April 25, 2010

Saturday, April 25, 1931: Dow 155.76 -1.67 (1.1%)

Assorted historical stuff:

In major address on "Business Honesty" at the Chamber of Commerce, NYSE pres. R. Whitney laid down the law against misleading and unnecessarily delayed corporate earnings reports, and deceptive behavior by fixed investment trusts [similar to ETF's]. Security frauds are as rampant as any time in the past, costing hundreds of millions annually. For listed stocks, NYSE will adopt strategy of issuing public warning when it discovers unsound accounting or other issues; this will give stockholders opportunity to force correction; immediate delisting would punish innocent stockholders. Regarding the now-popular fixed trusts [similar to ETF's], points out a range of deceptive practices that hide charges to investors; while these trusts aren't NYSE-listed, the Exchange is planning to take some action against them. [Note: Interesting on a couple of levels. Whitney was later convicted of embezzlement by the up-and-coming Thomas E. Dewey, who later went on to defeat Truman. Also, some of the issues related to deceptive mutual fund and ETF expense accounting in particular are still very much with us today.]

Editorial: A subscriber from Paducah writes in asking why, if we are in favor of canceling inter-government debts, we don't want to grant the same relief to debtors at home. We're in fact not in favor of cancellation or reduction of inter-government debts, but merely discussing readjustment of those debts to nations "willing to admit and able to prove that they are threatened ... with impoverishment amounting to virtual bankruptcy. A wise creditor never insists that his honest debtor become a bankrupt before he will consider ... a mutually advantageous" readjustment. In other words, we're suggesting treating private and public debts similarly.

Editorial: Closing of the large Govt. Savings Bank of New South Wales (1.6M depositors) in Australia shows the consequences when "political leaders become careless of the country's credit standing." Premier Lang's talk of default wound up directly affecting his "own people's pocketbooks"; the bank was weakened since it was a large holder of the state's bonds; govt. moves to reduce interest rates also caused depositors to withdraw funds. The whole thing was an unnecessary "grand-stand play," since the Commonwealth Govt. would have been willing to help, as it did later. "In Australia, as elsewhere, chickens come home to roost."

Czechoslovakian Foreign Min. Benes opposes Austro-German customs union as first step toward political union rather than toward solution of European economic problems. [Note: If I was the suspicious type, I might think this had something to do with the $45M loan France just arranged ...]

San-Val Oil reports its wildcat well on Ventura Boulevard in Los Angeles has uncovered presence of helium gas according to preliminary tests by Dr. Cartwright, fellow in astrophysics at Calif. Inst. of Technology.

The electric refrigerator is now the top revenue generating appliance for utilities, replacing the electric flat-iron for that honor. As of the end of 1930 there were 2.6M refrigerators in the 20.4M wired homes. In terms of number of appliances, however, the refrigerator still ranks low; most common are the aforementioned electric flat-irons, radios, washing machines, vacuum cleaners, toasters, percolators and electric fans.

Origin of the steeplechase: a party of English hunters, 150 years ago or more, were still enthused following the day's hunt. Spotting a church steeple in the distance, they decided to race to it. The sport caught on at once; in the original version of there was no course, and riders found their own route to the goal.

14,000 heads of lettuce, 7,700 pounds of ripe tomatoes, 3,500 cucumbers, 6,000 bunches of radishes and 500 pounds of green peppers are required every month for the "Salad Bowl" a dining car delight originated by the Southern Pacific RR as a means of promoting widespread use of the West's truck garden products. During the fresh fruit season the "Salad Bowl" is switched to a fruit salad, also "of towering proportions."

Market commentary:

Market wrap: Bears piled back on after covering yesterday on erroneous report NY Fed. would cut rediscount rate; targets included Westinghouse, Texas Corp., and Anaconda; trading picked up sharply in the afternoon after announcement of Pynchon & Co. suspension; issues sponsored by the firm including Fox Film A sold off, while industrial leaders declined abruptly under heavy selling. However, selloff was checked in late afternoon and rallying tendencies developed near the close. Bond market continued trend of divergence between highest-grade issues and others; US govts. strong close to record highs; foreign generally steady though Uruguay bonds dropped sharply in spite of report May 1 interest payment was made; corp. highest-grade held firm near year's highs, but price readjustment continued in most of the list, particularly in industrial issues facing poor earnings and declining stock prices. Commodities mixed; grains down substantially, corn particularly weak; cotton up moderately. Copper buying quiet; small amounts available at 9 1/2 cents, large producers out of market. Lead down 0.10 cents to 4.25, lowest since 1921. Silver down 3/8 cent to 28 1/2.

Dow industrial average closed at a new bear market low.

Bulls discouraged by lack of resistance when Dow industrial average approached the 1930 low a few days ago; lack of support at that level convinced many the market was going lower and discouraged buying. “Brokers who have been credited with doing a substantial business for the so-called 'important interests' declare the latter have not been supporting stocks they are supposed to sponsor. They have been allowing the market to take its own course.” This is causing pessimism, since it's the general opinion on Wall Street that the market won't turn definitely up until these “so-called important interests rally to its support.” While most of the selling when the recent decline began in March was by shorts, in recent weeks a substantial amount has been due to liquidation. Brokers report little of that liquidation has been forced by margin calls, but much of it has been “scared liquidation” by traders.

Market observers disappointed at last week's decrease of only $5M in brokers' loans in face of sharp declines in stock prices. This was taken as evidence much of the liquidation was from discouraged long-term investors, and so didn't represent a healthy cleaning out of marginal accounts that would improve the technical situation. As a result, many observers feel present decline may "burn itself out rather than run into a definite climax that would be followed by a sharp technical recovery"; historical precedent also indicates bear markets end not "under exciting circumstances, but rather in a series of dull, dragging declines." It was therefore argued that "a period of tedious quiet in the market would be an encouraging sign."

Weekly bank reports featured sharp $46M decrease in loans to non-brokers; this appears similar to the end of the bear market in 1921, when brokers' loans stabilized while loans to non-brokers continued to decline sharply through most of 1922. This differs from the usual pattern in which a decline in loans to non-brokers predicts a market decline. It therefore appears that at the end of long and very severe bear markets this pattern is likely to be reversed.

Foreign currencies continued strong, though sterling reacted slightly. Opinion is gaining that NY Fed. may lower 2% rediscount rate in near future; this would help Bank of England, which is having difficulty keeping open market bill rates up due to influx of US and French funds.

GM Q1 earnings, while falling slightly below dividend requirements, were considered encouraging in the circumstances; a substantial increase is anticipated in Q2.

W. Holliday, Standard Oil of Ohio pres., says oil industry facing difficult economic problems due to overproduction of crude oil; adds that new East Texas fields will have potential daily production of 5M barrels by year-end, vs. total US demand of less than 2.5M. Oil industry generally “seeks to avoid all possible legislative interferences,” as US law is based on competition and “survival of the fittest. State assistance, however, has not proved as bad as feared ... and it does seem not improbable that as an industry we will seek further govt. assistance in the control, not merely of the production of oil, but of the drilling of wells.”

C. Snyder, NY Fed. economists, argues against overproduction as cause of this or previous depressions; asserts industrial production has grown fairly steadily over past 50 years. Also disputes idea war stimulated overproduction; on the contrary, estimates world production lower by about $400B in past 15 years due to war.

Economic news and individual company reports:

Pynchon & Co., NYSE members since 1895, suspended for insolvency after margin call by a bank; about $38M in loans outstanding. Originally a Chicago grain house reputedly associated with Benj. Hutchinson, said to be the only man who ever successfully cornered the wheat market. Firm moved to NY in 1895; in recent years, it had concentrated on issuing new securities. Firm attributed the suspension to "sharp decline in a number of securities in which this firm and its customers actively dealt"; hopes and believes "suspension is temporary, and that with the return to anything like normal values of the securities ... no creditor of the firm will suffer any loss ... every effort will be made for a reorganization of the firm with new capital at the earliest possible date."

Pres. Hoover estimates spending for the next fiscal year (starting June 30) will be $4.119B, vs. $4.435B for the current one and $3.944B for the previous one (figures don't include veterans' bonus payouts, which now stand at $912M with another $140M of applications in hand). Spending may be reduced further through continued drive for govt. economies, provided Congress doesn't interfere.

Dun's weekly review: recent trends continued; business slower due to seasonal factors and "unusual conditions of the present readjustment"; some gains but restricted in scope; "evidences of the concrete progress made in bolstering the commercial foundation are not to be minimized, but the surface movements are fitful and indicate a lack of the desired stability." Bradstreet's: wholesale trade slightly up; retail and industrial remained “quiet to fair”; some reports “undeniably drab.”

Weekly bank reports showed $29M increase in non-govt. securities, continuing recent trend. Fed. Reserve credit outstanding increased $16M, indicating continued policy of very easy money.

New bond offerings this week were $11.7M vs. $37.8M last week, lowest total of the year. Decline attributed to bond market conditions; while demand has been strong for highest-grade issues, including govts., municipals, and corp., there has been severe weakness in lower-grade bonds.

Auto parts industry in March continued improvement; index of shipments was 113 vs. 93 in Feb., 84 in Jan., and 155 a year ago; increase from Feb. to Mar. was 21% vs. 12% in 1930.

State directors of the US employment service, after meeting for several days, have been instructed to make minute surveys of conditions in their sections and plan for expansion of the service.

J. Broderick, NY superintendent of banks, sues 8 directors of the closed World Exchange Bank to recover $600,000 for depositors and stockholders.

Amer. Mfrs. of Toilet Articles complain Hawley-Smoot tariff too high, has led to "retaliatory walls" thrown up by foreign nations.

Chicago motor boat show, opened April 24, to exhibit 20% more boats and motors than a year ago; space has been expanded to 100,000 sq feet. Mayfair Marine has opened a permanent boat show in its showroom on E 57 St. Registered boats over 16 feet in the US on Dec. 31 were 248,448, up 7,408 or 3% from a year earlier, though this was the smallest gain for the past 11 years. US exports of motor boats and engines in 1930 were $3.048M, down 40% from 1929.

Chrysler swings to Q1 loss of $979,927 vs. profit of $180,717 in 1930; however, sales improved every month this year; revival "may be something more than seasonal."

Q1 earnings/share: McGraw-Hill $0.62 vs. $0.89; International Cement $0.65 vs. $1.34; Corn Products Refining $0.77 vs. $1.07.

Company reports since Apr. 1: 90 companies reported higher earnings vs. 1930 and 318 lower; 179 dividends unchanged, 5 increased, 42 cut.

Companies reporting decent earnings: Standard Oil of NY, Kansas City Power & Light, New England Tel. & Tel., International Salt, Ward Baking.


Company's Coming - farce by Alma Wilson, at the Lyceum. The Janney's are hosting a card game but have no funds. They do have the tennis club's championship cup on their mantel, though Mr Janney needs to win the championship final tomorrow to gain full title to it. Of course, they embark on a madcap plan to pawn the cup, use the funds to play cards, and redeem the cup before the final match. A series of misadventures follows involving a misplaced pawn ticket, a real and fictitious robbery, etc.; Mr. Janney expresses alarm and embarassment throughout. Play contains "painstaking elaboration and complication,” but “little attention has been given to the general amenities of the trade of playwriting"; dull conversation and painfully obvious plot remove all entertainment value. [Note: Rosalind Russell had one of her first Broadway roles in a minor part; closed after 8 performances.]


"'If laid end to end,' says a statistician, 'the persons registered in New York hotels in 1930 would not quite reach around the globe.' The enterprise, therefore, has been reluctantly abandoned. - Life"

Old lady in 'Ampstead 'Eath” - It was nice of the new vicar to call. Daughter - But Mumsie, that wasn't the vicar; that was the doctor. Lady - Oh ... I thought he was a little familiar for a vicar.

"She was the kind of woman who could be relied upon to say the wrong thing wherever she was. At a recent dinner she turned to her neighbor and said: 'Doctor, can you tell me who that terrible looking man is over there?' 'I can,' replied the medical man. 'That is my brother.' There was an awkward pause while the woman racked her brain for something to say. The doctor was enjoying her discomfiture. 'Oh, I beg your pardon,' she stammered, blushing. 'how silly of me not to have seen the resemblance.'"

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