March 12, 2010

Thursday, March 12, 1931: Dow 181.91 -1.72 (0.9%)

Assorted historical stuff:

Washington report: It now seems likely action on unemployment insurance may be taken by the next Congress; inquiry will be made by Sen. Wagner (D, NY) and two Republican Senators into existing systems, and a report made in Dec. It's fortunate the inquiry is in the hands of Sen. Wagner, who will be sympathetic but practical in approaching the problem. A system of insurance could be purely Federal, joint Fed.-state, purely state, or private; it's apparent from experience of Britain and "known temper of our Congress" that a purely Federal system would be in most danger of growing out of control, while a joint Fed.-state system might be safer. It would be preferable economically to have a purely private system, or one set up with states to enforce participation, but these options will likely become impossible when Congress acts. "Publicity machines" of the two parties becoming active again now that Congress has adjourned. Alfred E. Smith seen unlikely to run again in 1932, though he may go into the convention with a swing block of delegates. Pres. Hoover seen unlikely to decide on international silver conference called for by Senate for several months.

Editorial: Reports indicate alarming trends in the wheat situation. A year ago, the country had a record wheat carryover of 275M bushels; this year it looks likely to increase to something like 345M; "this will be one of the Farm Board chickens coming home to roost."

Editorial by T. Woodlock: Gov. Roosevelt's acceptance of the St. Lawrence Power Commission's proposed bill opens way for public development of water power along sounder lines than Muscle Shoals. State agency operating the plant won't have recourse to taxing power, so will have to operate economically. On the other hand, bargaining position with private utilities in arranging to sell power will be strong since legislature can still go back to the fully public option of building their own transmission lines. Keys for sound public operation are removal of taxing power and accurate accounting, making the enterprise "stand upon its own bottom."

The Wall Street area, in spite of containing some of the world's most expensive real estate, also serves food at Corn Belt prices; latest feature is a fresh egg sandwich that can be bought for 5 cents within sound of the Trinity churchbells.

Hudson River Night Line to resume freight service between NY and Albany, starting second century of operation.

Bureau of Internal Revenue says it can give no official set ruling on depreciation schedule for miniature golf courses.

Westminster Abbey, Canterbury Cathedral, and the cathedral at Rheims are now all heated by oil burners made in Bloomington, Indiana.

Bathtubs were first built about 2,000 BC, but didn't become popular in the US until mid-1800's. Some cities attempted to crack down on tubs; Philadelphia almost banned bathing between Nov. and March, while Virginia passed a $30 annual tax on bathtubs. Pres. Fillmore (1850-53) was first to install one at the White House.

Market commentary:

Market wrap: Rails under pressure following NY Central's dividend cut; however, rest of the list received the news relatively calmly; leading stocks received good support, with reactions staying in technical bounds and volume dropping on recessions. Bond trading quieter; US govts. slightly higher; foreign continue strong; corp. high grade relatively steady near recent highs, speculative irregular. Commodities mixed; grains somewhat higher; cotton down substantially. Copper larger producers holding at 10 1/2 cents, but smaller amounts sold at 10 - 10 1/4. Silver up again to 30 1/8 cents, gain of 2 cents in 3 days.

Conservative observers more cautious; advise using stop-loss orders and reducing long positions on rallies.

News of the day was unexpectedly bad; NY Central dividend cut took many by surprise, while failure to raise steel prices was also unpredicted. NY Central's dividend cut "doubtless would have caused a wide-open break" in the general list a year ago; subdued reaction indicates liquidated state of market.

Recent trading believed more professional; relatively narrow range has discouraged many outsiders from participating. Bull pools reportedly operating in Vanadium and Columbia Gramophone.

Chemical shares continued weak, with Allied Chemical hitting new 1931 low and selling in Matheison Alkali. Oil shares were mixed.

Moderate amount of recent selling attributed to those who must pay income tax installments next Monday.

With big Federal, NY City, and Port Authority bond issues successful, other municipal borrowers that have delayed offerings are likely to make them shortly.

Broad Street Gossip: Oil stocks have been making new lows, but some farsighted traders have been accumulating them on long-range prospects; gasoline consumption has been increasing every year, and the industry is well-managed. Rise in the market has helped business by adding billions to security holders' wealth, and improving sentiment. "The stock market helped business; now it is up to business to help the stock market." J. Bernet, Pere Marquette Rwy. pres., discusses rail situation: "A railroad handles everything that is offered. Its subsidized competitors choose the best territory, operate when it is not too difficult, and take the pick of the business. A railroad, as any other laborer, is worthy of its hire."

J. Pelley, NY, New Haven & Hartford RR pres., calls for regulation of all transportation for hire, to eliminate “unrestrained and unfair competition” by “irresponsible carriers.”

Advance in silver over the past week seen as development of outstanding importance, possibly indicating improvement in world economic conditions. Rise will increase buying power of India, China, and other consuming nations. Some bankers believe silver will remain strong for the near future.

Editorial: NY Central's dividend cut was reasonable, and probably predicts similar actions from other rails. This brings up the fact that accumulated corporate surpluses, though indicating financial strength, don't usually represent a reserve from which dividends can be paid in bad times. This is particularly true for rails, since surpluses are often in the form of fixed property. However, this does raise the question whether a closely regulated industry such as the rails should retain earnings as surplus in good years; "If the holders of railroad common stocks must cheerfully accept the consequences of business depression ... their claim to substantially all the divisible earnings of good years is correspondingly fortified."

Symington & Sinclair see rough year for rubber industry; consumption unlikely to exceed 690,000 tons, and may even fall below 1930 total of 676,500.

Govt. officials optimistic after recent bond market strength. Usual pattern of recovery from depression starts with strength in short-term paper, then bonds, then stocks. Bond rally that was interrupted by veterans' bonus commotion appears to be resuming.

Economic news and individual company reports:

NY Central cuts quarterly dividend from $2 to $1.50; most important rail to cut dividend so far. Four main Eastern rail lines preparing joint consolidation plan modifying their earlier one; likely to be submitted to the ICC by Apr. 1. Rail car loadings for 4 weeks of Feb. were 18.1% below 1930, vs. a 17.3% decline in last 4 weeks of Jan.; with expenses already cut to the bone, lower traffic indicates another poor earnings month.

Carnegie Steel announced unchanged price list for second quarter delivery, with bars, shapes and plates selling for $1.65/100 pounds. Most quarters had expected a price increase. Prices on some specialized products have been raised. Steel makers earned return of 5.6% on invested capital in 1930, though earnings were largely confined to the first half. Steel production in week ended Monday was 54% vs. 53% prev. week, 52% two weeks ago, 76% in 1930, and 94% in 1929; US Steel declined to 54% from 55%. Weekly steel reviews offer mixed picture; Iron Age reports more uniform uptrend in demand and production, expects impressive improvement in March; however, Steel and Amer. Metal Market report poorer sentiment on upcoming business. Machine tool trade continues to report good inquiries but slow buying.

J. Broderick says will sue Bank of US directors to make up bank's deficit. D.A. Crain preparing to try 5 of the 8 bank officers recently indicted.

Interesting story on consistent increase in savings bank deposits during depressions; NY State savings banks have shown more deposits than withdrawals every month since June 1930 except for a small deficit in Oct.; on the other hand, June-Oct. 1929 showed more withdrawals every month. While many are compelled to draw on savings due to financial hardship, increased savings by those who still have income more than compensates.

Three French banks fail following "financial embarrassment" of Aero Postale, heavily subsidized air mail line. Govt. somewhat shaken as some officials may be connected to the failed enterprises; Paris stocks down. No sign yet of unusual capital movements.

Bank for Int'l Settlements initiating campaign for reviving European investment markets by converting short-term debt to long-term, and encouraging movement of capital from centers where it's abundant to where it's scarce. Will subscribe to first bond issue of new Int'l Mortgage Bank.

Registered British unemployed Mar. 2 were 2.635M vs. 2.618M Feb. 23 and 1.547M a year ago.

Alabama Gov. Miller says financial situation in state is most serious since reconstruction. Schools are reportedly closing for lack of funds; Gov. Miller appeals to teachers to continue working, promises they will be paid through warrants, which are practically "a lien on all property" in the state. Cisco, Texas has failed to make interest payments on bonds; Texas legislature considers repealing law allowing bondholders to put cities into receivership.

F.W. Dodge reports residential building in 37 states East of Rockies during Jan. and Feb. off only 6% from 1930, vs. a decline of almost 50% in 1930, indicating deflation in residential building almost complete; this type of construction is looked to by economists as indicator of recovery from depression.

Beneficial rain and snow reported over much of wheat belt; wheat in generally good condition.

Novelty (5 and 10 cent) chain stores, generally considered depression-proof, report first sales setback; 4 major chains report total 1930 sales 3.56% below 1929 (chains are Woolworth, Kresge, McCrory, and Kress).

US electric output for week ended Mar. 7 was 1,734 GWHr, down 4.8% from 1930, vs. a 4.8% decline prev. week and 3.6% two weeks ago.

Feb. car production in US and Canada was 230,364 vs. 178,399 in Jan. and 345,955 in Feb. 1930. Improved retail demand reported.

Call money fell back to 1 1/2%, from 2%, as generally expected.

Spending by motorists touring the US in 1930 estimated at $3.2B, down 15% from 1929; spending was about half of world total.

Total Canadian bond offerings in first two months were $147.0M vs. $102.7M in 1930 and $73.1M in 1929.

1930 earnings reports: American Tobacco (maker of Lucky Strikes) $8.56/share vs. $5.76 in 1929; Westinghouse $4.45 vs. $10.15; Monsanto Chemical $1.73 vs. $4.25; American Ice $3.93 vs. $4.22, Phillips Petroleum $0.95 vs. $5.39.

Companies reporting decent earnings: American Tobacco, National Biscuit, International Match [Ivar Kreuger-affiliated], Midland Utilities, Wisconsin Power & Light, Aluminum Industries, Noranda Mines, Anglo-Norwegian Holdings (whaling), Cohn & Rosenberger (novelty jewelry).


Miracle at Verdun - Drama by the late Hans Chlumberg in which 13M World War dead are resurrected as an argument for peace. Three of 13 scenes in the play have been filmed using the play's cast, and will be presented using sound film during the play. Some revues have previously used sound films for comedy scenes, but this play will be first in the "legitimate" theater to use sound film as integral part of presentation.

Great political speeches dept.:

Speech by N. Stinner, 14 year old page in the Arkansas legislature, against proposed bill for a $10 license tax on all dogs: "There ain't no better friend of a boy than his dog. There ain't no justice in this proposition. It's those school teachers who are behind this bill. I got two dogs. One's a black shepherd and the other is a plain dog, but I can't afford $20 for them." The bill was defeated.

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