt. reports disastrous weather week for Western crops, with high temperatures, hot winds and almost no rain.

Bill introduced in Texas Legislature to reduce 1932 cotton acreage 50% from 1931 to conserve soil.

NY Superintendent of Banks Broderick files list of claims received against the Bank of US; $131.0M in claims accepted and $117.6M rejected; over 270,000 claims examined since June 29; intends to apply for order authorizing initial payment of 30%; additional dividends to be paid as liquidation progresses.

First 71 rails report net operating income in June $45.7M, down 26.5% from 1930 and 51.6% from 1929; gross was $342.0M, down 16.3% and 29.9%. The same rails in May reported net of $38.7M, down 38.1% from 1920, and gross of $341.9M, down 21.3%. Rail freight loadings for week ended July 18 were 757,555, down 6,026 from prev. week, down 18.3% from 1930 week, and down 29.8% from 1929.

Extremely detailed editorial by T. Woodlock on costs for delivering electricity to home consumers; argues utilities make little profit on those who use less than the average annual US consumption of 550 KWHr, but have much lower costs per KWHr to supply larger consumers; "thus the facts point to a relatively high minimum charge for small consumption and a rapidly decreasing charge for increasing consumption as the proper method of making rates for this class of service."

Some difference of opinion emerges regarding $10M Newfoundland loan reportedly arranged by "Miss Jeanette Lewis." Newfoundland govt. says has received no direct offer. Lewis replies no direct offer has been made but money ready to go; "the capital was at the disposal, subject to certain terms, of the Premier and his govt. at any time they chose to take it up."

US investment in Chile estimated at $700M, of which $300M is in bonds held by US investors. Chilean revolution marks end to proposed economic conference of American republics excluding the US that deposed Pres. Ibanez had championed. Conferences of European and Chilean nitrate producers on control of production were resumed.

New Canadian bond offerings for year to July 20 were $965.4M vs. $427.5M in first 7 mos. of 1930 and $385.6M in 1929.

Analysis of low-priced car price trends since July 1930 reveals costs per pound have declined 2 1/2% - 8 1/2%; the dollar price per car has been declining and pounds per car rising. Variation in price per pound between the three leading companies is lower than a year ago. Companies also have increased value of cars through intangibles including more dependable parts, rustproofing, "free-wheeling," better paint jobs, more attractive interiors, etc.

Survey of factory wages in NY State finds average hourly wages for: engineer - 95 cents; skilled worker - 78 cents; truck driver - 69 cents; machine operator - 60 1/2 cents; laborer - 51 cents.

Paramount-Publix plans to start production on 22 new talking films in the next 70 days; to break ground on two new sound stages totalling 37,500 sq ft.

Earnings reports: US Steel Q2 $.12/share vs. $3.02; half $.17 vs. $6.46. Youngstown Sheet & Tube Q2 ($.91)/share vs. $2.17; half ($1.53) vs. $4.09. Foster Wheeler half $.03 vs. $4.27. Middle West Utilities year ended June $1.40 vs. $1.48. Norfolk & Western Rwy. half $6.14 vs. $10.15. Consolidated Cigar Q2 $1.59/share vs. $1.41; half $2.63 vs. $2.48. Curtis Publishing Q2 $.83/share vs. $2.32; half $2.54 vs. $5.07.

Companies reporting decent earnings: Middle West Utilities, Sherwin-Williams, Consolidated Cigar.


The Common Law - RKO-Pathe film, at the Mayfair. Joel McCrea "as John Neville, a young American artist living in Paris, is assigned the task of making us believe he is shocked when he learns that the beautiful model whom he has employed, and with whom he has fallen in love, had an affair with another man before she came to work for him." Revelation causes bitter anguish; he parts with the girl but meets her again at a party; she persuades him she loves him, and "will live with him, unmarried, until they are both sure their love will endure despite the social barrier that separates them." On returning to the US, "marriage presents itself to them as the only way out when the two ... join his family's social circle ... they are heading for the nearest Justice of the Peace as the film ends." Considering weakness of the story, cast does rather well; "they manage to go through the necessary motions and to read the naive lines without actually boring their audience."

The Magnificent Lie - Paramount film. Cabaret singer, Poll, as a practical joke, impersonates old flame of an ex-soldier, Bill, who has gone blind, but then falls in love with him. When she finally reveals the truth, Bill is "naturally angry." However, as Poll is driving him home, she crashes the car into a ditch, which fortuitously restores Bill's eyesight. "The sight of the face of the girl ... is so pleasing that he changes his mind about bidding her a final farewell." Main deficiency of film is "failure to amalgamate successfully the elements of pathos and comedy in the story." However, film is a good vehicle for Ruth Chatterton and Ralph Bellamy is "quite believable as the afflicted hero."


Farmer 1 - Did you hear the bones of some old prehistoric man were found on old Nicky Coombes' farm? Farmer 2 - Poor old Nicky - but chances are, he'll be able to clear himself at the inquest.

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