February 2, 2010

Monday, February 2, 1931: Dow 167.55 -1.79 (1.1%)

Assorted historical stuff:

Washington report: Veterans bonus bill looks increasingly likely to pass; testimony continues in House; R. Young, Boston Fed. Gov., and F. Sisson, Guaranty Trust VP, warn of heavy costs; Administration officials alarmed at situation that may follow passage. Presidential veto is certain; House leaders still believe they can hold one third of members in line to sustain the veto. It's now estimated bonds issued to pay the bonus might have to yield 5%-6%; it's feared this would attract funds from around the world and tighten credit. Senate Dem. Leader Robinson (Ark.) is now threatening an extra session if the $25M Federal drought relief doesn't pass; some Democratic colleagues concerned. Growing belief seen in Washington that "when Democrats tire of their [Republican] insurgent alliance, the time will be at hand" when the insurgents get their comeuppance.

Editorial: Sen. Robinson's declaration on behalf of 42 Dem. Senators that they will fight for Federal drought relief to the bitter end, raises not just the prospect of an extra session, but of an indefinite deadlock. Both sides are sincerely motivated by what they believe are important principles, but you can't eat principles. The time has come for a reasonable compromise. Congress could authorize a Red Cross loan to be repaid when possible; the Farm Board can distribute part of its vast wheat hoard. The alternative to a wise compromise would be appalling.

1930 income tax facts: Normal tax rate is 1.5% on first $4,000 over personal exemption, 3% on next $4,000, and 5% on balance. Corp. income tax rate is 12%. Filing deadline is midnight, Monday, March 16.

Editorial: Edward Hurley has presented a plan in which the US would cut Allied war debts on condition the Allies cut military spending. This has some practical problems; in particular, "French opinion ... is ready to take offense at anything savoring of American interference in the affairs of the Old World. To the French, ... armament is not something that can be bartered with." The plan will attract nationalistic opposition in most Allied countries, and even in the US. However, the principle is sound even if it never reaches treaty form: the US shouldn't reduce debts if the beneficiaries will immediately turn the money to belligerency.

Editorial by T. Woodlock, responding to a letter questioning his stand against "valorization" [fixing price] of silver, and asking whether gold in fact was not also valorized by law at $20.67/ounce. Mr. Woodlock sets the letter writer straight in no uncertain terms: "The real truth is that the law declares that 25.8 grains of gold nine-tenths fine - i.e. 23.22 grains of fine gold - is a dollar. That is what a dollar is and it is nothing else. ... The great fallacy in the argument of the 'greenbackers' and those who followed Bryan in the 90's was the supposition that the government stamp could make money out of silver and paper ..."

Interior Sec. Wilbur comes out in favor of limiting oil imports in conjunction with domestic production curtailment.

H. Sinclair, Sinclair Oil chair., says believes newly discovered East Texas field “will prove to be one of the richest oil centers yet discovered.”

Soviet govt. to import force of 150 US rail supervisors to introduce US railroad methods.

Letter to the Editor quotes a Penn. farmer: "We sold 2 beef hides this winter, and got 2 cents a pound for them. At that rate it takes 4 hides to buy a pair of shoes."

NY State Republican legislators favor immediate spending of $24M for unemployment relief; funds would be received if proposal to “mortgage” Holland Tunnel is adopted.

Sears-Roebuck sets up mail order service for Florida citrus fruits.

Calif. Sea Products, operators of whaling fleet off Mexico and Southern Calif., unprofitable in 1930 due to lower prices and production. 1930 output was 10,000 barrels of whale oil (50 gallons each); price declined to 4.5 cents/pound from 6.75 cents in 1929; Norwegian surplus of 250,000 barrels has depressed prices.

Market commentary:

Market wrap: Stocks weak in short session; opening was lower, and attempted rallies failed to interrupt downtrend; some trading favorites that had been up sharply in recent sessions plunged, including Auburn and Eastman Kodak. Bonds mixed; US govts. continued weaker; foreign showed some improvement; corp. irregular, price changes generally small. Commodities weak; grains and cotton down slightly to moderately; corn down to lowest level since 1922 with some months below 62 cents.

Week in review: Stocks and bond markets were strong early in week, but were unsettled midweek by unexpected possibility of veterans' bonus requiring up to $3.5B in govt. financing. Dow industrials failed to advance over recent trading range in spite of sharp rallies in some trading favorites. Bond declines were sharpest in govt. and investment-grade corp., but also spread to lower-grade issues; foreign bonds were irregular. Govts. declined one to several points during the week, while the Dow 40-bond avg. declined from 96.76 to 95.68. Most short term rates remain at lows, though rates on bankers' acceptances were up slightly. Seasonal decline in credit and currency continues. British sterling exchange firmer on higher bill rates; drain of gold to France stops. Steel improvement slowed. Grains fluctuated; wheat stayed in a narrow range but corn hit new season lows. Cotton traded in narrow range; domestic demand better; Gandhi boycott of foreign cloth continues in India.

Conservative observers still advise staying on sidelines until market breaks out of trading range to either side. Also advise against following "highly speculative" trading favorites subject to pool manipulations, since outsiders may end up holding the bag. These trading favorites have led the market in the past weak, making market observers more suspicious of quality of the rallies.

Recent copper situation disappointing; buyers are holding off due to uncertain price trend and plentiful inventories.

Rail circles are more optimistic, as the freight comparisons vs. a year ago have become more favorable. There is concern on dividend cuts by some rails.

Traders have become so disillusioned since the fall of 1929 that "circulation of a bull pointer in some quarters is practically certain to bring in a flurry of selling orders." One shrewd operator recently took advantage of this reverse psychology by spreading a rumor before he bought a stock that he actually wanted.

Review of Jan. stock movements doesn't give much hope of a sustained advance. In spite of strength in rails and sharp rallies in some trading favorites, industrials have failed to confirm the rally by moving above their recent trading range. Business men have been cautious about buying their own stocks; a strong factor in the caution by both business men and the public is the prospect of poor first-half earnings reports by many leaders. Individual industries also face particular problems, including chemicals, copper, and those selling to farmers. However, stocks have been extensively adjusted to "stark economic realities," and good investment support is appearing on downswings; this makes unlikely a repeat of the sweeping liquidation seen last year.

Broad Steet Gossip: Since start of year, general market trend has been upward. No one knows if this is the start of a major uptrend, but reactions like the one that started Wed. aren't that disturbing; "if the trend is to be upward, it will not take place without reactions. They are as certain in a bull market as rallies are in a bear market." Sears, Roebuck reported earnings of $3.01 vs. $6.62, but a closer look shows they greatly strengthened their balance sheet and are in a better position than anytime in their history; cash is up, inventories and payables are down; "Sears, Roebuck had what might be called a very good bad year."

E. Grace, Bethlehem Steel pres., looks back on 1930: In period of widespread unemployment, co. has maintained workforce through part-time operations and kept same wage scale; “This is a great step forward from the old days of wholesale layoffs and general wage reductions. ... Bethlehem enters 1931 with an enviable record. It has creditably weathered the storm of business depression.”

Nat'l City Bank says month of Jan. “has justified expectations of an improvement in the business situation.” Notes improvement in autos, steel, and other important lines; substantial increase in manufacturing payrolls; improving business sentiment.

Economic news and individual company reports:

NY State Banking Dept. reports Bank of US assets $237.9M (largely loans); deposit liabilities are about $161M. Depositors fairly likely to be fully covered without assessing stockholders. If necessary, stockholders may be assessed up to $25.3M, which should leave no reasonable doubt depositors are paid off in full.

Final Treasury figures for calendar year 1930 show total internal revenue $2.933B, down $195.4M from 1929. Treasury has revised earlier deficit estimate for FY ending June 30, 1931 from $180M to $375M.

Treasury offering of $60M in 90-day bills was oversubscribed five times; average rate was 0.95%.

Fisher's wholesale commodity index declines for 8th week in a row, to 77.2 for week of Jan. 23, vs. 80.7 for week of Dec. 5.

Baltimore Grain Exchange protests plans of Farm Board to replace current grain marketing system with farmers' cooperative association.

Agriculture Dept. issues annual outlook based on views of hundreds of agricultural economists; says summer 1931 wheat prices may fall below 1930 levels.

Youngstown District steel production to remain at 49% this week, first week since late Dec. that failed to show a gain; mfrs. optimistic on gains in Feb.

Sales of electric refrigerators were 1M in 1930, up about 10% from 1929; a $5M advertising campaign is planned this year to stimulate sales, with a goal of 1.2M units. NYSE interests believe prospects are bright, pointing out that only 3M of 20.4M wired homes have refrigerators.

Unit (cooperative) development plan for the Kettleman Hills oil/gas field approved by Interior Sec. Wilbur, who calls it one of the greatest steps toward conservation ever taken by the Dept.; plan is effective immediately.

French steel ouput in Dec. was 1.756M tons vs. 706,000 in Nov. and 815,000 in Dec. 1929; full year 9.4M vs. 9.7M; internal demand reported fair.

German govt. says will force sugar producers to take part in worldwide production agreement if necessary.

Sales at the Chicago Auto Show were up 25% from last year; total of 1,670 cars ordered at average price of $1,500.

B.F. Goodrich 1930 loss about $8M vs. profit of $7.4M or $5.10/share in 1929; worst year since 1921, but co. remains financially strong.

Companies reporting decent earnings: Colgate-Palmolive-Peet, Scott Paper, Foster Wheeler (engineering/power), Chicago Great Western RR (against industry trend), Early & Daniel (grain dealers), Altorfer Bros. (household electric appliances), Giant Portland Cement.


A small town judge, losing his election, took a job as cashier in a local bank. A customer came in to cash a check. 'Don't know you,' greeted the new cashier. The customer presented a Wall Street credit card, a business card, and many letters addressed to him. 'Not sufficient proof of identity,' said the cashier. 'But judge, I've known you to hang a man on less evidence then that.' 'That may be, but when you're paying out money you have to be careful.'

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