August 4, 2010

Tuesday, August 4, 1931: Dow 137.50 +0.85 (0.6 one %)

Assorted historical stuff:

Editorial: T. Conklin, a biologist at Princeton, argued 15 years ago that the economic civilization that "the world had ... contrived somehow to build up was beyond the mental capacity of the race to handle successfully" and, failing improvement in that mental capacity, would have to be simplified. This has, "thus far at least, received handsome confirmation" from experience. We now hear "demands for a 'plan'" from all sides, but this begs the question of who is to do the planning - "is it to be 'government in business' or 'business in government'?" While the world's economic leadership has partly failed, the failure of political leadership has been catastrophic. Economic leaders can at least lay claim to raising the world standard of living very materially in the past generation or two, while the chief political "achievement was what best can be described as a gallant attempt at suicide, which only just failed of complete success." The state of war continues, and this is the "fundamental cause" of our current problems. "'Planning,' no doubt, we must have more of, if our civilization is not to be 'simplified' to death, but the world's 'politics' need it even more than the world's 'economics,' and 'politics' is the place to begin the blueprinting. ... when the world's 'politicians' have succeeded in stopping the war it will be time enough for them to teach the world's 'economic' leaders their business."

M. Woll, AFL VP, appeals to John D. Rockefeller Jr. to intervene against wage cuts by Colorado Fuel & Iron; attacks “international bankers” as responsible for movement toward wage cuts, and praises stand of US Steel pres. Farrell against cuts.

British govt. committee proposes “rationalization” of coal industry involving combination of 1,000 individual collieries into six large units, closing of hundreds of uneconomic mines, “conversion of whole districts into derelict areas and dismissal of 100,000 workers.”

Agriculture Dept. reports Russian grain crop outlook worse due to hot, dry weather; yields per acre expected "decidedly below" last year, offset somewhat by 7% increase in acreage. Loss reported from "untimely harvesting and inefficient fieldwork." Official Russian data shows increases in grain and cotton acreage; 1931 spring sowing plan target not reached for grains, but plan exceeded for cotton.

Mexico imposes new immigration restrictions barring unskilled labor from "entering the country to compete with Mexican labor."

Census Bureau estimates 10M homes, about a third of US total, now equipped with radio sets; Dr. J. Klein says industry is now half-grown, believes further growth will substantially help business revival.

One of the methods used by the Navy to study ocean currents is the old-fashioned message in a bottle; about 5,000 ships of the international merchant marine drop bottles into the ocean from "here, there and everywhere" marked with location and time of drop; some are found months later and thousands of miles away. The US Navy's Hydrographic Office gets about 1,500 bottle reports annually.

RCA opens new direct radio circuit between San Francisco and Mukden, China, a few months after opening one between San Francisco and Shanghai.

1930 was the biggest year ever for the Patent Office, with 117,789 patents and trademarks applied for and 49,599 patents issued, or 5,982 more than 1929. In the past 10 years 424,574 patents have been issued, more than in the hundred years following Washington's inauguration in 1789.

Continental Bank building now being constructed at 30 Broad St.; will be 48 stories and 564 feet high, contain “complete pneumatic tube system designed to handle the delivery business of its broker-tenants.”

The old joke that when two Germans meet they form a society seems to be coming true in Berlin, where there are over 5,000 societies or "vereins" registered with the authorities. Most popular type of society is athletic (over 1,000); also popular are "health and uplift of the youth" (270), college student (265), and theater (70).

Offering of 5-cent sandwich by John R. Thompson (restaurant chain) has reportedly met with good reception.

Silas P. Tompkins, one of the builders of the Lackawanna Railroad, dead at 100.

Germany special:

While there's apparently no definite agreement on extending German credits, several large US and British banks have already extended their lines 6 months and others are expected to follow since new foreign currency restrictions give them no better chance of repayment if they demand it than if they agree to extension. Foreign currency payments will be unrestricted for interest and “sinking fund” payments on long-term loans, but all other payments exceeding 3,000 marks, including those for imports, must be approved by the “Devizencentrale,” as must export of mark currency and securities. Restrictions on internal banking transactions, other than at savings banks, are expected to be lifted this week, since “public sentiment is calm and weak banks are now safeguarded.” Fed. Reserve monthly review says short-term credits to Germany by US banks “substantially maintained” in June and slightly increased in first half of July.

Wholesale German price index was 110.1 on July 29 vs. 112.3 on July 15; commodity transactions have been small since the crisis, and retail prices have also barely changed. Berlin comment indicates current German grain situation precludes immediate purchase of significant amount of US surplus wheat.

Editorial commenting favorably on Bank of England's recent $250M credit. "It is no reflection on British credit that the Bank of England has to borrow at this time." This is a result of Germany's plight and the large balances of both French and German funds maintained in London; "in a measure London finds itself today the victim of her position as world banker." It's noteworthy Bank of England raised rates twice before borrowing, demonstrating a good-faith effort to help itself; this is "in striking contrast to the methods pursued by the Reichsbank." Granting of the credit is another example of improved central bank cooperation. The war is still unsettled in many political and economic ways, "but in central banking there has been developed a ... genuine desire for helpfulness that might well be an example to the governments of the respective nations."

Foreign currency market again at a standstill due to holiday in London. However, with resumption of full-scale trading today strength is expected in foreign currencies, particularly sterling, due to higher rates in London and the $250M credit granted the Bank of England. Some concern felt over the upcoming fall period when sterling usually weakens due to the cotton trade, but it's generally felt the Fed. Reserve will act to alleviate the strain by buying sterling bills as in the past, “so that undue weakness in sterling in the fall is not looked for.” Stocks rose in Paris, and German bonds rallied; “the French scare is over for the time being” but evidence of moderate inflationary policy in Britain, starting with 15M pound increase in authorized currency circulation, is looked at skeptically; it's believed the Labor govt. is not ready to initiate needed reforms including reduction of doles. “All eyes are now turned toward Germany, where the political, rather than the financial interest, is dominant.”

Market commentary:

Market wrap: Stock action rather indecisive, with no outstanding news developments to affect prices over the weekend. Prices trended higher most of the day on very slow trading, but a wave of selling broke out in the afternoon, wiping out most of the gains on heavier volume. Bond trading very dull, prices steadier; foreign list featured sharp break in Hungarian issues, but German and other European issues were firm; S. American bonds mixed; US govts. dull and firm; some parts of the domestic corp. list saw mild rallies, and rails steadied. Commodities soft; grains lower; cotton down slightly, hitting new season lows. Copper remained at 7 5/8 - 8 cents with buying small. Silver up 1/8 cent to 28.

Strong spots included automotive and accessory shares, amusements and major rails; oil shares steadier; Westinghouse and J.I. Case dropped sharply late.

Brokers believe trading "has now reached such a low ebb that it would be difficult to induce any active liquidation."

Retailing shares including Kroger, Penney, and Safeway have drawn a fair amount of buying based on good first half showings. Amusement shares viewed more positively; while film companies have had their troubles in the past few months, attendance now seems to be improving as the new season's releases start appearing.

American Chicle, at 44 5/8, is only four points below its yearly high; co. has maintained strong balance sheet; first-half earnings $2.22 vs. $2.16 in 1930; yield 4.5%. GM has drawn some "investment buying of good quality"; financial position is very strong; stock about 37; first half earnings $1.83 vs. $2.32; yield 8%. Standard Brands improvement in earnings vs. 1930 attributed to aggressive ad campaign in national magazines; sales of brands including Chase & Sanborn coffee and Royal Gelatine continue to grow. Aluminum Co. of America gained on expected increased use of the lighter metal in place of steel and copper; particular interest was drawn by announced plans of Peerless Motor Car for all-aluminum automobile. "Despite the talk of pool operations in IT&T in the last few weeks, there has been some important buying in the stock, some for the account of investment trusts."

Sept. corn drew selling by a leading professional; open interest in that contract is over 16M bushels, and some observers anticipate a short squeeze similar to the one that took place in the July contract, orchestrated by "the Thomas M. Howell interests."

Yet another rather technical editorial by T. Woodlock on the ICC and rail reproduction cost vs. book value; concludes “net book values” and “reproduction cost depreciated” are coming close together due to shifting price trends since the war.

Hayden, Stone & Co. dispute view that steel is a leading business indicator; believe industry is one of the last to reflect either uptrend or downtrend in general business, since it's used mainly in "capital goods"; that the steel industry has recently fallen to an unprofitable level shouldn't obscure the fact that "consumption goods, such as textiles, shoes and tires, are showing decided improvement. Rather the fact that the steel business has fallen to such a level would indicate that the cycle has been about completed." Consumption goods seem likely to lead the recovery as in the depression 10 years ago.

Harvard Business Society: "Were it not for the crisis in Europe, recent developments in domestic situation would definitely indicate business recovery is in progress and presently be accelerated. The unsettled foreign situation will slow down the pace of business recovery here, though it may not delay or prevent such recovery. ... In any case business conditions in US will be influenced largely by events in Central Europe, which, for the next few weeks, it will be impossible to forecast." If foreign situation reverses the recovery in domestic business, it may fall below recent levels, making the depression "of exceptional duration."

Economic news and individual company reports:

Fed. Reserve monthly review notes weakness in bonds; says this is partly due to “continued and even accentuated tendency for banks to seek to maintain the most liquid possible position.” Ordinarily, “banks seek to employ promptly any excess of reserves beyond legal requirements. During recent weeks, however, the reporting member banks in principal cities have as a whole decreased their total loans and investment despite large excess reserves.” In past 2 months, these excess reserves have been larger than at any time since the depression began. NYSE reports security loans by members as of July 31 were a new low record of $1.344B, vs. $3.689B a year earlier and peak of $8.549B in Sept. 1929.

While there were 17 US car companies that registered 1,800 or more new cars in the first half of 1931, three of those firms sold 83% of all cars: GM with 44.3%, Ford 29.9%, and Chrysler 8.7%. Auburn was the only firm to show an increase in the first half vs. 1930, rising spectacularly to 20,440 cars from 8,690, though 9 firms showed an increase in June. GM was the best performer in the top three, falling only 7.1% from 1930 vs. a 48.7% decline for Ford and 24.5% for Chrysler.

C. Churchill, general sales manager for Buick Motor Car, says based on June registrations, "retail demand for automobiles is becoming more firm" around the country; Buick registered 8,686 cars in June vs. 8,550 in June 1930; report "encouraging ... not alone for the automobile industry, but for business generally."

Fed. Reserve of NY reports improvement in June department and chain store sales in the NY district.

Assoc. of Commerce reports brisk wholesale trade in Chicago last week thanks to fall buying by retail merchants across the US; Chicago retail sales uneven.

Standard Oil of Indiana cuts annual dividend rate to $1 from $2 previously; says measure a conservative one to maintain strong position; believe cut will be temporary; some encouraging developments in their business. Curtailment of oil production appears to be making some progress. The Texas Legislature is still meeting, but may act on some major bills by end of the week. Production in California and Oklahoma is lower. East Texas production hit another record of 555,484 barrels/day last week, and may be as high as 625,000 this week, but number of drilling permits is lower and many producers seem disposed to "pinch in" their wells.

The diamond trade is suffering from an unprecedented depression. However, Sir E. Oppenheimer, chair. of De Beers, says the industry has now been organized on an economically sounder basis than ever before. All large South African producers have been gathered under De Beers, which controls production; the S. African govt. is helping by restricting exploitation of new discoveries; De Beers has also organized a geological dept. to keep track of future diamond discoveries around the world. Oppenheimer declares that “every link of the chain between mine and consumer is complete, and ... every stage ... has been placed on a sound footing.”

Assoc. of Rail Executives declines to meet with railroad union heads to discuss unemployment problem and possible solution using 6-hour day and 5-day week; say matter should be handled by discussions with individual roads due to diverse conditions across the US. Unions say in view of refusal to meet, will formulate plans to deal with the problem and "command support of public sentiment."

Canadian wheat pool report showed further deterioration in the estimated crop, though grain prices gave little response. In the Southwest US, farmers are getting little return from a bumper crop; in the Northwest and the Canadian prairies, farmers are getting record low prices for one of the smallest crops in years. With continued poor weather and low prices, many Canadian farmers may find it more practical not to harvest their damaged acreage. G. Ruggles, "Minnesota state entomologist," reports grasshopper infestation has affected 46,875 square miles of farmland in the Dakotas, Nebraska and Iowa.

Chile defaults on bond payments. City of Rio de Janeiro defaults on bond payments. Australia arranges to meet state of New South Wales interest payments due July 31; asks "New South Wales to repay the advance at the first convenience." Govt. officials will meet Wednesday to "consider the future attitude" toward New South Wales; continued assistance depends on N.S.W. Premier Lang carrying out promises to cut spending.

Detroit will probably complete within 10 days a new financing plan "designed to effect a sound and permanent solution of Detroit's financial problems." Plan was worked out between NY and Detroit bankers and city officials to meet short-term debt maturing in the next few weeks; it will involve issue of $30M in one to five-year bonds to refinance much of the debt, and compliance by the city with an austerity program; the refunded debt will be repaid over 5 years, with debt service taking priority over other city requirements. West Palm Beach reportedly without funds because only 63% of past year's taxes have been collected; city may be forced to pay salaries in scrip and declare 90 day moratorium on other expenses.

Pres. of the recently closed Banco de Cataluna of Barcelona attributed closing to open campaign against the bank; said resumption of normal operations near.

S. Rosoff, subway contractor active in attempts to reorganize Bank of US, favors a proposed law providing for state to meet cost of liquidating insolvent banks in cases where it exceeds resources and enforcible stockholder liability; law would be made retroactive to cover Bank of US.

Following the Supreme Court decision upholding the Indiana anti-chain store tax, it's expected anti-chain tax laws will be introduced in almost every state legislature that meets this fall and winter. This year, 32 legislatures considered such laws but only 2 passed them.

French govt. again gives aid to the French Line (France's leading shipper); govt. injects 160M francs and takes management role in co.

The first brokerage office aboard a Pacific Ocean liner will be opened by Wm. Cavalier & Co.

Grand Union reported a record profit margin of 3.01% in the first half vs. 2.82% in 1930.

Earnings reports: Goodyear Tire & Rubber half $1.06 vs. $2.02. Pullman Q2 $.13/share vs. $1.37; half $.28 vs. $2.54. Skelly Oil Q2 ($1.54)/share vs. $.59; half ($2.29) vs. $1.09. Grand Union half $1.00 vs. $.97. American Stores half $1.87 vs. $1.75. McCall Q2 $.88/share vs. $1.12; half $2.04 vs. $2.26. R.K.O. half $.25 vs. $.76.

Companies reporting decent earnings: Grand Union, American Stores.


Sunday entertainment in NY and London presents an interesting picture. In NY, plays are forbidden while movies are allowed; this has generated periodic efforts to legalize the Sunday play from Broadway producers who note that Sunday is the biggest box office day for movies and, "however unskilled in mathematics, can compute that before the legitimate theater has raised its first curtain on a blue Monday, ... picture theaters have written off half their overhead for the ensuing week." In London, both plays and movies are illegal under the Sunday Observance Acts, along with boxing. However, the House of Commons is now vigorously debating the Sunday Performances Bill to legalize Sunday movies, and British theatre producers led by Sir Arthur Butts are fighting to include plays in the law. Movie competition is already "blowing with hurricane fury" through London theatre - as United Artists announces its $5M super-cinema with 3,500 seats on the West End and Paramount negotiates to build four of the largest movie houses in Britain, "legitimate theatres are going under the hammer." There are interesting differences in how strictly NY and London enforce the Sunday theatre laws; NY allows performances that don't involve change of scenery or costume, including vaudeville ("under the more pious name of Sunday concert") and "dancers and similar entertainers"; London is much stricter, essentially limiting Sunday entertainment to golf and motoring. However, under both current and proposed laws NY and London are agreed on strictly prohibiting Sunday circus performances.


Mahatma Gandhi recently attended a formal dinner in Bombay wearing his usual loincloth, and spoke for two hours. "This was considered remarkable in view of the fact that he had no cuffs to write notes on."

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