November 15, 2009

Saturday, November 15, 1930: Dow 184.03 +3.65 (2.0%)

Assorted historical stuff:

Most important development in next Congressional session as far as financial community is concerned will be Glass Senate inquiry. “The inquisitorial committee has broad powers to go into almost any conceivable angle of the country's financial machinery.” Exactly what the committee will do will be decided when its membership reaches Washington after Dec. 1, but Sen. Glass and other committee members resent statements it will be a “Senatorial fishing expedition.” Investigation will probably concentrate on banking and Fed. Reserve, but subject of short selling might come up as Sen. Glass is an outspoken critic of the practice.

Conference of British coal mine owners and workers ends unsuccesfully; possible major strike seen. Over 20,000 coal miners in Spain go on strike.

Chile contemplating 35% tariff on all goods manufactured locally to provide work for unemployed and defend against dumping of foreign goods.

French Chamber of Deputies supports A. Briand foreign policy following 10-day debate involving “surprising shifts of support.”

Warden Thomas of Ohio state prison recently told paroled prisoners they could come back as trustees if they couldn't find honest work outside. A large number have apparently taken him at his word, coming back to where they are at least assured of a warm place to sleep, plenty to eat, and 2 cents an hour for their labor.

Pan American and Imperial Airways to collaborate on transatlantic service from New York via Bermuda and the Azores, possibly using “seadrome” floating landing fields being developed by du Pont to shorten “hops”; service will begin by carrying airmail only, flight time of three days hoped for.

Berlin is soon to have another zoo, “much larger and more pretentious” than the present world-famous Tiergarten. The new zoo is being set up to attract tourists; it will contain “the most extensive and most modernly maintained collection of wild animals in the world,” including 120 polar bears.

Sears catalog to contain advertising section with space sold to national advertisers; Sears distributes two catalogs a year, with circulation of over 7M copies.

Market commentary:

Market wrap: Recovery continued yesterday, with “general list enjoying the most prolonged respite from pressure since early Sept.” Bulls encouraged by better technical position seen in greatly deflated brokers' loans, and by good copper news. Moderate but persistent advances in majors including US Steel, American Can, Consolidated Gas, AT&T, and New York Central; coppers strong; active short covering; upward trend sustained to end of day, with day's highs near the close. Bond market moderately active, generally higher; US govts. continue firm; foreign mostly steady; corp. irregular but mostly higher.

Speculative sentiment” decidedly cheered by recent string of positive days without “encountering a fresh flood of liquidation”; seen as indicating main body of stocks “has absorbed most of the impaired holdings that appear likely to be thrown at it,” suggesting a more sustained recovery may be at hand.

Shearson, Hammill & Co. bullish: “not in sympathy with the extreme wave of pessimism which now prevails ... We believe a gradual improvement in business is under way.” Consumption has exceeded production for some time. Corporations have ample resources and have become more efficient. “The recuperative power of our country is great. The banking situation generally is strong.”. Credit is easy. Increased savings by individuals means latent buying power. Considering all this, “and that security prices generally are much below their real value, we unhesitatingly strongly recommend the purchase of” sound and well-managed stocks.

Insurance companies reportedly have increased buying of common stocks in past two weeks; seen as reflecting belief they offer good long-pull prospects.

G. Charls, Nat'l. Assoc. of Flat Rolled Steel Mfrs. pres.: “Once it was considered necessary to reduce wages in periods of depression. Today the entire steel industry accepts the principle that such reductions only reduce purchasing power and delay the return of prosperity. Industrial buyers pushing for lower prices on steel should be mindful of their joint responsibility in helping the steel industry maintain the purchasing power of its employees.”

Economic news and individual company reports:

A recent indication of stocks passing into strong hands on a large scale: brokers' loans extended by NY City banks were down $987M in past 7 weeks, to $2.235B, while loans to non-brokers were up $150M, to $2.042B. “In the past, increases in loans to non-brokers, especially when accompanied by decreasing brokers' loans in a declining market, invariably have indicated buying to have been of better quality than selling, with an early upward turn in stock prices.”

Bradstreet's and Dun's weekly business reviews note continued uneven and difficult to characterize situation; while recession remains prominent and only slow recovery is expected, some bright spots are noted particularly in chain store and holiday sales.

W. Franklin, Independent Petroleum Assoc. of Amer. pres., says crude oil price has dropped below cost of production due to imports, calls for oil tariff.

Company reports since Oct. 1: 175 companies reported higher earnings vs. 1929 and 285 lower; 418 dividends unchanged, 40 increased, 61 cut.

Companies reporting decent earnings: R.J. Reynolds (expects 10th consecutive year of increased earnings), Vortex Cup.


Morocco, a Paramount film - “Brings a new Greta Garbo to the screen in the person of Marlene Dietrich, a German musical comedy actress who is an almost perfect double for the Swedish star in appearance, manner, and voice.” Also appearing are Gary Cooper, playing a French Foreign Legionnaire in “his usual simple, affecting manner,” and Adolphe Menjou in his first English talking role as a wealthy European.


Grocer - Here's your fly paper. Anything else? Customer - Yes, I want about six raisins. Grocer - You mean six pounds? Customer - No, about six raisins - just enough for decoys.

+ The Boring Stuff:

Editorial: Rep. Eaton's charge that bankers are piling up money and refusing to lend is way off base. For example, banks currently stand ready to buy commercial paper at 2.75%-3%, but businessmen are only offering a small amount. While last year it could be argued that Wall Street was drawing money away from legitimate business, now “every agency from the Government and Fed. Reserve System down, has been directed toward making money cheap and available for all business. ... Far from being a 'bankers panic', this is a borrower's market, for the small business man as well as for the big.” Money has never been easier to get, and if in some cases it's not obtainable, “the result is apt to be the fault of the would-be borrower, not the bank.”

Sen. Smoot (R, Utah), Senate Finance Committee chair., says continuation of 1% tax reduction will be impossible in view of authorized spending; says govt. must pay its debt, believes it may be necessary to use some foreign payments on war loans to avoid Treasury deficit. Sees no need for extra session of Congress in summer 1931. White House denies reports Democratic Senators may filibuster to force extra session.

M. Harrison, pres. of national rail security owners assoc., opposes 6-hour day for rails since it would increase overtime; suggests 26-day month as alternative that would add 75,000 workers without increasing payrolls.

Editorial: In Tuesday's elections, voters in Washington state were taken in by “campaign talk of how beneficiently the little homes and cottages might be electrified if only we had the intelligence to throw off the yoke of some power trust,” and voted to set up public utilities. This was in spite of clear facts presented by the Washington Water Power Co. that customers of the public electric company across the border in Ontario were paying higher rates. Apparently, private utility corporations don't even have honor in their own states.

Dr. H. Schacht, chair. of German commissions that negotiated the Dawes and Young Plans (reparations), says Germany in good position to compete on trade, but will require free market trade to pay reparations; loans made to Germany by individuals in past 7 years will be repaid in full; regarding Germany's frontiers, “western problem is solved entirely,” but Germany will never be satisfied with current state of her eastern frontier; however, “Germany will never do anything violent about this matter ... because she has confidence in human and political reason” that something will be done to provide for permanent European peace.

Commission under German Chancellor Breuning discussing price reductions with producing and selling organizations; slight cuts have been agreed on for milk, meat, drugs, machinery, etc., but it's not clear how to reduce rents and public service charges due to poor municipal finances.

New Jersey population Apr. 1 was 4.041M, up 885,434 from 1920; population density was 537.8/sq mile, second only to Rhode Island.

Survey of St. Louis elementary schools finds 3,194 left-handed writers out of 85,000 pupils.

Conservative observers say some of recent buying has “been of the best character,” therefore anticipate strong support when market is tested again. Advise buying standard stocks on any good setback, and add to holdings if stocks supported above recent lows; warn against taking short side.

With a more extended rally seen in store, question naturally arises whether it will be a bear market recovery or start of a new bull. History suggests it may be neither; while approximate bottom of the bear may have been reached, bear markets usually culminate in a period of irregular fluctuations during which “market is building a shelf on which permanent improvement may be based.” Market action therefore seen likely to be “extremely erratic” for rest of year.

Broad Street Gossip: Future market course depends on public participation. Some may say public has no money to buy stocks, but “in depressions of the past, that theory always has been exploded.” Even taking depression into account, US earning power is close to $70B; if people had no money to buy, how did they absorb $5B of new security issues this year, while adding 20% to 50% to shareholders of record of leading corporations?

Oct. decline in bond market wiped out Sept. gains, though bond indexes remained above June levels and well above low levels of Sept. 1929 - Jan. 1930.

Commodities mixed. Grains down substantially, particularly later months, on rumors of Farm Board failure and imminent resignation of Chair. Legge. Cotton fluctuated irregularly but closed up slightly. Copper was in heavy demand at 11 cents/pound, and price advanced late in the day to 12 cents/pound for deliveries to end of March.

Interesting items from most recent Fed. Reserve weekly report: $21M more in bills held by Fed, $25M total increase in Fed credit outstanding, $15M increase in gold, and $19M in currency, making total of $59M, greatly increasing potential member bank credit; instead, however, member banks allowed reserve balances to increase $80M. “How long they will permit large sums to remain idle is problematical,” but precedent indicates it won't be very long.

$125M Treasury bill issue Nov. 13 received over $568M of bids; $127.5M were accepted for average rate of 1.72%.

Unofficial comment among railway officials” indicates Western roads may oppose ICC's order for lower grain rates in federal court; Many rail presidents said to feel it's time for roads to take a definite stand against losses in revenue due to ICC orders.

W. Potter, former ICC commissioner, writes letter suggesting ICC look into methods of raising rail income. As possible alternative to general rate hike, suggests placing part of all rail revenues into a pool to be redistributed according to need.

Bell System's construction budget in 1931 will be about $500M vs. $600M in 1930, $588M in 1929, and $428M in 1928.

Scheduled airlines in the US carried 208,357 passengers in the first half, a fourfold increase from 1929; total miles flown were 16.9M vs. 9.2M.

Consumption of rubber by US mfrs. in Oct. was 27,271 tons, up 8% from Sept. but down from 34,800 in 1929; usually there's no change from Sept. to Oct.

US cotton mills consumed 444,494 bales in Sept. vs. 394,321 bales in Sept. and 639,759 in Oct. 1929.

Dutch foreign trade has been unusually well-maintained, with first 8 months imports 1.679B guilders vs. 1.813B in 1929, and exports 1.178B vs. 1.313B; tonnage of imports and exports were actually greater than in 1929.

A&P Oct. sales were $101.0M, down 4.7% from 1929; first 10 months were $901.1M, up 5.1%.

A&P is one of the largest US shippers; in past year, rails transported over 205,000 carloads for its stores, with a freight bill close to $25M.

Jerome A. Newman [I believe this is the Newman who was Benjamin Graham's partner] offers $39/share for Bristol Mfg. Co. of New Bedford; directors recommend accepting offer since mill is running at a loss.

Gillette reports weakened consolidated balance sheet after Autostrop buyout: current ratio is downfrom over 16 to 4; $20M paid was over 3 times book value, though only 10 times earnings; income restated over more than 5 past years due to consolidation of foreign sales subsidiaries, surplus down $16M vs. end of 1929.

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