January 16, 2010

Friday, January 16, 1931: Dow 162.82 -4.64 (2.8%)

Assorted historical stuff:

Conference of governors from oil producing states agreed on plan to ask Congress for oil tariff. Rep. Garner and Sen. Sheppard, both of Texas, promise sympathetic Congressional hearing. W. Franklin, conf. chair., says purpose of administration's conservation policy is to reduce production and import foreign oil, enabling "oil monopoly" that has existed abroad for some time to gain control of US fields cheaply; says policy would impoverish area of the US with 22M pop.; denies oil being wasted, says it's being used "while it is yet valuable, and before the discovery of some new form of power which may supersede oil."

Editorial by T. Woodlock calling for more extensive use of fertilizer and availability of credit to support use; this would be the fastest and most effective way to raise yields and farm living standards. We must reduce inequality of farm and city living standards so that ambitious young people don't leave the farm as soon as they can; this trend has been worsened by radio, newspapers, and movies. "The screen, for example, shows ... the country youth migrating to the big city and depicts him in a year or two comfortably settled in a cozy bachelor apartment whose proportions and architectural lines much resemble those of an Egyptian tomb of the kings."

Washington report: Clear trends appear to be developing toward dry Republican stance and wet Democratic one, though dissenters in each party may be expected to put up some struggle. Administration seen more favorably disposed to British war debt reduction than to other allied countries. Some House Republicans apparently have ambitions of emulating the Senate insurgents; Speaker Longworth may need to make some concessions to keep them in line.

Editorial noting some apparent differences within the St. Lawrence Commission on whether the project can provide power to home consumers at lower cost; Gov. Roosevelt is acutely concerned with this, having campaigned on the issue last fall.

Sir A. Balfour, British industrialist, urges readjustment of war debts, more even distribution of gold; says British production costs too high, recommends wage cuts.

Oil well brought in a mile from Elmira, NY; a number of large gas wells have been struck within a 50 mile radius in Central and South NY and North Penna.

Upon his arrival in NY City, Mr. Einstein was swarmed by reporters and photographers but answered few questions. The famous scientist did take time to explain his theory of relativity to one reporter: "When a man holds a pretty girl on his lap for an hour, it seems to him a minute," Mr. Einstein said. "But when he sits on a hot stove a minute, it seems to him an hour. That's relativity."

Radio direction finder invented by C. Kruesiq and Herbert Hoover, Jr. demonstrated; allows pilot to find direction in heavy fog by tuning in to any radio station.

R. Steele of Canadian Nat'l Telegraph describes high-speed telegraph able to send 9,600 words/minute over a pair of wires; says 20,000 theoretically possible.

Market commentary:

Market wrap: Stocks relatively steady in early dealings, but a well-advertised bear drive began just before noon and weakness spread across the list. Stocks broke through the recent narrow range into a "definitely downward movement"; trading picked up as prices worked lower. Bonds more active, prices mixed; US govts. push into new high ground; foreign slightly irregular; corp. high grade firm but speculative weaker. Commodities mixed; grains down sharply but cotton firm, copper steady at 10 cents with buying more active.

Stock market decline attributed to Richfield Oil bankruptcy, tire price cuts, and grain weakness. Weak spots included tires, oils, Allied Chemical, assorted trading favorites; M.K.T. [rail] was up sharply after preliminary earnings announcement.

Conservative observers even more cautious, though some still believe market will continue within trading range.

A number of bulls who went long in Dec. were content to take profits recently and are looking for a reaction to buy again; apparently they expect a period of fluctuations in a narrow range, so are content to take profits on rallies and rebuy on reactions.

One market observer notes possible "inverted air pockets" in the markets - stocks that rise sharply when fears subside. For example, American Woolen, after being liquidated due to fear-selling, have more than doubled in the past few weeks on relatively low volume.

E. Hare, Bank & Ins. Shares VP, says fixed trusts (similar to ETF's) have gained popularity thanks to safety they offer through diversification and elimination of trading (portfolio is fixed in advance). Fixed trusts have been one of the few financial instruments to gain sharply in sales in 1930, to $400M vs. $150M in 1929; this is partly attributed to an extensive advertising campaign.

Dealers report some return to bond buying by individuals. Municipal bond market has improved since start of the year.

One broker reports about 30% fewer clients than at the 1929 bull market peak; about 15% were "cleaned out" and 15% took their money out of stocks. In 1929, 99 7/8% of his clients were bullish; 75% remained bullish until the fall of 1930; now, 70% are bearish.

Broad Street Gossip: Bear element reportedly as bold as in the worst periods last year; a floor member of the NYSE reports over 75% of fellow floor members are bearish. US Steel directors meet on last Tuesday of the month; expected to maintain dividends though Q4 earnings will be down sharply. American Tobacco 1930 net is estimated at $42.5M vs. $30.2M in 1929; co. accounted for about $164M in taxes and duties to the US in 1930. AT&T spending for additions and improvements in 1930 was over $600M, or over half US Steel's market cap.

J.H. Oliphant notes disappointing Texaco earnings, but says co. has enough cash to maintain dividends for another year; improvement in 1931 is possible; well-managed oil cos. like Texaco will eventually emerge from current difficulty stronger than ever, though they may not currently invite short-term speculation.

Industrial leaders said to be "applying the brakes" to optimism on the near-term business trend; not pessimistic but conservative, and want to prevent over-optimism; admit modest improvement has taken place and hope it continues in order to establish sound foundation for the future, but don't want unwarranted spurt in market since it may be harmful in future.

Sir H. Holt, Royal Bank of Canada head, agrees with Chase chair. Wiggins that recovery requires normal flow of US loans to other countries; also agrees some general wage reductions unavoidable. Canadian Bank of Commerce GM S. Logan notes in spite of depression Canada carried out $420M development program in past year, will spend estimated $325M this year. Pres. J. Aird says nothing strange about this depression, traces part of cause to a huge $10B flow of US capital abroad after the War, that later reversed in 1928, with foreign capital flowing to US for speculation.

J. Thayer, Central Hanover Bank VP, celebrates 59th year working there. A veteran of seven panics, says 1930 experiences were the most distressing, though 1907 was the most severe.

R. Stephenson, Amer. Bankers' Assoc. chair.: “Following my contacts with business and banking representatives throughout the country recently, I feel no hesitancy in saying that we have passed through the valley of depression and are now starting on the upgrade.”

Economic news and individual company reports:

BLS reports Dec. employment down 1%, payrolls 0.4%, based on reports from 15 industrial groups employing 4.7M with weekly earnings of $116.7M.

Fed. Reserve reports money in circulation Jan. 14 down $133M to $4.649B, total Reserve Bank credit outstanding down $137M to $1.111B. Member banks in NY City report brokers' loans down $59M to $1.820B; loans on securities to non-brokers down $35M to $1.992B.

Dow average of 8 steel and iron products was $44.56/ton vs. $44.29 previous week. Scrap prices firm, with more active buying. Steel makers believe price cutting may be at an end, since situation has been reached where almost all companies are operating unprofitably.

Large tire makers including Goodyear and US Rubber match recent price cuts by Firestone; average cut about 9%.

Swedish Match Co. increases capital by 90M kronor to provide money for Kreuger loans to Germany.

British figures estimate 1,122 cargo ships of 4.896M tons gross are now idle, or about 8% of world shipping.

A. Cutten, a Chicago wheat trader, buys a seat on the Winnipeg Grain Exchange; two other prominent Chicago traders are said negotiating for seats. Mr. Cutten says he's concluded that for grain trading, "the only free market on this continent is in Winnipeg"; criticizes govt. and Board of Trade interference in Chicago.

Ford Motor had largest expansion program in its history in 1930; over $60M was spent or set aside; eight new plants were announced; two of the largest and most modern assembly plants were completed and put in operation, in Edgewater, NJ and Long Beach, Calif.

Gov. Roosevelt proposes NY State budget of $323.6M, down $2.3M from 1930; spending was cut to avoid raising taxes. However, the gov. recommended starting bond-funded improvement projects as quickly as possible to relieve unemployment in the first half of the year; public works spending could be $12-$23M per month higher than last year in the first half.

Missouri-Kansas-Texas Lines [rail] announced preliminary earnings showing co. had covered $3 dividend in 1930 in spite of severe drop in revenues (1929 net was $5.10/share). M.K.T. stock up sharply.

Texas Corp. preliminary estimate of 1930 earnings down 69% from 1929, was the first official statement on earnings by an integrated oil co. This decline is seen likely to be similar in other large integrated oils. Major factors include inventory write-downs, and spending on expansion in 1929 that isn't providing good returns.

Procter & Gamble earnings improvement attributed to increased efficiency and acquisitions.

Companies reporting decent earnings: US Realty & Improvement, Sun Oil (against industry trend), Gold Dust (trademarked food products), Charles Gurd & Co. (non-alcoholic beverages).


Little Caesar - Edward G. Robinson's striking acting produces a full-length portrait of a metropolitan gangster. We see him from early career, to zenith of his power, to despair in a 25-cent flophouse hiding away from the police. Mr. Robinson goes under the surface to give us intimate emotions. Also vivid is Douglas Fairbanks, Jr. as Joe Massara, who starts out with Little Caesar, but eventually leaves the gang to become a cabaret dancer.


"'And how is your husband getting on with his reducing exercises?' 'You'd be surprised - that battleship he had tattooed on his chest is now only a rowboat.'"

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