August 1, 2010

Saturday, August 1, 1931: Dow 135.39 -1.54 (1.1%)

Assorted historical stuff:

[Note: This one is just too eerie a coincidence. Scary global warming story - 1931 style!] For the first time on record, not one iceberg has drifted into the transatlantic steamship lanes (below the 45th parallel) this year; July 1 is the usual end of the season for them. In 1912, the year the Titanic struck an iceberg, there were 1,019 spotted by US Coast Guard cutters on watch for them. The iceberg shortage is attributed to the mild winter of 1930-31, which is known to have extended to the Arctic. [Note: for the sake of accuracy, I should note that this number jumped around a lot; for example, it was 11 in 1924 and 1,300 in 1929. I think I've just been more careful to note natural variations than around 90% of today's stories.]

Leading executives in the railroad, utility and retail fields declared opposition to wage cuts, including pres. Gifford of AT&T, pres. Straus of R.H. Macy, and pres. Crowley of NY Central. A few refused to comment, including chair. Young of GE. Pres. Lee of Armour said each industry must solve the problem individually.

Maryland Gov. A. Ritchie warns that unless US industry fulfills leadership obligation and meets unemployment situation itself, it will eventually "be faced with the problem of a national compulsory unemployment insurance plan." Suggests establishment of reserve fund by industries. "If industry would keep govt. out of business, then it must not create or permit the conditions which drive govt. into business."

Editorial: Support for Philippine independence in the US, while sincere in some cases, also comes from desire to keep out Philippine sugar and other products. On that "low level," while the Philippines does run a trade surplus with the US, it's an important market for US products with a large potential for expansion. On a higher level, while "we can sympathize with the natural desire of any ... people to be independent," we've seen no convincing argument of benefit to the Filipinos from immediate independence. Four years ago, Pres. Coolidge expressed, "with the utmost friendliness," his conviction that the Philippines had "not yet attained the capacity for full self-government." If that's true, "it would be a crime to cut them adrift, to be a danger to themselves and a menace to other countries ... The Far East is in a state of ferment. What would be the repercussion in Java, the Malay states, the Dutch East Indies, possibly India, and probably Indo-China? There is a grave possibility that Philippine independence might result in revolution in some of those countries." Sec. of War Hurley held long conference with Pres. Hoover before visiting the Philippines together with M. Quezon, Pres. of the Philippine Senate. Quezon said he was satisfied Filipinos were ready to accept complete independence. When Hurley returns, Pres. Hoover may outline the Administration position on the drive for Philippine independence likely to come in the next Congress. Emilio Aguinaldo, leader of Philippine revolt early in century, favors immediate independence with 10-year free trade period.

Spanish Nat'l Assembly gives vote of confidence to Pres. Zamora's provisional coalition govt. two days after its formal resignation.

Canadian House of Commons passes govt. resolution for unemployment and farm relief.

Long-distance airplane flight attempts have been blessed with a high percentage of success this year, thanks not only to more reliable engines and planes but to instruments developed for navigation that can keep a craft on course despite poor visibility, enabling "pilots to 'fly blind' and reach their destination with practically the same degree of certainty" as in clear weather. Perfection of these instruments is rapidly reducing hazards of long-distance flights. Both of the planes used on the two latest transatlantic flights were standard Bellanca monoplanes widely used by private flyers, and the engines were also standard.

A Hollywood man who rents genuine war decorations for use in movies recently received a record high of $300 a week for a collection of 8 medals worn by a single actor, Lowell Sherman. One of the 8 was the Bulgarian Order of Civil Merit, which he found in a pawnshop for $150 and now rents for $40/week.

Maryland has produced an innovation in speeding up highway traffic. The traffic lights on the main highway are green almost all the time. When a car approaches from a side road, it comes to a stop at the red light and finds a megaphone-shaped device there with a sign on top: "Sound Your Horn to Change Light." The horn sound is detected by the device, which changes the light long enough to allow the car across, then turns red again. [Note: I think NY City has installed that device, only it doesn't work until you sound the horn 17 times.]

[Note: birth of a classic.] Towns here and there strive to attract residents through clever slogans on roadside billboards. "Perhaps the niftiest of them all is the one at Lynbrook, L.I., where the congestion of traffic is most annoying. The sign tauntingly states: 'If you lived here, you'd be home now.'"

Germany special:

Germany continued to take measures to ensure peaceful reopening of banks on Monday. The govt. bought 300M marks of preferred stock from Dresdner Bank, and an industrial syndicate bought 35M marks worth of Darmstadter shares; this is seen assuring reopening of those two banks (though some question whether the govt. measure might actually cause a run on the Dresdner). Bank position in general also made more secure by agreement of Berlin banks to help each other. Problem of savings banks remains unsolved but it's expected a mechanism will be set up for them to obtain funds from the Reichsbank. “Public sentiment is best characterized as anxious but not excited. There is widespread confusion owing to the general disposition to delay payment on all private debts as well as taxes.”

There still appears to be some uncertainty about whether Germany on Monday will lift restrictions on internal transfers only, or on both transfers and cash payments. There's some concern about inflation if cash payments are allowed, though many foreign advisors and German economists strongly argue for this as the only way public confidence can be restored, and believe the danger of inflation can be met by a drastic increase in the discount rate. “The Reichsbank appears to be still vacillating and Dr. Luther is bitterly attacked on the institution's apparent lack of decision.”

Reichsbank raised discount rate to 15% from 10%; seen as step to prevent inflation after reopening of banks; NY banking opinion divided on effectiveness of the step. Meeting of NY bankers was held to review German plan for extending credits 6 months; similar meeting reportedly held in London. NY banking circles believe plan is a "good working basis for solving the German problem," though some doubts were expressed on lifting German banking restrictions until ironclad agreement on extending credits was reached among banks worldwide, and on whether all banks would agree to a 6-month extension. In any case, NY bankers have “no disposition ... to increase their commitments in Germany ... until safety of existing credits is certain.” A. Wiggin, Chase Nat'l. Bank chair., named US member of BIS committee investigating German credit situation.

Germany is reportedly discussing with the US a project by which they would purchase US surplus crops through a long-term loan from the US.

Foreign currencies fell back from the rally sparked by the Bank of England's most recent rate hike Thursday. Sterling is at the same level against francs and guillders as before the rate hike.

British Parliamentary committee issues dire report on govt. finances; predicts $600M budget deficit and calls drastic spending cuts absolutely essential; proposed cuts include 20% in National Health Insurance payments, as well as cuts in civil service salaries and teacher pay.

Proposed $35M loan to Hungary has reportedly been blocked due to inability of London and reluctance of NY to participate. While an official moratorium hasn't been declared on foreign payments, July maturities aren't being met. Bank of Hungary's note cover expected to fall below 30%. Hungarian bank holiday extended until Aug. 14 but limit on withdrawals raised to 10%, up to 2,000 pengos ($350).

Market commentary:

Market wrap: Stocks opened firm to slightly higher but suffered sharp setback after weakness developed in grain markets; stocks then moved down most of the session, though selling wasn't heavy. Bond trading less active, prices generally lower. Foreign list featured sharp break in Hungarian issues on report proposed $35M loan may be blocked; German bonds were also lower, with weakness spreading across the European section; S. American bonds also fell, though "recessions were not as acute as usual." US govts. dull and steady; domestic corp. list trended down with rails showing the greatest weakness, extending to some previously strong obligations. Commodities weak; wheat pressured on reports of low export demand and rain in the spring wheat belt; new lows hit in July wheat (record low of 48 cents), Sept. wheat, and Dec. corn (42 3/4, lowest since 1906); however, July corn was again up sharply to over 72 on the last day of trading for that contract. Cotton down substantially. Copper situation unchanged; most producers at 7 3/4 - 8 with little demand; some metal available at 7 1/2.

Conservative observers maintain caution; recommend sidelines, also don't advise short selling.

Weak spots included American Can ( less favorable canning outlook), Westinghouse ("concentrated selling campaign"), J.I. Case (dividend concerns and possible new financing due to large amount of loans to farmers), Allied Chemical and Eastman Kodak. Tobacco shares weak on reported Justice Dept. antitrust investigation. Leading rails pressured on dividend concerns after omission of both preferred and common dividends by the Nickel Plate. Bethlehem strong as earnings report was a pleasant surprise to the Street; while the cut to a 50-cent dividend was widely anticipated, operating results were better than expected thanks to control of costs and diversification.

Chrysler and Woolworth have been showing good resistance during market reactions. Pullman has sold off on dividend doubts due to decreased travel. Wool manufacturers have been in demand in recent sessions on improving business; "revival of feminine interest in woolens and worsteds has had a decidedly beneficial effect."

"Chart students" now believe a test of the June 2 lows is coming, noting that averages have definitely fallen below the levels "which represented a 50% cancellation of the maximum gains recorded between June 2 and June 27."

Liquidation by the public in the past two days has come "only after considerable thought"; this is a significant change from the "necessitous selling" forced by the initial 1929 break and the other declines since; change attributed to stronger margin position of accounts and to lower public market interest. While brokers' loans dropped to a new low record of $1.390B last week (at NY City banks), a further drop is expected due to liquidation after the US Steel dividend cut. Brokers' loans are down over $500M, or about 27%, in the past four months. However, the small rise in non-broker loans was the first in a long period.

General Mills is cited as a high-yielding stock in a solid position; largest US flour miller; stock about 38, dividend $3 for yield of about 8%; earnings for year ended May were $3.71/share vs. $4.83 prev. year; balance sheet improved significantly during the year.

R. Dunlap, Asst. Agriculture Sec., warns Russia can produce wheat more cheaply than the US; this will cause problems if the US keeps producing wheat surpluses that must be exported. Believes removal of entire 200M surplus wheat holdings of Farm Board from market wouldn't raise price of wheat more than 5 cents/bushel.

Newton D. Baker decries current high tariff barriers throughout the world, calling their growth "one of the astonishing consequences of the ... Treaty of Versailles." Warns this form of "economic war" may eventually lead to real war. Proposes plan in which countries worldwide would agree to gradually reduce tariffs at definite rates over a period of years.

Economic news and individual company reports:

US air transport setting new records. Miles flown in the first half were 18.242M, up 49.2% from first half 1930; air mail 4.523M pounds, up 13%; express shipments 387,740 pounds, almost triple the 1930 total; passenger traffic was 176,143, down 8.8%, but this was due to a falloff in traffic on very short lines (under 50 miles). Airlines cancelled or failed to complete only 2.7% of flights in spite of much unfavorable weather.

Editorial debunking paper of NY Port Authority counsel La Roe that argues railroads are in strong financial position. Mr. La Roe cites dividend payouts of $507M in 1930 vs. $561M in 1929; however, these figures are exaggerated because they include intercompany payments, and in any case rails went to the limit in 1930 to maintain dividends. Total rail income before dividends was $624M in 1930 vs. $897M in 1929, and at current rates will be only $250M-$275M in 1931. Mr. La Roe also cites the railroads' "free surplus" of $3.555B, but as noted before this has largely been reinvested into rail equipment, property, etc. Reduced freight rates on grain throughout the West became effective Aug. 1 as ICC denied all requests for further postponement. Rails are appealing their suit against the rate cuts to the Supreme Court but have failed to win a permanent injunction against them in lower courts.

H. Sinclair, in response to telegram requesting he appear before the Texas Senate's oil industry investigation, sent them a written statement giving his views. Believes current laws adequate to control conditions in East Texas if properly enforced; economic conditions cannot be changed by law; opposes currently popular idea of giving a commission sweeping powers over production of oil; favors unit (cooperative) development of fields. More than a dozen bills have been introduced in the Texas Legislature for control of oil and gas production. It's evident that making market demand the basis for curtailment of production will cause much controversy; Gov. Sterling is opposed to this while many operators believe curtailment will be a failure without it.

Bank of US depositors met throughout NY City to plan demonstration at City Hall today.

Holders of defaulted Delray Beach, Fl. bonds urged by bondholders' protective committee to deposit securities. Bondholders' committee for St. Petersburg has collected sufficient funds from the city to pay each depositor his first delinquent coupon.

Agriculture Dept. reports farm price index on July 15 was 79 vs. 78 a month earlier and 111 a year earlier; grain index fell 10 points during the month.

NYSE transactions in July totaled 33.546M shares vs. 47.745M in 1930; smallest monthly total since Nov. 1926.

New bond offerings this week were $84.3M vs. $28.9M last week and $119.0M a year ago; $75M were public utility issues and $9.3M municipals.

Mexican legislature considering law giving Pres. Rubio emergency powers to fight the deficit by cutting salaries, increasing taxes, and suspending govt. activities.

After holding up relatively well in 1930, US exports of construction machinery fell sharply in the first half, to $7.1M vs. $16.3M in first half 1930.

US wool consumption in June was 41.1M pounds vs. 40.0M in May and 28.9M in June 1930.

Most of 30,000 members of Amalgamated Clothing Workers who struck this week will return to work after agreement with NY Clothing Mfrs. Exchange.

Coca-Cola will report record-high earnings for an second quarter, expected to be about 7% higher than the $4.3M earned in Q2 1930. The company rang up record yearly sales and earnings in 1930, for the sixth consecutive year (1930 net $11.15/share; annual div. $8; stock about 142).

RCA now has about 93,000 shareholders vs. 11,976 in April 1928.

Colorado Fuel & Iron cuts wage scale from $6.25/day to $5.25. Shell Oil says will maintain wages this year.

Company reports since July 1: 107 companies reported higher earnings vs. 1930 and 323 lower; 331 dividends unchanged, 11 increased, 68 cut.

Earnings reports: National Steel half $1.60 vs. $2.84. Phillips Petroleum Q2 ($.61)/share vs. $.90; half ($.80) vs. $1.38. United Gas Improvement Q2 $.35/share vs. $.39; year ended June $1.51 vs. $1.47. Dominion Stores half $.97 vs. $.88. Lerner Stores half $1.14 vs. $2.24. Blaw-Knox half $.48 vs. $1.27. Borg-Warner Q2 $.57/share vs. $.98; half $.78 vs. $1.82. Trico Products Q2 $1.68/share vs. $1.56; half $3.05 vs. $3.08. Amer. Thread year ended March $.53 vs. $.88.

Companies reporting decent earnings: Coca-Cola, United Gas Improvement, Dominion Stores, Trico Products (auto equipment).


Cowboy, at restaurant - Take this steak back and cook it! Waiter - It is cooked! Cowboy - Cooked! Say, I've seen cows hurt worse'n that and get well!

Letter to the editor of the Portland Express - It was my father's last wish that I marry a tall man. Now, I find myself madly in love with a very short one. Would you consider it a sin if I married him? Editor - No, child. It is better to have loved a short man than never to have loved a tall.

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