August 28, 2010

Friday, August 28, 1931: Dow 138.66 -1.27 (0.9%)

Assorted historical stuff:

Washington report: Observers are growing less confident that the Administration will oppose any tax increases in the coming session of Congress. Treasury faces a deficit of $1B or more for this fiscal year. Officials haven't made a definite decision yet, and would prefer to avoid a tax hike if possible, but are likely prepared to act if necessary. The British budget crisis will make many in Washington think twice before advocating that the US continue to run deficits; while a loss of confidence in the US due to the deficit seems farfetched, many would have thought the same of Britain. Improbably, the trend is now “quite unmistakably” for Gov. Roosevelt to win the Democratic Presidential nomination almost unopposed. Although Democrats believe they have a better-than-even chance of winning the 1932 Presidential election, apparently none seems willing to contest the nomination. Plans are now being finalized for “the greatest drive for funds since the World War,” aimed at unemployment relief. Effort will be directed by W. Gifford, coordinating Federal, state and local govts. and private charities. While “belief and information” in Washington is that voluntary efforts will be adequate for relief, “if that proves untrue and it is a choice of widespread suffering or federal appropriations, Washington will not long hesitate as to its course.”

Indications point to Gov. Roosevelt proposing taxes on the wealthy for relief of the unemployed this winter; taxes would be on income of $10,000 or more.

[Note: It pays to increase your word power dept.] Editorial decrying the obdurate stand of one Senator Johnson against the Hoover moratorium plan. Johnson delivered this memorably alliterative blast against the "international bankers" allegedly behind the plan: "Their political puppets poll parrot their Pecksniffian phrases of saving Germany and helping America." [Note 1: Pecksniffian - hypocritically and unctuously affecting benevolence or high moral principles, after the Dickens character Seth Pecksniff. Note 2: It's interesting that "international bankers" are now simultaneously being blasted by British politicians for being too hard on debtors and by US politicians for being too easy.] Almost all countries in the world are in distress; "all the economic and political troubles lead back to the World War and to the manner in which it was 'settled.'" The moratorium plan was an "eleventh hour" measure needed to prevent an imminent emergency.

Editorial by T. Woodlock responding to reader who proposes the Fed. Reserve increase prices by buying the colossal sum of $1B in govt. securities from banks, potentially increasing the credit banks can extend by $10B. While Woodlock agrees price rise is desirable, he's skeptical that in the current climate banks would find any use for the extra $10B. Problem is psychology and lack of confidence. Sooner or later it will become evident bottom has been hit, and price increase will follow; “it always has in the past. Meantime there is little that can be done beyond watching the pendulum; apparently there is little use in kicking it.”

Long task of reconstructing Northern regions of France devastated in the war is almost complete. Of 641,543 demolished buildings, less than 4,000 are still to be replaced; of 7.5M acres "injured by war, only 4,000 are still to be reclaimed." Total reconstruction payments $2.145B.

A reader proposes the Farm Board donate its wheat to a flood-ravaged China: "Attempts by nations to sell to pauperized and bankrupt nations for future payment only stir up international entanglements and difficulties later, about which we are now troubled enough in Europe."

Chevrolet turned out its 8 millionth car Tuesday. The company was organized in 1911, and spent 12 years building its first million cars; the second and third million took two years each; the fourth through seventh took less than a year each, while the last million took a year and 3 months.

Baird Television Co. says has perfected device making possible the sale of small television sets for about $100.

Doctors attending Thomas Edison recently decided that "excess heat and humidity were preventing the proper action of his skin in throwing off poisons." S. Scott of the Frigidaire co. realized the urgency of the situation and appealed to NY banker Otto Kahn, in whose home two electric room coolers were about to be installed; Mr. Kahn sacrificed his own summertime comfort for his friend Edison. The two coolers successfully reduced the temperature in Edison's room from 80 to 72 degrees within half an hour; on the second morning Edison was able to walk to one of the coolers and examine it closely.

Yuke Hamaguchi, former Premier of Japan known as "Peace Warrior", dead at 61. [Note: First "commoner" to become Premier of Japan, in 1929; in face of bitter opposition, obtained Japanese adherence to London Naval limitation treaty; shot by fanatic after treaty was ratified and died of complications 10 months later.]

Market commentary:

Market wrap: Leading stocks sold off in early dealings, but "declining tendencies were quickly checked" and trading settled into yet another inconclusive contest between bear and bull crowd for the rest of the session; at times one or the other gained the advantage, only to have it peter out; late trading saw prices drifting aimlessly. Bond prices irregular, but showed improvement in many departments; feature was rally in both second-grade and high-grade railroad bonds, which "showed signs of receiving banking support." Oil issues were also a strong feature. US govts. slightly lower. S. American bonds rallied, led by sharp upturn in Argentine bonds. British and German issues were firm. Grains fell in spite of reports of poor harvesting conditions in Russia and France, as the market instead noted abnormally large Russian wheat exports since Aug. 1.

Some grain observers believe heavy Russian wheat exports are temporary; repeal by Stalin of strict rationing plan seen causing sharp increase in domestic consumption in early 1932, curtailing exports

Sentiment has been improving on movie company shares; seasonal uptrend in attendance expected; companies believed to have gained "exceptional grasp" on expenses; slate of films in upcoming months seen having "much greater" appeal than those so far this year. Paramount is a particular favorite in this sector. Kreuger & Toll was under heavy pressure, attributed to "arbitraging operations between London and NY" and to selling by “London interests ... because of the uncertain situation in Europe.” Bendix Aviation was strong on reports it will introduce a $19.50 “free wheeling device that fits any car.”

Two companies that used to be thought depression-proof now seem to be encountering trouble. American Can is now a popular bear target, and many rumors have been circulated about it. Thatcher Mfg., the largest US maker of milk bottles, barely covered its preferred dividend in the first half.

Recent bear efforts have been unsuccessful at finding “air pockets,” or stocks in which pressure brought out forced liquidation. While there's been much talk of the market facing a test of the June lows, observers increasingly believe this would require some heavy new liquidation. So far there have been few recent signs of real selling, as “stocks have declined to such levels that those still holding them are well protected” (using little margin).

Most investment trusts [similar to mutual funds and ETF's] are selling much closer to their 1931 low than high. An interesting exception is Atlas Utilities, which is now up to $75M in assets from a starting point of $15M. Some financial circles believe Atlas is pursuing a strategy of buying control of other trusts at market value, which is now usually well below liquidating value of their holdings, and then proceeding to liquidate them.

J.H. Oliphant & Co. note severe decline in Dow 40-bond average of 3.30 points since July 20; 63% of the decline was due to second-grade rails, and many rails not included in the average have been even weaker. Unsure how much more liquidation remains ahead in bonds, but based on past pattern expects “sharp recoveries whenever pressure lifts.” Many lesser-known bonds now have “extraordinarily thin” markets, causing large sacrifices by those forced to sell.

A reader suggests that countries low on gold follow the lead of Mexico and return to a silver basis; "then powerful America, and acquisitive France will be left possessed of a large tonnage of metal, too valuable to be used for plumber's supplies and not needed by the jewelry trade, with a value perhaps of 10 bushels of wheat to the ounce. Then we can all of us get jobs and pay our debts."

Salmon O. Levinson, well-known Chicago attorney and "international authority," proposes 8-point plan to relieve depression, including: "moderate" wage cuts for 6 months; assurance by employers of continuous employment for one year; assurance by corps. with adequate surplus of continued dividends for 6 months; "reasonable" rail freight rate increase; Eastern rail consolidation; conference for readjustment of int'l debts; agreement on "drastic" disarmament; stabilization of silver. [Note: Is that all?]

Economic news and individual company reports:

British officials worked through the day on details of budget proposals; final draft to be presented to Cabinet Monday; “well informed circles” dismissed “alarmist reports in the evening papers” that the new govt. would lack enough support to push austerity measures through. British Labor Party declared open warfare on Premier MacDonald's new coalition govt., saying it was planning to attack the standard of living to meet a situation “caused by ... private banking interests, in the control of which the public has no part.” Bankers in NY and Paris have reportedly been discussing furnishing more credit to the British govt.; a group of NY bankers also met with Treasury Sec. Mellon and Fed. Reserve Gov. Meyer at the White House, though officials refused to confirm a British credit was discussed. Definite announcement expected today. “Bankers have urged that a credit be of such considerable proportions as to remove any doubt as to the soundness of British finances.” It's believed “readiness of American bankers to make the loan ... rests to some extent on informal assurances that the new ... govt. will enter a regime of retrenchment.” Washington reportedly feels “support for Britain and her exchange is one of the requisites to world stabilization, and that this support can be given without risk now that the British have taken vigorous steps to correct their political and budgetary troubles.” Bank of England statement shows gold holdings practically unchanged at 134.6M pounds vs. 134.9M prev. week; reserves up 3.6M to 59.3M, best level since recent heavy gold drain, due to decline in currency circulation; reserve ratio only up 0.3% due to increase in deposit liabilities. Sterling has been strengthening against francs and guilders, in an indication the new British govt. is improving confidence in Europe.

Mexican embassy issues yet another somewhat confusing clarification of the new monetary law. “The gold standard is continued under the law on the basis of gold as a commodity and not as a circulating medium, with a resulting withdrawal of all gold pesos from circulation and the establishment of the silver peso as the unit of the monetary system ...”

Group of Chicago business men form Federation of American Business Men to "influence Congressional elections" in order to dissolve the Farm Board and 79 other govt. agencies that, it's argued, compete with private business. Will also fight Communism.

Agriculture Sec. Hyde says loans for buying feed will be made available to farmers in drought-stricken areas of Montana, Wyoming, N. Dakota, Utah, Idaho, Washington, and Nebraska; loans will mature in Oct. 1932. The Dept. will support legislation authorizing loans for spring planting, but it will be impossible to help in financing fall-planted crops. No funds available for grasshopper poison. Crop failures reported in Southwest Germany due to persistent rains. Int'l. Inst. of Agriculture estimates world wheat production outside Russia at 2.304B bushels, down 7% from 1930. Prof. W. Grimes of the Kansas Agric. College, testifying before the ICC against the rail rate increase, estimates grain farmers' buying power is now 44% of the 1909-1914 average; points out increase would make cost of transporting wheat from Kansas to W. Va. 38.4 cents/bushel, vs. wheat price in Kansas of 29.2 cents.

Presidents of Standard Oil of NJ and Standard of Calif. say merger would be "logical and advantageous"; working toward a plan. Editorial: Attitude of the Justice Dept. on possible oil merger will be of "much interest"; although the combination would only have 10% of US crude oil production and 18% of gasoline output, it would create an "assemblage of assets ... not far short of $2.5B, which even in these days is a shining mark to serve as a target for politicians. Crude oil and gasoline prices continued to increase in various locations across the US. With shutdowns of Oklahoma and East Texas production effective, US oil production is now about 1.8M barrels/day, 700,000 below current demand. Texas Railroad Commission hearings on establishing allowed production for East Texas continued; some difference of opinion apparent.

Money in circulation Aug. 26 was up $42M to $4.994B, total Reserve Bank credit outstanding up $58M to $1.199B. Member banks in NY City report brokers' loans up $6M to $1.349B; loans on securities to non-brokers rebounded from the low made last week, and were up $23M to $1.695B.

With Colorado coal prices already lowest in 20 years, non-union operators were reported ready to meet challenge from the United Mine Workers and the Rocky Mountain Fuel Co.; price war seen likely.

Companies reporting decent earnings: Public Service Electric & Gas.

Report from London:

Interesting history of British attempts at "opera-for-the-masses." Several apostles of popular-priced opera have "raised quixotic lance against Covent Garden - London's operatic fortress." Sir Joseph Beecham lost over $500,000 in the short-lived Beecham Opera Enterprises. He was followed by Oscar Hammerstein, who declared near-insolvency after losing $850,000 in 17 weeks, not including the $1M cost of building the opera house. Undaunted, Sir Thomas Beecham (Joseph's son) founded the Imperial League of Opera but declared bankruptcy a little over a month ago.


Old Lady on First Airplane Flight - You'll bring me back, won't you? Pilot - Ma'am, I've never left anybody up there yet.

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