September 4, 2010

Friday, September 4, 1931: Dow 133.14 -4.17 (3.0%)

Assorted historical stuff:

"High Govt. officials are eager to rally banking support to the real estate situation"; further conferences at Washington possible soon. Govt. seen unlikely to take part in management or financing of any agencies that may be set up; Washington feeling is reportedly that "the best plan is for a group of financiers in each community to cooperate to handle the problem" since this would be more easily and quickly organized than a national effort.

"Conjecture is rife" on a possible "major constructive piece of news ... under contemplation in administrative Washington circles," according to Jackson Brothers, Boesel & Co.; they lean to the view that this might involve a cooperative plan by central banks worldwide to stabilize commodity prices. One way to do this might be expansion of credit outstanding at central banks worldwide, as the Fed. Reserve started to do several months ago. "Sound bank loans, in the final analysis, must rest on the soundness of collateral. When money can be loaned on indestructible commodities at prices ... considerably less than the cost of production, such loans should be encouraged." A worldwide coordinated program to do this would "go a long way toward taking the world out of depression."

Administration plans drastic spending cuts, not only in military spending but in all branches of govt. where cuts can be made without affecting employment. It's likely, however, that spending on rivers, harbors and public building will escape cuts. Treasury reports $800M offering of 20 - 24 year 3% bonds is now oversubscribed.

Editorial by T. Woodlock regarding comments by Norman Thomas (prominent US Socialist). Mr. Thomas considers the traditional "laissez faire" economic doctrine to have rested upon a "religious notion now no longer held" and believes the current demand for "plan" in world economic affairs is an "immensely important sign of the times." Woodlock is skeptical on whether socialism can impose the required amount of planning "without the power of an iron dictatorship behind it." This would require men "to surrender in large measure their wills, their capacities, and their potentiality of possessions for the sake of the 'common good.'"; it would then further require selection of the best technicians and organizers to follow. Which of these would be more difficult is hard to say, but "one thing is clear, and that is that the history of the human race holds no clue to solution of either ..."

Sec. of State Stimson, returning from Europe, praises result of 7-power conference recently held in London; says financial situation abroad appears to be entering a more enlightened era, with a "conciliatory spirit of courage and good will" that promises hopeful results.

A. Shaw, dir. of the veterans' division of the US Employment Service, contends that more has been done since March 15 of this year to improve employment service to veterans out of work than was accomplished during the preceding ten years.

Italian govt.'s additional plans for unemployment relief bring total appropriations to $200M; employment provided for almost 300,000.

Editorial: A widely held attitude among politicians and the general public seems to be that reparations are a "first lien on German industry and taxes," with loans by US banks subordinate; therefore, US banks are seen as self-interested in arguing for a reparations reduction, since this would protect their investments. This attitude will make politically difficult "any attempt to deal thoroughly and effectively with the demoralized state of the world's finances." It's also not accurate; in reality, the main factor in the value of German reparations is the will of the debtor to repay, and "she has as good as said: 'we cannot pay it; come over and get it if you can."

Economic committee of "European union commission" representing all European nations says "present world crisis demands new methods for solution and makes restoration of confidence in present order imperative."

"Proposed Golden Gate Suspension Bridge of San Francisco" stats: cost about $33M; world's largest and highest suspension bridge; 9,200 feet long including 4,200 main span; two towers from which main span is suspended will be 744 feet high; will require over 174,000 miles of wire for the two main cables, which will weigh 10,937 tons each. Construction will take at least four years. [Note: What slackers!] Current record for suspension bridge length is held by the "Hudson River Suspension Bridge" at 179th St [now the George Washington Bridge].

Market commentary:

Market wrap: Stocks absorbed further heavy selling after the Dow rail average hit a new bear market low in the previous session. Rails continued to fall, and unsettlement was also increased by reports of weak reopening of German stock exchange. Trading was substantially heavier in the morning, with successive waves of selling carrying majors including Steel, Can, and AT&T lower. Slightly steadier tone developed in the afternoon, but the market was again unsettled in the final hour by break in US Steel to new bear market low. Bond trading moderately active, prices generally lower. Domestic list featured sharp reversal in second-grade rail bonds that had rallied in the past week; convertibles also fell along with the stock market; oil issues held recent gains. US govts. firm. German issues reacted after weak reopening of German stock exchange. S. American bonds "continued highly irregular." Sept. wheat hit another season low at 44 7/8 cents/bushel, but rallied to end slightly higher.

The Dow rail average again set a new bear market low at 64.68; this was its lowest value since July 1898. US Steel broke to a new bear market low of 82 7/8.

Conservative observers continue advising against adopting either the short or long side.

Action of the rails in breaking through the early June lows was the "outstanding topic in the financial district yesterday." Disturbingly, rails have "led the successive phases of the major decline over the past two years." Dow theory students will now closely watch action of the industrials; a break below the bear market low of 121.70 would indicate another phase of the major decline, while support above that level would indicate "the bottom of the bear market had been seen."

J.I. Case broke badly after suspending dividend; other cos. with doubtful dividends were heavily pressured, including Westinghouse and the New Haven RR. Alaska Juneau Gold Mining was a strong spot, rallying sharply in the afternoon.

Shoe companies have held relatively well, reflecting continued high production; industry is now at 80% of capacity. Wrigley is another relative strong spot in the depression; earnings last year set a record, benefitting from extensive advertising; co. has shown remarkable growth in earnings and assets since 1920.

This has not been the strong year that many fixed investment trusts [similar to ETF's] looked forward to after a highly successful 1930. Many fixed trusts are reportedly working energetically on mergers to reduce excessive competition. List of acceptable fixed trusts released by the NYSE showing detailed information on each. Of 39 trusts, only two had load charges below 8% [premium paid by the buyer of trust shares over value of securities held by the trust].

Editorial on yet another Farm Board fiasco: the price war now going on between the Board and Russia for wheat exports. It will be recalled that last Sept., Agriculture Sec. Hyde charged Russia was making heavy short sales of wheat, and the Board then decided to peg prices at a high premium over the world market; "Russia, ... chuckling at the Board's folly, took advantage of it and sold its surplus wheat."

Some investment bankers believe the number of bonds authorized by voters in the next few years will be much lower than in most postwar years, since many states have their highway programs nearly completed. There will probably be a number of relatively small bond issues in the next few months for unemployment relief, but tendency in many communities is to rely on voluntary contributions.

Letter to the editor skeptical of T. Macauley's proposal for the Fed. Reserve to expand credit through large purchases of govt. bonds. "The theory is beautifully simple, but the trouble is you can't make commerce and industry borrow when they are contracting ... The Reserve banks already hold a record amount of govt. securities ... $728M on Aug. 12. The experience of the past year or two has demonstrated conclusively that you can't legislate prosperity and you can't force prosperity by Federal Reserve or other central bank action. The only thing you can do is to sit steady and keep the boat from rocking as much as possible."

Interesting report of London banking opinion on the German situation. Moratorium an important step but must be followed by permanent and drastic scaling down of reparations. Old system of paying reparations by fresh borrowing must end. US and British lending to Germany in the past was too free, allowing Germany to maintain payments and France to receive reparations for longer than otherwise possible. Competition among US and British led to “situation where lenders vied with one another to attract borrowers, with the disatrous results seen today,” both in Central Europe and S. America.

Economic news and individual company reports:

Berlin stock exchange reopened with system of one fixed price daily for each stock; leading stocks sold 10%-53% lower than their July 11 close, and selling orders were so heavy that only part could be executed. "Pressure of liquidation was so great there was some talk in financial circles that the exchange might have to close again, despite steps taken to prevent a collapse of prices." Austria and Germany agree to abandon proposed "Anschluss" (customs union). Bank of England is rumored to have used part of the most recent $400M US-French credit to defend sterling. Swiss francs strong, as funds flow in from abroad.

Cooler heads appeared to prevail in the East Texas oil dispute; Gov. Sterling, after closer examination of the Texas Railroad Commission's plan, said he found some saving features in it and was willing to at least temporarily reopen the field for a test. Retail gasoline prices rose in several areas, including NY and New England.

Georgia awaits move by Texas to call legislature into special session for vote on cotton holiday advocated by Gov. Huey Long [already passed in Louisiana; becomes effective when a 3/4 majority of cotton states pass the law.] Texas Gov. Sterling says still undecided on calling session.

Ohio Att'y. Gen. Bettman announced his intention of forcing certain depositors to return money withdrawn the day before the Security-Home Trust bank in Toledo failed. The City Auto Stamping Co. was sued to return $400,000; it shared some directors with the closed bank.

Central Trust of Maryland closed by state; deposits at year-end 1930 were $14.7M.

The ICC is apparently making every effort to speed its decision on the 15% rail rate increase; it set Sept. 21 as date for oral arguments, making the announcement before its hearings on the subject were completed.

Net decline in inventories of crude oil and refined products in first 7 months was 16.9M barrels, vs. a gain of 3.7M last year. "Although this leaves a still too large reserve, the tendency has been in the right direction."

Money in circulation Sept. 26 was up $41M to $5.035B, total Reserve Bank credit outstanding up $22M to $1.221B. Member banks in NY City report brokers' loans up $17M to $1.366B, third consecutive increase; loans on securities to non-brokers up $5M to $1.700B.

Dow average of 8 iron and steel products held at $44.25. Scrap markets improved slightly.

In a surprise move to many observers, J.I. Case (agricultural machinery) omitted its dividend.

Liggett & Myers are running campaigns around the country for their loose tobaccos, targeting smokers who wish to economize by rolling their own cigarettes.

Lambert (toiletries and medicinals) price about 70, just announced maintenance of $2 quarterly dividend for yield of about 9%, first-half profit $4.77/share vs. $5.02 in 1930; earnings in July/August ahead of 1930.

Syrup Products Corp. was one of 16 corps. indicted for "conspiring to convert paint solvents and similar products into beverages"; corp. is a manufacturer of syrups and alcohol.

E.D. Babcock & Co. warn against activities of so-called racketeers in the real estate bond field who take advantage of present "disorganized situation," with recent defaults in many real estate issues, to scare security holders into virtually giving away their bonds.

Companies reporting decent earnings: Pacific Tel. & Tel.


Guilty Hands - MGM film, at the Capitol. Lionel Barrymore stars as an ex-district attorney who has sent scores to the electric chair, but boasts it's possible to commit the perfect murder. He also shocks his friends by arguing for the existence of justifiable homicide. By sheer coincidence, he soon has the opportunity to turn theory into practice, as he kills Rich, a client "who has a notorious reputation as a roue" after learning he plans to marry his daughter Barbara. Remainder of the film concerns efforts of Marjorie, a sweetheart of Rich, to solve the case. The most original, ingenious and "brilliantly acted murder melodrama ... in many long months," featuring a "shrewdly conceived and brilliantly executed surprise ending." [Note: I'm guessing he was already dead.]


Customs Inspector at Canadian Border - Do you have any dutiable items? Driver - No, sir. I got me a couple of bottles of gin, but that ain't no duty - it's a pleasure.

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