September 12, 2010

Saturday, September 12, 1931: Dow 128.23 +0.93 (0.7%)

Assorted historical stuff:

House of Commons debate adjourned until Monday on the MacDonald coalition govt.'s drastic austerity budget. PM MacDonald explained that the bill gave the govt. the power to issue “orders-in-council, which have something of the semi-dictatorial effect of the 'Government by Decree' in Germany”; while only effective for a month, the orders could be altered only by act of Parliament. Labor bitterly attacked the bill as one to “suppress the opposition ... and make a mere mockery of parliamentary govt.”; also warned the measure could become a precedent for a future Labor govt. Attributed crisis largely to Conservative propaganda launched to “discredit the Labor govt. and bring it down by fair means or foul.” Foreign currency observers believe sterling is still being supported by Bank of England, and that this will continue until the budget situation becomes clearer. Britain will sell its giant R-100 airship as an economy measure; sister to the ill-fated R-101 airship that crashed on its first flight near Beauvais, France, killing 48; the R-100 made a successful round trip to Canada.

The long fingers of economic depression finally have touched France”; a heavy budget deficit is predicted this year, and “retrenchment ... is now the watchword.”

Mahatma M.K. Gandhi visits Marseilles; welcomed by thousands “intensely curious as to the appearance and habits of the wizened Indian leader.” Will arrive in London Saturday morning; hopes new British govt. brings no change in attitude on Indian independence. Can't see independence on “immediate horizon. However, I have faith in God and humanity.” Denies reports of US visit: “America isn't ripe for my message ... It is better for my mission that I remain far away, where I am only a legend to the American people.” To repeated requests from over 100 reporters, finally answered: “I believe in equality for everyone except reporters and photographers. I detest photographers and still more journalists. It's no use pestering me. I will not answer.”

Col. H. Cooper, US engineer of the Russian Dneiper development, says Communism has been replaced by state capitalism in Russia; “this is not hearsay but information from the powers that be.”

Hurricane destroys city of Belize, capital of British Honduras; about 150 killed.

Labor Sec. Doak says the Labor Dept.'s newly reorganized US employment service has found jobs for 600,000 - 700,000 unemployed; says their new buying power “will do more than anything else to restore normal conditions.”

Sen. Watson comes out against any tax rise “as long as Sec. Mellon could sell short term securities”; believes rise at this time would be disastrous for business.

Reassuring study by Comptroller of the Currency Pole shows less than 25% of national bank bond holdings are subject to depreciation reserves. Total investments of nat'l. banks as of June 30 were $7.674B; of these, $4.351B were Federal and local govt. bonds, and most of the remaining $3.323B is in high-grade securities; it's estimated only about $1.5B of holdings are subject to depreciation reserves. In the past year, banks have been allowed to carry high-grade govt. bonds at full value since depreciation is believed “due purely to market conditions”; for “speculative bonds,” the govt. is requiring “a reasonable deduction for depreciation which may be accounted for over ... three or four years.” This policy, in effect for about a year, is more liberal than the earlier one requiring banks “to write down their bondholdings indiscriminately on the basis of depreciated market values.” However, it's “not so liberal as to jeopardize the interests of depositors.”

Story by H. Alloway noting the Erie Railroad headquarters' move to Cleveland; it had been in NY since the railroad's founding 100 years earlier (1831).

Jack Dempsey reportedly planning comeback.

Market commentary:

Market wrap: Stocks showed signs of oversold position; after a period of pressure carrying many issues to new low ground, rallying set in that was more impressive than in some time; short-covering increased during the afternoon, by traders leaving early for the weekend because of the heat. Domestic corp. bonds sharply lower in active market; the Dow bond averages, as well as many individual issues, hit new yearly lows. On the other hand, US govts. rallied and European issues were steady. Grains up sharply after announcement of Farm Board sale. Cocoa hit another record low.

Conservative observers continue to recommend the sidelines.

Dow average of 10 second-grade rail issues suffered a record-setting decline in August, falling 9.58 to close at 70.76. The Dow average of 40 corporate bonds fell 3.94 to 77.05. E.A. MacNutt, Sun Life of Canada treasurer, warns that 75% of all rail bonds will lose status as legal savings bank investments this year unless business substantially improves.

Short interest has reportedly increased substantially in recent sessions, as bears are encouraged by lack of seasonal business improvement.

Rail officials seem increasingly focused on conserving assets and protecting bondholders, in preference to paying dividends not earned.

Wall Street continues to believe announcement of wage cuts in the steel industry will come soon; while effect might be immediately bearish, it's believed this would be beneficial in the long term, and “a long step toward the readjustment” needed by business generally.

Drug company earnings have held up well this year; Nine leading cos. reported first-half earnings of $19.977M, down only 2.4% from 1930.

Real estate man Rockwell Smith has gone through a file of newspapers dating back to the 1850's, and found a series of 9 depressions at intervals of 3 to 12 years, lasting from a few months (1907) to 30 months (1873); the current one has lasted about 20 months. The longer the depression, the stronger the subsequent recovery.

Economic news and individual company reports:

Ths oil trade has experienced an “almost complete change” in sentiment since the reopening of the East Texas area; prices in the Chicago wholesale gasoline market have dropped sharply to as low as 3 1/2 - 4 cents/gallon, vs. 6 cents less than a month ago. The new order limits production per well but not drilling, which has been rapidly increasing; “it now appears that production will again reach unfavorable proportions in the near future.” Oklahoma Gov. Murray maintains the shutdown of production there, but his $1/ barrel price target now looks remote unless East Texas output is reduced. However, Murray remains firm, saying he's rejected “feelers” for a compromise of about 85 cents.

Farm Board announces sale of 7.5M bushels of surplus wheat to Germany; price is 49 1/2 cents/bushel, credit terms 4 1/2% maturing Dec. 1934. Total export sales by the Board since July 1 to China, Brazil and Germany 47.5M bushels. The Board has also sold about 10M bushels since June 30 in the domestic market.

Texas House of Representatives defeated Long plan for one-year cotton holiday in a test vote, by 55-45. House continues to debate cotton bills.

Bradstreet's weekly reports “slightly increased wholesale activity and a fair volume of retail trade in seasonal lines.” Prices notably lower than last year. Sales on summer merchandise less frequent; retailers apparently successful at clearing out stocks, though at low profits.

Rosoff plan for Bank of US reorganization abandoned after NY State started making liquidation payments to depositors.

Company reports since July 1: 208 companies reported higher earnings vs. 1930 and 639 lower; 897 dividends unchanged, 21 increased, 167 cut.

Companies reporting decent earnings: Warren Foundry & Pipe, Equitable Office Building.


Ladies of Creation - “Pleasant farce” at the Cort Theatre. Title alludes to “those modern business women who use their feminine wiles to wheedle contracts out of reluctant men, to obtain the loyalty of their employes, and to please their customers, both male and female.” Play follows Sybil Vanderlyn, one such successful businesswoman, who comes to grief after firing her competent manager and attempting to carry on the business with her effeminate assistant, Mr. Dinkle. [Note: Broadway - some things never change!] Happy ending ensues as her former manager is summoned back, “announces his love for her, and takes control of the situation.”

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