April 23, 2010

Thursday, April 23, 1931: Dow 156.37 -2.46 (1.5%)

Assorted historical stuff:

Editorial: Pres. Hoover recently planted a tree on the White House grounds. He could have taken the opportunity to speak out on this important subject. Trees are "indispensable to our national well-being." Aside from their obvious importance for lumber and recreation, trees are an important regulator of water flow in streams and prevent soil erosion, which is now estimated to cost $200M annually, not including losses often inflicted by great floods. Timber supply is being used up 4 times faster than growth; we must plant new forests and preserve existing ones, through both govt. and individual action.

New South Wales Govt. Savings Bank closed to prevent failure; was a large Australian state savings bank doing no commercial business; 1.652M depositors with 70.7M pounds sterling in deposits. Bank officials assured depositors that it was solvent; govt. agreed to merge it with Commonwealth Bank of Australia. Bank troubles attributed to recent remarks by state Premier Lang on state default, causing plunge in state bonds that bank was a large holder of.

US and Germany recognize new Spanish Republic; pesetas declined.

Letter to the Editor from Sen. Couzens (R, Mich.) responding to editorial of the 16th: Did not in fact receive invitation to speak at Int'l Chamber of Commerce meeting; would have been delighted to do so, but perhaps just as well to write them.

Commerce Dept. reports on survey of retail business in 485 cities of 10,000 or more: of total business of $15.106B, 62.5% was transacted by single store independents, 19.44% by local chains, 16.90% by regional and national chains, and 1.16% by other.

NY Gov. Roosevelt signs Gates-Miller bill establishing legal 6 day, 8 hour/day work week with strictly limited overtime; stores allowed 10 extra hours/year during rush seasons.

NY City had 750,000 visitors in 1930 who came just to attend conventions and exhibitions. It's estimated they spent $80M, 40% at retail stores, 25% at hotels, and the rest in miscellaneous expenditures.

[Sheer Genius dept.] Newly invented non-skid note pad has a sheet of rubber attached to the back preventing the paper clipped to it from moving. Business men can now take notes with one hand while talking on the telephone with the other without having to chase the paper all over the desk.

To meet increasing demand from the Eastern US, fresh flowers from the San Francisco Bay area are now being shipped in refrigerator cars on passenger trains. Demand is greatest in Dec.; in 1931, 325 large cars were sent in that month, up 140 from 1930. During the last Christmas holidays, NY City florists bought $400,000 of flowers, Chicago $225,000, and Boston $95,000. Favorites include chrysanthemums, asters, roses, carnations, dahlias, violets and gardenias.

The Merchant Tailors' Association recomends that the host of a party wear a jacket of a bright color, e.g. scarlet or plum, allowing him to be recognizable to the guests. We would argue otherwise, as it often happens that the host would rather not be associated with the party once he sees how it is going. "He is apt to be happier in the dark obscurity of a plain black dinner jacket, watching the melee quietly from behind a palm." - New Yorker.

Market commentary:

Market wrap: Stocks continued to work lower; volume moderately higher; most of selling attributed to liquidation by discouraged "outsiders" [nonprofessional public as opposed to professional traders] rather than to bear pressure. US Steel weak early, hitting new post-1927 low; this appeared to affect sentiment ("as Steel goes, so goes the market" - old saying); weakness spread to rails and utilities; slight rally at mid-day quickly petered out and close was weak. Bond trading quiet; US govts. firm; foreign list unsettled by plunge in Australian issues on closing of govt. savings bank, but European issues only down slightly; corp. highest grade showed firm tone but lower-grade rail and industrial issues weak. Commodities weak; grains and cotton down substantially. Some copper sold at 9 1/2 cents but most producers holding at 9 3/4 - 10. Silver down 3/8 cents to 28 3/8. Zinc dropped to 31-year low of 3.50 cents/pound; coffee continued rally.

Conservative observers increasingly believe market conditions favor a technical rally, in particular higher volume and public liquidation during recent market declines. However, they advise against buying in anticipation of such a rally, and don't expect a sustained upturn; "business reports and immediate trade prospects do not indicate that a definite culmination of the bear movement is in the offing."

Dow industrial average closed at a new bear market low, 1.14 below the previous low reached Dec. 16. "Speculative nerves were frayed by the persistent, dragging character of the recent declines, and the apathy in evidence on the brief interrupting rallies."

Dow theory adherents believe recent action of rail and industrial averages in breaking through resistance levels clearly indicates “we have not emerged from the major bear market,” though it doesn't necessarily mean prices will go lower. The Dow industrials are now off 224.80 from the peak of 381.17 on Sept. 3, 1929; this decline of 59% makes this bear market “the most extensive since accurate records have been available.”

Bethlehem Steel pressured as dividend cut seen likely. GM and du Pont suffered outburst of heavy selling. Texas Gulf Sulphur hit new yearly low on dividend concerns. International Cement pressured on cement price war.

Prominent bear traders have been active, though some reportedly have been attacking leading stocks to cause reactions and then taking advantage of resulting public liquidation to surreptitiously cover shorts in other stocks.

The Dow average of 40 corporate bonds hit a 1931 low, about 1.24 points below the 1931 high, although fundamentals favor higher bond prices and high-grade utility issues have been stable at close to three-year highs; second-grade rails and industrial bonds have declined severely to carry the average down.

Bank and trust stocks have held up relatively well in the past few days considering the severe declines on the NYSE.

NYSE amends listing requirements for managed investment trusts [similar to mutual funds] to require more detailed and definite accounting methods.

Increase in rail loadings for week ended Apr. 11 from previous week was unexpected; another decline had been predicted. Drop in gasoline in storage for week ended April 18 also came as something of a surprise, though season of heaviest consumption has opened. Q2 car production is estimated at about 900,000, down over 28% from 1930; market students are calculating which rail lines will be affected. Merger of important Southwestern copper companies rumored; Phelps-Dodge to be nucleus of combination.

Westinghouse has sold off recently on reports Q1 deficit would be larger than previous estimates. Sears, Roebuck has been pressured on talk of declining profit margins; company would benefit from improvement in agricultural conditions.

C. Schwab, Bethlehem Steel pres., predicts "better times than ever" at annual luncheon of Pennsylvania Society.

W. Atterbury, Pennsylvania RR pres., listed some things that must be corrected before business is restored to sound basis: maldistribution of gold; war debts; worldwide tariff walls; installment buying , particularly as developed in the US; possible overly rapid reduction in national debt; tax system based on unsound principles, particularly the capital gains tax; effects of Federal antitrust and trade laws.

Economic news and individual company reports:

US Grain Futures Administration has started an investigation to determine source of reports that Farm Board would dump its whole wheat surplus in Europe.

Mississippi avoids default on bonds; solution involves selling $1.5M bonds that were already authorized, which were immediately bought by Mississippi and New Orleans banks. Editorial: Mississippi played with fire in flirting with possible default. The state's financial condition is relatively sound despite depression and drought, and danger of default has been averted by "public-spirited action of Mississippi and New Orleans bankers." However, "no state ... can afford to have its credit rating called into question, particularly" when it's about to embark on an expansive public works program requiring large bond issues.

Weekly govt. weather report: "Continued dry soil, with high winds, was very detrimental in the spring wheat area, although timely rains towards the close of the week were helpful in retarding soil blowing" seeding made good progress but some reseeding will be necessary. Winter wheat conditions generally favorable, though soil blowing caused some damage in Northern Great Plains and Montana. Corn planting progressing well; cotton uneven with some trouble in Texas.

Another $12.5M in gold to be shipped from France to NY, threatening start of major movement; to fight this, Fed. Reserve lowered buying rate on bills up to 45 days by 1/8% to 1 3/8%; this strengthened foreign currencies, particularly sterling. It's hoped this step will work to divert gold to countries more in need, including Britain and Germany; if it doesn't, a cut in the 2% rediscount rate is seen likely although that rate is already at a record low. Money flow into NY has been very heavy in past few days, and US gold holdings at end of April should total almost $4.75B, more than the rest of the world combined excepting France.

Weekly steel reviews a bit more optimistic in spite of production decline; while spring bulge now looks to have been mostly seasonal, demand seems sufficient to keep production stable for next few weeks. Automotive demand looks positive, though there's a disturbing report Ford is reducing buying and planning a summer shutdown. Some decline in small construction. Scrap prices showed further weakness.

Twenty leading steel producers earned 3.71% on capitalization in 1930, lowest in six years.

Final income tax figures for March show total of $329.6M vs. $555.7M in 1930. Total internal revenue in 9 months to Mar. 31 $1.930B vs. $2.277B.

March earnings for first 7 rails reporting showed dramatic improvement from Feb., down only 6.4% from 1930 vs. a 52.9% decline in Feb.

Middle West Utilities reports business conditions in its territory during March lagging; some improvement seen in New England industrial activity, but in other sections increase in business activity was “of seasonal or less than seasonal proportions.”

US electric output for week ended Apr. 18 was 1,633 GWHr, down 4.6% from 1930, vs. a 3.1% decline prev. week and 1.6% two weeks ago.

Att'y Gen Mitchell says Justice Dept. sees no antitrust violation in efforts of oil states to relieve troubles of oil industry by curtailing production.

Price war has broken out in the cement industry; prices are lowest in 15 years, and customers are putting off buying in anticipation of further cuts.; current prices are unprofitable for great majority of producers. Industry problems of increasing capacity and declining construction demand have been building for two years, but a sharp decline in demand this year has made things much worse; Mar. production was 36.9% of capacity vs. 51.5% in Mar. 1930. Long period of low prices seen.

March cigarette production was 9.802B vs. 9.165B in 1930.

Mexico faces deficit of 30M-50M pesos for current fiscal year; talk of suspending foreign debt payments "is being revived in certain quarters."

Steamship rate war averted as five lines which had announced their intention to leave the Far East Freight Conference withdrew resignations.

M. Norman, Bank of England gov., reportedly proposed int'l bank to finance long-term loans to Eastern Europe and S. America on recent visit to US. Project disapproved of in proposed form by US and France.

Westinghouse announces Q1 loss of $2.886M vs. profit of $4.547M ($1.70/share) in 1930. Libbey-Owens-Ford Glass reports company is operating at capacity on largest orders in its history on mounting demand for safety glass.

Companies reporting decent earnings: Chesapeake Corp. (paper), Canadian Dredge & Dock..

Theatre business:

The Joe Leblang Central Ticket Bureau [discount theatre tickets] is rolling out its new system for preventing ticket scalping. The system works as follows: upon purchasing a ticket the buyer receives a blue slip, in lieu of the ticket, which admits him to the theatre. Inside, a Bureau representative exchanges the slip for seat stubs. Since there is nothing on the blue slip to indicate the location of the seats any speculator (scalper) will have trouble reselling them. This system will extend to tickets purchased via phone or telegraph - messengers will only deliver blue slips. In future, this system will be used for all shows with tickets in high demand.

The casino at Enghien les Bains, about 8 miles north of Paris and one of the most famous in Europe before the war, will reopen this month after many years, thanks to a recent vote in the Chamber of Deputies repealing laws that prohibited public gambling within 60 miles of Paris. Many Parisians laud this measure as a "long step back into that pre-war period when the gaiety of Paris was a magnet which attracted to its multi-colored lights and lanterns all the butterflies of Europe"; advocates cited need to compete with other European capitals for the steady stream of wealthy clientele looking to court "Lady Luck". However, the measure was stubbornly fought by a puritanical minority as being antithetical to the "spiritual advance of the French people". In the final analysis it was probably allure of the casino tax revenues that decided the outcome; it's estimated this will amount to 30M francs annually, while property values in Enghien will double; the casino will be in the class of the high-limit one at Monte Carlo. Counterintuitively, this measure was favored by the theatre business, which believes the “exhilaration engendered by such gay places, and the spending element which they invite” will stimulate their trade rather than providing new competition; “winners are supposed to celebrate at the revues ... and losers to console themselves in an evening at the drama.”


"Daughter (entertaining swain in the small hours) - Has father gone to bed yet? Mother - No. He's in the cellar reading. Daughter - Whatever is he reading in the cellar? Mother - The electric light meter."

"So he gave us a demonstration of the used car, and we noted the following things: There was only one new part on it, and that was the speedometer. Everything on the car made a noise, with the exception of the horn. It averaged about fifty miles to the gallon, because most of that distance we had to be towed. The windshield wouldn't shatter, because there was no glass in it. It had three wheel brakes. It had a one-man top. Any more than that in the car got wet when it rained. It had balloon tires, at least they were off the ground most of the time. It had moulting upholstery, flapping side curtains and cross-eyed headlights. In fact, it was just the kind of car a wife would want her husband to have. That is, a wife who wanted to keep her husband home. - Life."
[Modern translation:
Man in auto parts store: I need a windshield wiper blade for a Yugo. Clerk: Sounds like a fair trade.
Why don't Yugos sustain much damage in a front-end collision? The tow truck absorbs the impact.]

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