September 17, 2009

Wednesday, September 17, 1930: Dow 237.22 +0.60 (0.3%)

Assorted historical stuff:

Editorial: Today is the anniversary of the US Constitution's completed drafting in 1787. This formed the foundation of our government, one so stable that we take it for granted even as many others around the world have been overturned or are trembling. A simple look at the prices of some government bonds shows some of the consequences of instability; even in Germany bond prices declined after the election although “the well-informed felt confident that the good sense of a majority of the people would prevail, and the government live.” Many other countries that should be among the richest in the world are instead among the poorest due to instability. The US has the best credit in the world because of the faith that, while the government may be adapted or changed it is fundamentally secure.

Although women head some sizeable companies, they are nonexistent on boards of directors of largest (NYSE-listed) corporations - this despite the fact that women form a majority of shareholders of many of them, including the Standard Oils and Penn. Rail, and that unlike US elections where women only got the vote 10 years ago, they've always been able to vote their shares. “Mrs. A. Barton Hepburn” has now become the first woman director of a Wall Street bank (the Industrial Banking Corp. of America). She plans to start a Women's Bank, with board and executives exclusively women, not as “poseurs” or “wonder objects,” but “practicing banking in the straightest and strictest ... sense.” This recalls a previous exchange between Henry Clews who said women could never approach the “efficiencies” of Jay Gould, to which Carrie Chapman Catt retorted “Mr. Clews heroes are safe ... Women, on their own initiative, are investors, not gamblers.”

O. Caldwell, Electronics editor, says “vacuum or electron tube” will be third great electric revolution following Edison's incandescent lamp and Westinghouse's introduction of alternating current. Greatest benefit to utility industry will be transmission of direct current over existing high tension lines, allowing 3 - 6 times as much power. Use of tubes also greatly reduces size of equipment; “a vacuum tube switch the size of a gallon bottle” can replace a 2 - 3 ton oil switch the size of a room.

British Columbia forests have yielded some impressive flagpoles in the past few years, including a 177-foot pole cut from a 236-year old Douglas fir, tapering from 31 inches at the base to 9 3/4 inches on top, and a 241-foot pole shipped to the Kew Gardens in London.

Market commentary:

Market wrap: Bears, encouraged by 5-day downtrend, continued attacks. Large offerings of major industrials thrown on the market, including US Steel, American Can, Westinghouse. However, good support came in on declines, and attempts to bring out liquidation failed. Short covering and some intermittent rallying began after noon on announcement of gain in exports, and rally intensified in last hour after sharp upturn in grain markets. Technicolor down again on weakening of trend to color films. Bond market moderately active; foreign govts. higher, particularly German; US govt. down slightly; high-grade corp. strong.

E. Grace, Pres. Bethlehem Steel, sees steel prices “slowly but definitely turning upward.” Reports indicate larger steel companies are making a determined effort to stabilize prices and end discounting. Companies have discussed the price situation informally, and it's believed that if one large company took the lead in raising prices the others would follow. Much will depend on whether orders show expected seasonal improvement in the coming weeks.

There has been disappointment about slowness of the business recovery, but economists point out this is typical of previous recoveries from severe depressions.

Many are now watching unemployment closely, including BLS Aug. report of 1.6% decline in industrial employment and 2.6% in wages. Reversal in this trend would be considered very encouraging.

Recent banking trend has been to higher deposits, higher investments and flat to lower loans (commercial and on securities).

Economic news and individual company reports:

Freight loadings for week ended Sept. 6 were 856,637 cars, down 15.8% from 1929 and down 127,867 from previous week due to Labor Day.

Pres. Hoover reports exports in Aug. were about $300M, up $38M from July; imports were about $217M, down $3M.

Canada Premier Bennett announces extensive new tariffs; industries protected pledge to hire 25,000 workers and not raise prices. Duties on agricultural products greatly increased; also affected are textiles, autos, and farm implements. Revenue Min. Ryckman attacks US govt. for helping producers to dump products, says duties will be based on cost of production of similar goods plus a reasonable profit margin.

Sarasota, Florida sued by holders of defaulted bonds seeking court control of city finances. Miami Mayor Reeder proposes state takeover of local obligations.


Call of the Flesh, with Ramon Novarro. Story is more interesting than Novarro's last film In Gay Madrid, though “title is just as ridiculous.” Plot concerns efforts of cabaret singer Juan de Dios to enter grand opera, and to leave old sweetheart “for a charming runaway from a convent.” Film mixes light comedy with pathos, culminates with hero singing the refrain from Pagliacci.

+ The Boring Stuff:

Berlin market firm, mark improved. Bankers generally optimistic on formation of new govt., believe earlier Berlin market decline “a useful warning.” Germans in NY warn that Fascists must not gain control of govt. as “their program would probably set Germany back several years in her economic recovery.”

Colombia Pres. says American banks ready to lend $20M based on financial reforms including balanced budget; urges law permitting foreign exploitation of oil.

Henry Ford leaves Paris for Germany by car, says plans to manufacture cars in Europe “as far as possible.”

Editorial: Public utility corporations provide services that can best be performed by noncompetitive entities, and are therefore regulated to prevent unreasonable rates because of monopoly. Regulation should take into account the rights of the entire public including the utility owners as well as the customers. However, many including Gov. Roosevelt see the sole purpose of regulation as protection of consumers, and even favor publicly run competition with utilities. It seems a bit dishonest for the government to regulate utility rates because of their noncompetitive character, and at the same time to compete with them; “The ways, however of the so-called 'liberal' mind are not those of the common man.” If we do have publicly run utilities, we should at least require that all the financial information be audited annually by an independent accountant and published in full, so the public can see what it's getting for the money.

Some interests have said another bull market won't start until yields are higher; for example, in 1921 (before the 20's bull) US Steel preferred yield was over 6%, whereas now it's 4.7%. “However, the tremendous expansion in natural wealth over the last decade makes it reasonable to suppose that the returns obtainable following the postwar deflation era are not likely to be offered again while so much money is seeking employment.”

Dominick & Dominick: fundamentals (interest rates and deflation) favor continued strong bond prices; this should help businesses reduce borrowing costs.

Public participation in trading continues small, with action largely professional.

Some large companies have dipped into surplus to maintain dividends; this is causing close attention to future earnings prospects.

Conservative interests advise safest course is waiting for market to show ability to move through previous resistance levels.

Textile industry is world's largest; production has gone up year after year, but earnings have gone down. Someday the industry will again give a decent return to shareholders, but not until it's “thoroughly stabilized by cooperation of the kind that now governs ... prosperous industries.”

Commodities mixed. Wheat up sharply late on short squeeze after again coming near 16 year lows below 80 cents/bushel. Other grains also up. Cotton up slightly. Copper offered at 10 1/2 cents/pound, still few buyers. Raw silk hits new lows.

Oil refineries operated at 69.4% in week ended Sept. 13, up from 67% prev. week; however, gasoline in storage declined 741,000 barrels.

California cuts statewide allowable oil production to 550,000 barrels from 596,000.

San Francisco independent gasoline dealers refuse to agree to 1 cent/gallon price increase, endangering West Coast price increase plan by oil majors. A previous price-fixing case charging violation of Sherman (antitrust) law by Standard of California, Richfield, and 16 other companies is settled by consent degree.

F.W. Dodge reports NY metro area contracts for new construction Sept. 2-12 were $2.870M/day vs. $2.950M in Aug. and $2.311M in Sept. 1929. Contracts year to date were $686.8M vs. $871.8M in 1929.

Bethlehem Steel - Youngstown merger trial to be prolonged for additional witnesses.

American Machinist reports increased inquiries for machine tools, although sales are still lagging. Feeling among dealers is optimistic.

GM second-half net seen 55% under 1929 level; should earn $3 dividend for the year. Business reported improving since mid-Aug. for first time in several months.

IBM stock about 175, annual div. $6, 1929 earnings $11.03/share, earnings for 1930 are running higher due to census equipment.

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