Thursday, April 2, 1931: Dow 170.82 -1.54 (0.9%)

Assorted historical stuff:

Transcontinental Air Transport plane crash in Kansas kills 8; Knute Rockne among the dead.

Washington report: Deficit for the 1932 fiscal year (starting June 30), based on current conditions, is estimated at $946M. If it was reduced to $500M, a tax increase could responsibly be avoided by skipping the $400M sinking fund payment and borrowing the small remaining amount. This could happen through a combination of business recovery and spending cuts. The latter will be harder since money for 1932 is already appropriated, but $100M or more could be saved if Farm Board stops operations. Sen. Capper (R, Kan.) defends Farm Board against Sen. Reed's proposal to abolish it; says Board hasn't been "given a chance yet to show what it can do."

Editorial: Sen. Borah has proposed a surtax on high-income taxpayers to close the deficit. This may sound good superficially, but not on a closer look. The surtax would apply to only 371,754 taxpayers. The people may like being coddled by politicians, but it's safe to say their "sense of fair play has not sunk so low ... [they] would be willing to let 1/3% of the people bear the burden of the coming Treasury deficit." In 1929, the top 1/3% of the population paid $974M in income tax on $12B income; the next 1 1/3% paid $13.6M on $12.4B; and the other 98%, with income of $70B, paid no income tax. [Note: A version of this editorial has appeared many times since in the Journal. It was much more convincing back then, before Social Security and Medicare taxes.] Meanwhile, Prohibition is depriving the Federal govt. of perhaps $800M in tax revenue, and much more in state taxes; the bootlegger's profits come not from the top 1/3% but from millions of voters.

Republican W. Austin wins special election for Senator from Vermont, defeating Democrat S. Driscoll, who had favored Prohibition modification.

After some trepidation, general opinion has turned in favor of German govt's recent adoption of rule by decree, since this will enable program for economic rehabilitation to be followed with minimum interruption.

Recent earthquake near Managua, Nicaragua may end proposed canal project, since it would have suffered enormous damage in the quake.

Editorial: Gov. Roosevelt looks likely to sign the St. Lawrence River power bill based on the more reasonable scheme favored by a majority of the commission he appointed, which doesn't open the door to State distribution of power. In doing so, he gives up his earlier position and chooses "commercially sound procedure and safeguarding of the State's finances in preference to a presumably useful political issue." Decade-long delay in development has at least had the benefit of preventing another possible "$200M mendicant like the Barge Canal."

Editorial by T. Woodlock: ICC's referral of the old rail price controversy to the Justice Dept. indicates it sees a possible violation of the antitrust law. This may be so, but will be difficult to prove. Antitrust law "can prevent ... corporations engaged in a given industry from agreeing not to compete; it cannot force them to compete if they, in fact, choose not to ..." While lack of competition strongly suggests an agreement, this can't be assumed but must be proven.

"Two decades ago at the beginning of the automobile era" roads and highways were rivers of mud except when frozen hard in winter or turned to dust in summer. Since advent of the car with its need for hard roads, billions have been spent on paving but only 700,000 miles of the 3.024M mile highway system has been surfaced. It's estimated $2.5B will be spent in 1931 on improvement of highways and streets, mostly in well coordinated work looking toward a national system.

British inventor develops strong, resilient asbestos sheet that can be molded into fireproof car bodies at half the cost and weight of steel; three largest British carmakers are experimenting with the invention.

GE has developed a vacuum tube able to detect heat radiated by faraway stars. The tube can detect 1/100,000,000,000,000,000 of an ampere, which compares to the power of a 50-watt lightbulb as two drops of water to a year's flow over Niagara Falls.

Hollywood now has an extensive botanical collection of flowers and shrubs to ensure authentic backgrounds for films, and also steadily employs about 20 professionals making flowers from paper or waxed cloth to duplicate more exotic varieties based on photos.

Market commentary:

Market wrap: Stocks declined most of the session, with majors including US Steel and GE drifting downward and bad breaks in some trading favorites; automotive shares including GM were relatively strong, while rails were a weak spot. Decline picked up steam late in the session, though there was a minor recovery near the close. Bond trading mixed; US govts. down slightly on talk of new financing; foreign govts. active and strong; domestic corp. mixed with rails and tractions higher, utilities steady, but convertible issues irregular. Commodities very weak; grains break badly, wheat down substantially, corn plunges to new season low and low since 1922, other grains down sharply; cotton down substantially. Copper remained at 9 3/4 - 10 cents. Silver declined 5/8 cent to 28 1/8.

Market observers remain cautious although a technical rally appears overdue; see no sign of imminent reversal.

Business news was mixed, with rail freight loadings in week ended Mar. 21 gaining more than seasonally to a new 1931 high, but first decline in steel production this year. Stock traders may have also been rattled by the sharp break in grains.

Broad Street Gossip: One broker received a buy order for 100 shares of US Steel to be executed when the “shorts are through liquidating stocks they borrowed from others.” Advice to buy on breaks and sell on rallies is again not working very well in the past few weeks, as there have few rallies to sell on. Recent decline attributed partly to tax selling by traders who made good profits early in the year. Stocks that have acted best during the recent decline include American Can, Woolworth, and McKeesport Tin Plate. Gillette 1930 report showing earnings of $3.25/share was better than expected, and showed lack of foundation for many rumors circulating when the stock was making new lows.

Potter & Co. recommend Cuba Railroad first mortgage 5% bonds, now selling at about 66 to yield 8 1/2%, on grounds “interest has always been paid, although the road has passed through three revolutions, two interventions, one moratorium and three major economic depressions.”

Recent bear drive on GM used clever tactic of selling through a broker associated with Raskob and du Pont interests, creating illusion of liquidation by interests close to the management. Reports were also "industriously circulated" that GM's dividend was in danger, though this appears to be false. Recent bear operations in automotive stocks were helped by reports of declining demand for automotive sheet steel. However, Iron Age says auto prospects remain good and suggests the decline may be a result of extreme caution by carmakers anxious to avoid mistakes of 1930; some factories are reportedly readjusting production every week based on retail sales reports.

Recent shipment of gold from France to Germany, though small, considered highly significant in banking circles; this was first shipment from France since last July. France has accumulated gold steadily since stabilization of the franc in 1928; holdings have grown from 28.9B francs to 56.1B, leading to charges gold standard had broken down and stability of other currencies was threatened. This shipment demonstrates franc can weaken against other currencies and lead to prompt shipment of gold. It also demonstrates return of German confidence that was so badly shattered by last fall's elections.

L. Rosenwald, Sears VP, says business somewhat slow but sees every indication of steady readjustment to normal conditions.

T. Watson, IBM pres.: "Based on information gathered by our representatives in all parts of the US and abroad, there are unmistakable indications of business improvement which should shortly be reflected in a better demand for merchandise of all kinds."

Economic news and individual company reports:

Six of twelve jurors chosen for Bank of US trial; the trial may begin early next week.

Steel production uptrend reversed; week ended Monday was 55% vs. 57% prev. week, 56 1/2% two weeks ago, 75% in 1930, and 95% in 1929; US Steel rose to 56 1/2% from 55 1/2%. Uncertain whether this decrease is just a “breathing spell or whether it marks a definite relapse from the upturn” since start of year; decrease is small, but this is the time of year when production usually peaks. Most encouraging news was higher demand for construction material; improving weather is expected to further stimulate construction activity. Price picture looks less encouraging; prices have stabilized, but at lower levels, with some recent attempted increases not holding. Decline in automotive orders seen due to extreme caution by carmakers since uptrend in production still appears strong. Machine tool business continues uneven with no marked improvement in March in spite of good inquiries.

March auto production by makers other than Ford was 187,848 cars and trucks, up 26% from Feb. but down 24% from 1930; Q1 was 465,884, down 27%.

With about 3/4 of Treasury debt maturing within the next 2 years and 7 months, Treasury is anticipated to shift to long-term for new issues.

Call money rate returns to 1 1/2%.

US electric output for week ended Mar. 28 was 1,681 GWHr, down 1.5% from 1930, vs. a 2.3% decline prev. week and 3.4% two weeks ago.

State gasoline tax collections in 1930 reached a new high of $522.1M vs. $448.2M in 1929; California collected highest amount, $40.0M.

Texas Railroad Commission agrees to raise allowed East Texas oil production to 125,000 barrels/day over next 90 days due to large new well discoveries.

Foreign currencies rose due to holiday influence and report of lower-than-expected British deficit.

French govt. strengthened as budget for 1931-32 finally passed by both chambers of parliament; small surplus predicted.

Followup international wheat conference on disposal of world surplus likely to be called in London May 18.

The London Stock Exchange is completing one of its dullest fiscal years in history; governing authority is besieged with proposals to attract the public into the market. Many brokers want the ban on advertising lifted; demands also made for more adequate information for investors. Drastic changes likely in coming year.

NYSE seat sold for $300,000, off $10,000 from previous sale.

NJ legislature is considering bill providing for state officials to take over municipal finances in event of default.

Middle West Utilities' year-end balance sheet and lower capital spending plans indicate relatively little new financing will be needed this year. Market decline in 1930 put a crimp in the financing program for that year; for example, over 500,000 warrants it issued for purchase of common stock at $40 went unexercised and the company had to look elsewhere for the $20M it had expected from this source.

Share of US soap market in 1930: Procter & Gamble 40%; Colgate-Palmolive-Peet 24%; Lever Bros. 14%; remaining 22% over 250 mostly local independents.

Continental Can reports improvement in paint, varnish, and "general line" cans; this type of business seems to be returning to normal for the first time in over a year.

Cadillac-La Salle March shipments were 2,332 units, up 43% from Feb. and up 26% from Mar. 1930; Q1 shipments 5,188, up 20% from 1930. Hudson-Essex March sales were up 38% from Feb.; April sales expected to show similar increase over March.

Stewart-Warner (automotive accessories) is diversifying into new products to restore earnings power. Upcoming products include small home movie camera to retail for $50, and a advertising sign for store windows that can be written on by the user, with writing appearing like neon tubing.

Companies reporting decent earnings: IBM, Hershey Chocolate, Duquesne Light, American Machine & Foundry (machinery for producing 5-cent cigars).

Theatre:

Appearing at the Palace - Horace Heidt and His Californians - big band show, "even more lively than usual. While this organization's somewhat childish collegiate manner" might prove annoying on repeated viewings, "there is no gainsaying the spirited, almost breath-taking character of their offerings ... a rapid routine of orchestral numbers, songs and dances which are original and diverting." Songs include the popular "Peanut Vendor"; "dance numbers include interesting burlesque conceptions of the Russian, Scotch, Apache and Classic Greek styles." Bill also included Lobo II, a trained German police dog, comedienne Rosetta Duncan, a Smith & Dale skit about quarreling real estate partners and Jack McLallen dancing on roller skates.

Jokes:

'I took his temperature with that glass thing you gave me Doctor, and it's gone down.' 'Ah, that's right; that means he's getting better.' 'Oh, Doctor, are you sure? I was a bit worried when he swallowed it.'