April 15, 2010

Wednesday, April 15, 1931: Dow 168.43 -2.64 (1.5%)

Assorted historical stuff:

Spanish govt. overthrown. After a strong Republican showing in local elections, King Alfonso gave in to their demands and abdicated so a new govt. could be set up. This ended 981 years of monarchical govt. Demonstrations throughout Spain but fair order maintained; martial law declared. Provisional Republican govt. named. King granted safe conduct; gave in to avoid civil war and bloodshed. Editorial: At the moment, Spain is in total confusion. "Yet, assuming reasonable ability on the part of the Republicans," change should be wholly positive. Public sentiment had been moving toward more democracy for some time. It's a "great gain that this was a bloodless revolution, fought with ballots instead of bayonets." While outcome is unpredictable, it's reasonable to expect transition to constitutional govt. respecting "private rights of person and property." Finances shouldn't cause concern; Spain has ample gold reserves and "no inflationary problems"; currency decline has been due to "timidity or incompetency." Investors shouldn't fear repudiation of debts, since by international law, revolution doesn't extinguish debts.

Interesting Woodlock editorial answering reader's question about what would happen to the gold-standard economies if technological development provided an unlimited supply of cheap gold [I actually predict this will happen in the next 30 years]. Woodlock answers the consequences would be similar to the German hyperinflation: owners of real state, buildings, and “things” would be as rich as before, debtors would be freed of debt (since the money they owe, being based on gold, would be worthless), and creditors would be wiped out. Since, in the US economy, the middle and wage-earning classes are the creditor classes, unlimited gold would wipe out most of their property. (Of course, consequences would also include “indescribable confusion for a time” until new money system emerged).

Editorial: Economist Sir George Parish recently joined ranks of many other non-radicals who nevertheless believe evolution of Russia "toward sanity and a genuine freedom of the spirit" is inevitable, and would be helped by extending long-term loans; this should also have the practical benefit of ending Soviet "dumping" of foodstuffs. However, in view of the clear Soviet stance that private property is "the vilest of social evils," could he really recommend those loans to the investing public or a bank? "If Russia is to float a loan, in Canada or elsewhere, let the prospectus recommending it to investors be drawn up by Sir George Parish."

Pres. Hoover praises black economic and cultural progress in speech marking 50'th anniversary of Booker T. Washington's school at Tuskegee. Pres. Hoover, in Pan American day speech, praises progress toward settlement of major disputes among American republics by conciliation and arbitration.

Japanese cabinet headed by Y. Hamaguchi resigned Monday; Emperor Hirohito directed former premier R. Wakatsuki to form new cabinet.

Sir H. Robson, British delegate to recent grain conference, attributes current "disastrous" situation to govt. intervention, in exporting countries by accumulation of huge surpluses, and in importers by regulations and import duties.

Supreme Court decision on oil cracking patent seen as important, validating cross-licensing and sharing of patent royalties as possibly promoting rather than restraining competition.

The car industry has been a large factor in the country's progress over the past 20 years; some estimate it directly and indirectly employs 10M people. It has been a large contributor to growth in steel, oil, copper, electric, lumber, and other industries; it's even one of the largest customers of the rails, in spite of their complaints about cars usurping their business. It's estimated owners in 1931 will pay a record high of $1B in taxes on their cars. The 20 million'th Ford car was assembled at the Rouge plant in the presence of Henry and Edsel Ford.

Holland Tunnel sets new record for traffic volume April 12, when 58,702 cars passed through.

New Jersey trout fishing season begins today; over half a million trout have recently been distributed in rivers and brooks, or 500 per mile.

The Dead Letter Office in Washington received 22.686M letters in the 1930 fiscal year. After every attempt at delivery failed, the letters were opened, and 70% of the $105,000 in currency and 98% of the $5.3M in checks were returned to the senders.

Bond Club to revive its annual Bawl Street Journal publication "filled with Wall Street witticisms and satirical thrusts aimed at the outstanding personalities and events of the financial district." Previous copies have become collector's items.

F. Pasley of the Chicago Tribune has written a bio of Al Capone, "appropriately sub-titled 'The Biography of a Self-Made Man.'" The ad promises "everything is here, from the first handshake murder to Capone's party on his Florida estate, where the guests amused themselves by shooting at floating pop bottles with machine guns."

Market commentary:

Market wrap: Stocks opened with continued strength, lifting majors in early trading and prompting "urgent short covering." However, uptrend was checked about noon as selling broke out in groups including electrical equipment and amusement shares. Main body of stocks showed good support at first, but gave way in the afternoon following renewed assault on electrical shares. Bond trading dull; US govts. continued strong; Brazilian issues again weak, but other foreign bonds quiet, with no apparent effect from Spanish news; corp. highest-grade firm but second-grade and speculative mostly lower; some rallying in rails. Commodities weak; grains mostly lower; cotton down sharply.

Electrical shares were a weak spot following estimate GE wouldn't cover dividend in Q1 and previous Westinghouse report of loss. Amusements also weak on anticipated seasonal earnings decline. GM remained strong on expected favorable sales report. March rail earnings expected to increase from Feb. based on gain of 104,100 in car loadings; this compares favorably to an 8,800 gain in Mar. 1930 and a 40,600 gain in Mar. 1929. Both the oil trade and Wall Street believe a cut in midcontinent crude prices may be coming soon.

Bulls encouraged by pattern "on several occasions recently" of lower volume when market was under pressure and more active trading during rallies; this is believed "one of the most encouraging signs in the past few weeks," reflecting lack of liquidation on declines and entry of new buyers on rallies. Market observers believe short interest may "provide a cushion for the market during reactions"; bear policy in past few weeks has been to cover during reactions. Market appears more selective than in past several years, as investors seem to be carefully weighing merits of individual stocks; this has caused some stocks to hold quite well even under heavy bear pressure, while others in the same group give way.

Market interests who incline to the long side say constructive business news now would materially help stocks; however, many feel business news is unlikely to improve much until after first-half earnings reports; substantial industrial improvement is seen likely to come in the late fall and extend into 1932.

Jackson, Boesel say market should "fluctuate meaninglessly" in a trading range for about 60 days; "short interest is ... too large to permit of a major decline in the near future," while a "major advance is also out of the question" due to pending bad news including removal of govt. support for wheat and poor Q1 earnings. After this period, "technical position will be unusually favorable for a sustained advance," based on business improvement that should by then be apparent.

Broad Street Gossip: One broker who keeps tabs on incoming "tips" reports he received 38 last week, of which 33 were bearish. The market declined steadily from Mar. 24 - Apr. 14; the Dow industrial average closed lower on 15 of 18 trading days, ending with a total loss of 17.57. A number of bull pools were formed early in the year; most "still are intact and will become active as soon as conditions warrant." Brokers report a "preponderance" of accounts now are using no margin, even with call money at 1 1/2%; in 1929, with call money at 8%-10%, margin accounts predominated.

A. Reeves, Nat'l Auto. Chamber of Commerce GM, reports car buying demand encouraging; believes buying will extend far beyond usual spring season into summer due to carmakers' recent decision not to announce new models in the summertime.

Florida Gov. Carlton says defaults of local Florida govt. debts have frozen public and private enterprise. However, says direct aid in form of absorbing debts with state bonds out of the question; calls for "uniform but liberal" procedure for refinancing.

Lawrence Stern & Co. note sharply improved bond market in March; only 20% of dealers surveyed reported normal business in Feb., but 40% did in March, while over 90% foresee fairly good bond business in coming months.

Col. Ayres of Cleveland Trust points out price-earnings multiples of high-grade stocks remain relatively high due to earnings declines; at end of 1930, leading stocks sold for 20 times earnings vs. 19 at the bull market peak. However, the price-dividend multiple has declined from 32 at the peak to about 17 now; corporations largely maintained dividends as earnings declined, and as a result were paying out 114% of earnings at the end of 1931.

Judge M. Gossett, Federal Land Bank of Houston pres., defends firm loan collection policy, points out dangers of leniency.

R. Stephenson, Amer. Bankers Assoc. pres., says wage adjustments should be made if required by economic conditions; however, calls on the banker predicting that wage cuts are inevitable to make clear he “is merely interpreting impersonal events and is not expressing personal desires of himself or his supposed class.”

Banking situation doesn't show any real business revival yet. Loans at Fed. member banks alone are down $852M since start of the year, while investments held by banks continue to grow; “there seems to be almost no demand for credit, at least of a type that banks are willing to extend, and so long as this condition continues money will rule extremely easy and banks will be forced to seek employment for their funds in the investment market.”

Economic news and individual company reports:

Nat'l Industrial Conf. Bd. notes bonded debt of state and local govts. has been rising steadily in recent years, contrary to trend in Federal debt. State and local net bonded debt in 1928 was $12.6B, up 7.6% from 1927; previous two years showed increased of 9.5% and 9.2%.

GE Q1 earnings fell slightly below dividend requirements of 40 cents/share, for the first time in many years; Q1 1930 earnings were 50 cents; new business bookings in Q1 were 33% below 1930.

Bell System showed a net decline of 38,500 or 1/4% in telephones in Q1; first quarterly decline in memory, though March showed increase.

Bethlehem Steel expects slight profit in Q1. About 500 stockholders present at annual meeting. Chair. Schwab gave impassioned defense of controversial executive bonus system, but stockholders were restrained from announcing results of the vote pending notice from the court. Company held proxies for about 72% of shares, enabling them to pass any motions favored by management.

Net profits of 722 industrial and mercantile companies in 1930 were 42% below 1929, 32% below 1928, 16% below 1927, and lowest since 1924. Earnings of telephone cos. and other public utilities in 1930 were only slightly changed from 1929, and remained well above previous years.

Veterans' bonus payments as of Apr. 11 reached $473.5M to 1.257M veterans; thus far, very little seems to be making its way back to banks as deposits.

Prosecutor Steuer in Bank of US trial charges $8M loan to affiliate was made on highly overvalued assets.

Rail freight loadings for holiday week ended Apr. 4 were 728,511, down 11,568 from prev. week, down 19.7% from 1930 week, and down 23.9% from 1929.

Refineries ran at 66.4% in week ended Apr. 11; stocks of gasoline increased 681,000 barrels to 46.757M. Crude oil production in week was 2.308M barrels/day, up 56,150 from prev. week but down 252,900 from a year ago. Almost all of week's increase due to Texas production. Texas Att'y Gen. rules restraining order against East Texas curtailment only applies to small tract; Railroad Commission will move to enforce curtailment.

Portland cement production in March was 8.227M barrels, down 26.7% from prev. year; shipments were 7.172M, down 18.7%.

Newsprint production in US and Canada in March was 287,595 tons vs. 253,340 in Feb. and 320,813 in March 1930.

Hog and steer prices continued decline. Opening prices for 1931 Hawaiian pineapples down 16% from last year.

US steamship interests will seek legislation to curb activities of foreign ship lines in travel lanes that "belong to the American lines," particularly "trips to nowhere." Claim earnings of foreign lines not taxable, and therefore unfair to US lines.

Foreign exchange market featured sharp break in Spanish pesetas; sentiment was disturbed by failure of Bank of Spain to defend currency in spite of obtaining recent $60M stabilization credit; “rumors of all kinds” circulated due to strict censorship in Spain.

L. Ponton, Mexican Finance Min. chief clerk, says govt. faces 30M peso deficit this year as Q1 revenue was 10% below estimates. Mexican Agricultural Chamber favors suspension of debt payments "for this year at least" to finance Mexican agriculture.

Poland to cut salaries of govt. and army officials 15% for monthly savings of $1.2M

Suez Canal receipts from Jan. 1 - Apr. 10 were $15.121M, down over $1M from last year; cut in rates considered to stimulate traffic.

Kellogg Co. of Battle Creek adopts 6-hour day to relieve unemployment.

Q1 earnings/share: AT&T $2.51 vs. $2.96; Western Union $1.22 vs. $1.76; Scott Paper $1.63 vs. $1.57; Otis Elevator $0.68 vs. $0.83.

Companies reporting decent earnings: Scott Paper, Commonwealth Edison, National Public Service, Chesebrough Mfg. (Vaseline), Unilever.

At the galleries:

Knoedler Galleries hosts exhibit of “Pictures of People” to benefit Hope Farm; perhaps the finest canvas is Whistler's “White Girl,” painted in 1863 and widely exhibited since, although Whistler's reputation as a painter “has begun delicately to decline.” Also shown are two Renoir masterpieces, two Cezannes, “without whose work no group exhibition of the past 50 years can be considered complete,” the masterful “The Soap Bubble” by Manet, and “L'Arlesienne” by Van Gogh, as well as portraits by Sargent, Bellows, Matisse, Beal, Picasso, and Specher. Kennedy & Co. are showing an interesting set of drawings of old NY by Nicolina Calyo, depicting “sidewalk types of a vanished era” including “the chimney sweep, the cane seller, the rubbish man, the pineapple seller, the soap fat man, the root beer seller, etc.”


A Connecticut Yankee - starring Will Rogers; at the Roxy. Mark Twain's amusing tale has been modernized and slightly modified for its star; "a host of Austin cars" are used to transport Arthur's knights, and "a typical Rogers episode shows the Connecticut Yankee participating in a tournament ... dressed in cowboy costume and finally throwing his opponent with a toss of the lasso. ... The Will Rogers drawl tends to slow up" the picture, but this is compensated for by the dialogue, "much of which is spontaneous Rogers humor, including references to current political problems. ... Industrialization of the kingdom ... is amusingly depicted ... bathtubs are introduced and the technique of warfare is advanced by the production of machine guns, bombs and airplanes."


"Husband - I've got to get rid of my chauffeur; he's nearly killed me four times. Wife - Oh, give him another chance."

"Son - Ma, what's the idea of making me sleep up here every night? Mother - Hush, Bobby, you only have to sleep on the mantelpiece two more weeks, and then your picture will be in a Believe-It-Or-Not cartoon."

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