May 8, 2010

Friday, May 8, 1931: Dow 148.88 -0.85 (0.6%)

Assorted historical stuff:

Letter to the editor notes recent disturbing failure of sizable and prestigious broker. Attributes problem to straying from the basic brokerage business, suggests protecting public by strict limitation of NYSE members to brokerage business, with any underwriting and other trading businesses in a walled-off corporation. This "might make feasible some guaranteed insurance plan against insolvencies in the brokerage business." Another letter in response to a Woodlock editorial complains of almost no possibility for average stockholders to present case to management; suggests cuts in executive pay when profits decline.

Sec. Mellon's speech seen as highly significant due to the “terrific nervous strain” that public speaking causes him. One motive may have been desire to impose some cool-headed judgment based on past experience on the current “welter of ... panaceas” and demands for radical economic restructuring and “short cuts” to recovery. With regard to tariffs and wages, his argument is that drastic changes could affect US living standards, which are the all-important factor controlling what the US buys from Europe; in good times, high tariffs don't shut off imports, while in bad times low tariffs don't stimulate them. Europeans, of course, disagree.

Editorial: Current meeting of the Int'l Chamber of Commerce in Washington has done much to dispel suspicion "that all chambers of commerce are groups of charming old ladies in trousers." Discussions so far have shown happy combination of hardheaded candor and tolerance for differing opinions. It's clear the topic that most interests the hundreds of delegates from two-score countries is tariffs, but it must be noted speakers have been more successful in condemning tariffs than in offering specific programs for removing them. Even disregarding political difficulties, reversing tariffs in economies based on protection is "complicated and troublesome." Probably the best that can be expected for now is a worldwide truce on new tariffs, as a League of Nations commission has been urging for years.

Editorial: “One cannot overlook the note of confidence” that pervaded Sec. Mellon's speech. His plea for keeping up wages and living standards “may prove more idealistic than practical for a time.” However, “capitalism has not broken down. Western countries are not suffering from want of ... necessities of life, as China is. While there cannot be any quick or spectacular remedies ... we need no group of supermen to lead us out of our present difficulties”; this will come in time through individual initiative. Many of our present “crepe hangers” forget the even more formidable problems of a decade ago; the country adjusted to those and made a fresh start in 1924. Expansion since then may may have been carried too far, but the real progress made will be “consolidated and carried forward.”

Editorial by T. Woodlock: Unemployment insurance is not insurance in the actuarial sense since we don't have enough information to set premiums for it; instead, it is the “assumption by the State of the duty of feeding, clothing, and lodging its citizens” who are unable to support themselves; most are idle through no fault of their own. No one suggests they should be allowed to starve, but the tough question is who is to pay. One consideration is that capital “is extremely mobile ... it can migrate, it can emigrate, or it can 'loaf'” and it's likely to do so if placed under too great a burden. This argues for putting the burden on the community as a whole, either through taxes or prices paid for goods and services.

Construction industry representatives meet Pres. Hoover at the White House to offer services for govt. building program; say moving ahead as fast as possible.

Bureau of Immigration reports 16,344 aliens admitted in March vs. 12,212 in Feb. and 34,857 in Mar. 1930.

Radio to the rescue. A Massachusets woman searching for her son, who had been missing in Africa for 5 years, appealed to the Salvation Army for help. General E.J. Higgins, international head of that organization, first asked all Salvation Army members stationed in Africa to search for the man; months went by but nothing turned up. Finally, he appealed to the radio station in Johannesburg. Within 24 hours after the station broadcast a request for information, the man responded from a remote inland province where he had been living; mother and son are now headed for a reunion in London.

Paramount Films of Europe (subsidiary of Paramount-Publix) will spend $8M on talking film production in Europe this fiscal year; since Apr. 17, 1930, their studio at Joinville, France has produced 67 feature films and 96 shorts.

A skyscraper is in the eye of the beholder. In the US, the word causes people to envision a building at least 30 stories high, particularly in NY City where there are about 200 buildings of 20 stories or more. In many foreign countries, however, 15 to 20 stories is considered a notable structural feat. Jena, Germany is about to become the proud home of the tallest building in Europe; it will be 24 stories and 280 ft tall. One wit has suggested "Europe's tallest would make an ideal penthouse for the American office building of the future if the cloud-piercing ambitions of our builders do not abate."

Reminiscence by H. Alloway of Jim Fisk's making fun of an adversary's habit of wearing corsets: “Why if Mr. Gould laced himself the same way he'd not be as big as a Connecticut conscience.”

Gov. Roosevelt points members of new Power Authority of State of New York for development of St. Lawrence hydro-power.

NY City Controller Berry charges Board of Education methods for buying school sites cost taxpayers millions annually; Board of Ed. denies charges.

Market commentary:

Market wrap: Price movements in leading stocks were erratic and difficult to read, with trading almost entirely professional and waves of selling and buying keeping the general list unsettled. Prices moved mostly up through the morning on short covering, with volume increasing on short covering. However, prices turned abruptly down about noon, with Steel and American Can selling off sharply and rails giving up early gains. Trading then turned very dull and uneven, with GM and GE recovering but Steel and Can continuing down; market closed with a nervous tone. Bond prices rose in almost all sections of the list in response to lower money rates; US govts. and many of the highest-grade issues reached new 1931 or all-time highs, and recently weak lower-grade issues also rallied substantially; foreign rally led by Italian issues, and German reversed recent weakness, but usually stable Argentine bonds broke late in trading. Commodities weak; grains down substantially; cotton up slightly. Copper has been available in substantial quantity at 9 cents; surprisingly, demand even at that price is only a little above the available supply; larger producers still hold at 9 1/2 cents. Zinc and lead remained unchanged at longtime lows. Cocoa hit another record low of 4.82 cents.

Market observers continued to recommend the sidelines, saying "it has been almost impossible to realize profits on either the long or short side recently."

Sharp decline in US Steel preferred [See May 6] attributed to liquidation by investors protecting marginal accounts; investors apparently chose to sell Steel preferred because it was selling not far from its previous peak; brokers generally advised against the sale, but "experience has shown that when holders are compelled to liquidate, they sell the stock showing the smallest decline, regardless of its merits." Investors are apparently switching into utility bonds from other issues of similar grade on theory utilities are likely to maintain relatively satisfactory revenues and earnings.

Canadian Pacific Rwy. hit record low for current shares after cutting dividend; at 28, stock is selling at roughly half book value. Woolworth rose to a new 1931 high, a rare achievement for a leading stock in the past two months; stock has been supported by good earnings so far this year and talk of distribution of foreign holdings (428 stores in England and 60 in Germany). Columbia Gas & Electric disturbed the utility section, hitting a new bear market low on expected Q1 earnings below dividend requirements. Vacuum Oil and Standard of Ohio hit new record lows.

Price movements in the past week have been dominated by professional trading, though a number of the leading bears are away on vacation and have therefore only put in a limited number of orders. "It will be interesting to watch the action of the market when the big professional bears return to the floor of the exchange." Public participation in the market has been smaller than in several years; the public is now uninterested in taking the long side, making it "difficult to attract a following when stocks were being pushed ahead"; on the other hand, market action since the middle of last week has discouraged public from going short. This lack of public interest is said to be reflected in brokers' loans, which are at a record low in absolute terms and near a record low as a percentage of stock values.

Column giving taxonomy of various types of managed investment trusts [similar to mutual funds], and fixed investment trusts [similar to ETF's].

Paine, Webber analysis points out that when sales are stable, corporate management can generally readjust expenses and return to profitability, while when sales steadily shrink, it's almost impossible to do so. This is hopeful, since if "current volume of business can be regarded as the minimum amount which the country can have in order to be on a subsistence basis, then it is only a question of time" before many currently money-losing corporations return to profitability. When sales do begin to increase, profits will show a much larger rise due to lower corporate costs and higher efficiency, as strikingly seen in 1921-22.

R. Stephenson, Amer. Bankers' Assoc. pres., says worst of depression over; can't predict return of prosperity is actually in sight, but feels general situation has taken turn for the better. Stresses need for saving by the individual, directed into investment in “sound, productive securities - in legally designated corporate and govt. bonds,” raising cash for “sound and prudent economic activities” that use “materials ... labor and brains.”

C. Gray, Union Pacific pres., takes issue with those believing "steam railroads, which have been the fundamental transportation in America for a century, are seriously threatened with decadence." For great majority of traffic, they're as essential as ever; "fair and reasonable treatment will insure their perpetuity."

E. Seubert, Standard Oil of Indiana pres., notes effect of depression on oil industry, but encouraged by the fact that gasoline consumption has not decreased. Notes total US gasoline tax in 1930 reached "staggering total" of $522.1M; while moderate gasoline tax for road building may be justified, govts. "have apparently singled it out as the medium through which they may indulge in new extravagances for an increasing variety of purposes."

J.P. Leonard of Ralph B. Leonard & Co. says insurance stocks now present good opportunity since they can be bought at less than liquidating value and with good yields; points out that "there can be no business transaction of consequence without a bank and an insurance co. getting some business as a natural result."

Sir George Paish, British economist, says wages must be adjusted downward; trade improvement can't come until nations take international perspective; sees trade revival in 1933 or 1934. Sir Arthur Balfour says perfectly willing to have international conference on silver, but should be among experts not politicians.

Economic news and individual company reports:

NY Fed. Reserve Bank lowered discount rate 1/2% to 1 1/2%, a record low for any modern central bank. Aim of measure is to drive funds out of NY money markets and into bonds and foreign lending. Banks, due to "timidity" and desire to maintain liquidity, have been piling up short-term securities; it's hoped this lowering of short-term rates will revive trade by directing cash into longer-term areas where it's severely needed. Measure seen as "definitive, authoritative and wide reaching action ... to lift business and trade out of depression."

Money in circulation May 6 was up $42M to $4.663B, total Reserve Bank credit outstanding up $31M to $967M. Member banks in NY City report brokers' loans down $31M to $1.699B; loans on securities to non-brokers up $17M to $1.752B. US gold imports continued in April and so far in May, adding to already record-breaking holdings; Apr. net gain was $29.3M. Effect of lower money rates on gold imports is not yet certain. Foreign currency market advanced sharply in anticipation of NY Fed. rate cut in afternoon; sterling reacted somewhat afterward; severe weakness developed in S. American currencies, with Brazilian milreis breaking to record low of $.065. Consensus of local dealers is that sterling will now work higher while francs remain around present level, leading to long-awaited gold movement to London. Bank of England has already rebuilt gold reserves to some extent with South African gold; this week showed gold holdings of 148.5M pounds sterling, up 1.255M on the week and up 8.341M from the low on Jan. 29.

Commerce Dept. reports survey of 513 stores in 25 cities shows net sales of $633.5M for second-half of 1930, down 11.7% from 1929.

Dow average of 8 iron and steel products fell to $43.97, new post-1922 low. Scrap steel and iron prices were lower in most markets in the past week; Pittsburgh price of $11.50/ton is lowest there since 1914.

ICC draws up rules for recapture of "excess" railway income formalizing recently adopted practices, including issuing of report, 40 day protest period, hearings, etc. New England Governors' committee recommends keeping New England rails out of control of trunk [main] lines, merging the New Haven with the Boston & Maine and reducing ownership of the Pennsylvania RR in those roads. Asks ICC for right to intervene in Eastern rail consolidation proceedings.

Total veterans' bonus loans as of May 2 were $1.025B, including $680M under the new 50% loan program and $345M under the original bonus law. Number of applications for loans has fallen sharply, to 13,846 in the past week from over 900,000 in the first week of the new program.

F.W. Dodge reports Apr. construction contracts in NY metro. area $83.5M vs. $101.1M in 1930; residential $34.9M vs. $26.6M. Plans were filed in April for construction of 25 buildings in Manhattan at cost of $28.6M vs. $17.9M in Mar. and $17.5M in Apr. 1930; best total since July 1930 and second best since Oct. 1929; total for 4 months ended April was 83 buildings for $67.9M vs. 270 buildings for $53.9M in 1930.

US shipbuilding continues to gain following enactment of Merchant Marine Act in 1928; govt. has loaned about $100M under the Act; as of May 1, five largest shipyards are building 27 vessels with total gross tonnage of 321,900 vs. 306,100 on Jan. 1; industry is operating at about 50% of capacity.

Amer. Tariff League reports Mar. quantity index of imports was 108 vs. 90 in Feb., and highest since Oct. 1930.

Farm Board warns of tobacco overproduction; plans to organize growers into cooperatives have failed for this season.

Brazil to propose worldwide coffee cartel to control production and pricing; will propose prohibiting planting of new trees for 20 years.

Salvador Pres. says budget must be cut severely since coffee export revenue is down 50%; coffee accounts for almost all Salvador's exports.

French survey of a number of diverse industries found total of 2.530M employed on Feb. 1, down only 4.7% vs. 1930; however, proportion of workers on full 48 hour week was only 75.8% vs. 95.4% in 1930.

British House of Commons passes govt. land tax proposal.

Interior Dept. is reportedly trying to bring operators of the South and middle domes of the Kettleman Hills oil/gas field (Calif.) to agree to a unit (cooperative) development plan similar to that made by the govt. and operators in the North dome (see Feb. 2, Jan. 15).

NYSE seat sold for $235,000, down $45,000 from previous sale.

April sales vs. 1930: J.C. Penney $15.380M, down 11.8%; S.H. Kress $5.761M, up 2.4%.

Reynolds Tobacco is starting night operations May 11 to meet demand for Camel cigarettes.

Companies reporting decent earnings: Anaconda Wire & Cable, Deisel-Wemmer Gilbert (cigars), De Long Hook & Eye.


The Mikado - revival of Gilbert and Sullivan comic opera, at the Erianger. While not elaborately presented, an "entirely satisfactory and enjoyable" production "most welcome to the many devotees of the two Inseparables of English comic opera.". Three G&S veterans give highly skilled performances: William Danforth, a "rollicking, irresistible" Mikado; Frank Moulan, a "resourceful and comic" Ko-Ko, Lord High Executioner of Titipu; and Herbert Watrous as Pooh-Bah, Lord High Everything Else. Hizi Koyke as Yum-Yum, is graceful "and sings in an accent that lends charm to her role."


Her Supporting Cast - farce by Harold Sherman at the Biltmore. Eleanor Curtis (Mildred McCoy) lives in a "showy modernistic apartment" and has three lovers - an artist, a pugilist, and a middle-aged broker. Eleanor behaves differently with each of her lovers but the intent is the same - extortion be it of material goods, ideas or sentiment. She juggles them throughout, keeping each unaware of the others until she has amassed a fortune by selling short when her broker has told her to buy. Finally she, or "the somewhat bewildered playwright," arranges for all three lovers to meet in her absence, appears with a "grandiloquent" explanation, and departs for "other, unexplained activities." Generates much laughter at some points, but a "preposterous conclusion" and embarassing wisecracks overshadow those pleasures. Eleanor is acted competently, but the lovers are played in "a vigorous burlesque manner that verges on the objectionable."


Postcard from a father touring Europe: “'Dear Son: On the other side you will see a picture of the rock from which the Spartans used to throw their defective children. Wish you were here. Your Dad.'"

"'I have just heard an awful story about Mrs. Jones.' 'I thought you had. You look so happy.'"

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