January 15, 2010

Thursday, January 15, 1931: Dow 167.46 +1.51 (0.9%)

Assorted historical stuff:

Editorial: Both labor and politicians are rejecting increasing suggestions that the theory of high wages may need modification; this theory seems to be one of the few holdovers from the "new era" that ended in 1929. Chair. Wiggin of Chase Nat'l. recently suggested some industries "may reasonably ask labor to accept a moderate reduction of wages"; the NY Commissioner of Labor dismissed this as a "dangerous fallacy ... the great market is the internal market" while the AFL answered that "if there were any economic advantage in low wages China would be leading the world." While these arguments may apply to long-term trends, there may now need to be some temporary adjustments. There is a single test of whether wage cuts are justified which must be applied on a case by case basis: they are justified if "high labor cost makes high selling price a bar to marketing." If wage cuts aren't immediately reflected in lower prices, and so made to increase production and employment, "the demand for wage reduction has no solid basis in the mere desire of employers for a more satisfactory margin of profit."

Fed. Reserve Gov. Meyer to appear before the Glass committee on Monday, when it begins its general financial investigation. Sen. Glass has introduced bill restricting security loans by Fed member banks; inquiry is expected to investigate extent to which Reserve and member banks supported loans for speculation.

Washington report: House of Representatives making good progress on needed legislation. Senate, on the other hand, has contributed little action but much in the way of headlines. Senate Minority Leader Robinson asks $25M appropriation for Red Cross to be used for supplying human food in drought areas and other parts of the country where there is suffering. Former Gov. Alfred E. Smith's plans in 1932 subject of some discussion; most Washington Democrats believe Smith would be very difficult to nominate again, and unlikely to be elected. Many see the same drawbacks regarding Gov. Roosevelt; conservative wing of the party is talking more and more of Owen Young.

Sir Josiah Stamp, British economist, disagrees with Pres. Hoover's assertion that US can recover independently from rest of world; says retreat behind an economic wall creates instability which invites disaster.

St. Lawrence Power Commission appointed by NY Gov. Roosevelt recommends immediate creation of Power Authority to develop hydroelectric sources and contract with existing utilities for distribution. Believes project entirely practical; cost estimated at $171.5M; recommends household consumers be given preference in rates. Editorial by T. Woodlock: Lessons of St. Lawrence Commission report on using existing utilities for distribution should be applied to Muscle Shoals to avoid uneconomic public development of power, repeating our inland waterway experience where huge sums of public money were spent to provide benefits to a small group enjoying transportation services at rates far below their true cost.

C. Schwab, Bethlehem Steel chair., takes full responsibility for Bethlehem bonus system; taken from system he saw introduced by Mr. Carnegie in all his cos.; believes contributed to company success; has never participated personally in distributions to avoid possible prejudice in allocating bonuses.

US passports issued in 1930 were 209,211, up over 15,000 from 1929.

Sears-Roebuck announces new spring/summer catalog - 1,000 pages, 48,000 items, 7M copies to be distributed. Prices cut, many to all-time lows.

Polo championships to be decided over 16 weekends starting Saturday, divided between Northern and Southern Calif.

Commerce Dept. is running experiments at Wenatchee, Wash. aimed at killing tree pests using radio waves. Two wires are strung over each row of fruit trees, and hooked up with a "spark sending station which sends out powerful signals." These form a field between wires and ground that kills pests and eggs. Current is only needed an hour or two per day, and method is reported more effective and less costly than spraying.

General Foods licenses “selective irradiation” [by light rays] process of Prof. G. Sperti from Univ. of Cincinnati; allows addition of Vitamin D in controllable quantities to many foods; also able to kill wide variety of germs and stimulate plant growth.

Dr. C. Mills of Cincinnati Gen. Hospital is experimenting with a climatic lab; believes in future we will treat fever patients in cold rooms and high blood pressure patients in hot, moist rooms.

Market commentary:

Market wrap: Stock trading volume much lower; prices generally weak for first few hours; moderate rally developed at midday under leadership of rails; trading remained dull but improvement was sustained in afternoon. Bonds moderately active, irregular; US govts. firm near highs; foreign irregular; corp. mixed with high-grade steadier. Commodities firm; sharp rise in July wheat, a month not supported by the Farm Board.

Conservative observers remain cautious, advise buying in small lots during reactions; most observers expect range-bound trading for some time.

Vanadium again subject of a struggle, with new bear attacks breaking out. Disappointing earnings expected, may barely cover $3 dividend; board action uncertain. American Can has also recently become a bear target on theory it hasn't been deflated as thoroughly as most leading industrials. Aluminum Co. of America [Alcoa] displayed interesting gyrations in trading on the Curb Exchange; it dropped to a 12 month low of 140 1/2, rallied sharply to 148 at midday, then sold off again late to 146 - all on total volume of 850 shares. Some food cos. may be helped by recent USDA decision allowing use of corn sugar in packaged products without making special mention on the label.

Yesterday's rail freight loadings report considered unfavorable; year-over-year drop of 20.6% was worse than all but two weeks in 1930.

New bond issues this past week have been unusually large; bankers have been planning to bring out more issues when conditions are good. Reception of the new bond issues will be watched closely as indicator of investor sentiment.

Bears have ammunition in expected poor earnings reports, but industrial interests argue future outlook is more important, point to improvement since first of year.

Broad Street Gossip: Brokers report "amateur short selling" has been abundant in past few days; large bear operators also "have seemed eager to advertise that they again are very bearish."

A. Wiggin's recent statement seen typifying current conservative attitude of financial community: not encouraging unreasonable hopes or concealing unfavorable factors; not attempting to set date for recovery; current quarter's earnings may compare unfavorably with 1930 - "Business then was only in a minor depression. Now it is in the trough of a major depression."

A. Mount, Bank of America Nat'l Trust pres.: “We entertain no illusions as to a rapid change in conditions during 1931, but do feel reasonbly sure that the bottom of the depression has been about reached ... ”; expect gradual improvement soon.

Col. L. Ayres of Cleveland Trust says dividend paying stocks are at lowest level compared to high grade bonds in past 31 years; historical normal ratio of stock yields to bond yields is 6 to 5; prior to 1928, ratio was never 20% above normal but in the 1929 bull it went to 70% above; it's now at 21% below normal. Notes numerous unfavorable surprises for business in 1930, including drops in commodity, stock and bond prices, drought, and bank failures. However, while it's possible bottom of depression hasn't been reached, “weight of probability is distinctly in favor of durable improvement beginning in 1931.” Calls on other industries to follow auto makers in lowering retail prices; this would hasten business improvement.

Economic news and individual company reports:

Steel industry weekly reviews report some increase in production, now about 44%, but attributed largely to rebound from holiday period; improvement expected to be gradual. Price structure holding satisfactorily.

Tentative agreement for unit (cooperative) operation of Kettleman Hills oil and gas field praised by Interior Sec. Wilbur as possibly marking a turning point toward stabilized economic conditions in the oil industry, says will greatly reduce waste of natural gas.

Humble Oil & Refining cuts prices paid for oil in several Texas fields; average cut 24 cents/barrel, bringing 36 gravity crude to 71 cents. Similar reductions anticipated by other purchasing cos. in Oklahoma and Kansas. Plan awaits approval by operators.

S. W. Straus reports Dec. building permits in 573 cities were $131.5M, up 1% from Nov. but down 14% from Dec. 1929.

US investments abroad in 1930 estimated at $15B, up about $1B from 1929.

Foreign bond offerings in the US fell off sharply in the second half; only 20% of the $600M total for the year was offered in that period.

German Fin. Min. Dietrich announces 1930 budget deficit 400M marks greater than expected; receipts 100M lower than expected, while unemployment expenditures were 300M over expectations. German stocks sharply lower.

French stock prices followed the German downtrend. Worldwide depression reportedly has started to take hold in France for the first time; unemployment is rising while increasing gold reserves are driving up retail prices contrary to the wholesale trend; trade and tourism are down sharply.

Six-month time money rate declines to 2 1/2% - 2 3/4%, lowest in 52 years.

Agriculture Sec. Hyde sets interest rates for drought relief loans at 5%; will work out rules for granting of loans.

US gold production in 1930 was 2.233M ounces, down 500,400 from 1929; Silver production was 48.638M ounces, down 12.690M.

GM Dec. retail sales in US 57,989 cars and trucks vs. 41,757 in Nov. and 44,216 in Dec. 1929; full year 1.058M vs. 1.499M. Dec. sales attributed to new model introduction in Nov. instead of Jan. as in previous years.

AT&T expects 1930 earnings of $10.40/share vs. $12.67 in 1929; net gain of 125,000 phones in Bell system vs. 900,000 in 1929.

R.J. Reynold's 1930 earnings of $33.257M was a record for any US tobacco co., though below early 1930 estimates. Earnings increase attributed to price hike; advertising campaign for Camel cigarettes apparently not successful in increasing sales.

Companies reporting decent earnings: White Rock Mineral Springs, Wil-Low Cafeterias.


Sita - classic drama of India. "It is difficult to see how theatre-goers who have no intense preoccupation with India can get their money's worth out of witnessing Sisir Kumar Bhaduri and his company of Hindu players present Sita, an ancient classic of the country, in Bengali at the Vanderbilt Theatre."


Tommy's father - What's the matter, son? Tommy - I can't get a certain sum right. I wish you'd help me with it, dad. Tommy's father - Can't, my boy. It wouldn't be right. Tommy - I don't suppose it would, but you might have a try.

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