May 18, 2010

Monday, May 18, 1931: Dow 142.95 -1.54 (1.1%)

Assorted historical stuff:

Austrian govt. loan of 100M schillings for aid to the Creditanstalt bank has been granted, carrying 7% interest. Idea of placing the loan abroad has been abandoned due to small size. The loan may require approval from League of Nations Control Committee. Int'l Control Committee for protection of Austrian loans has issued report that Austrian gov't., "far from initiating economies, has allowed unnecessary expenditures"; demands further budget details as authorized by 1922 protocol, with view to possible spending restrictions. Bank of England believed to be taking a decisive role in reorganization. Past few days have brought some reports of heavy stock liquidation from abroad, particularly in rails, with orders coming mostly from Berlin, Amsterdam and London. However, “a careful check fails to reveal a preponderance of selling over buying orders”; while there has been some selling, it's “commensurate with the declining stock market.”

A powerful financial pool has been formed” by Canadian interests to support Canadian stocks now selling “at what they believe to be ridiculously low levels.” Some buying has already been done under the plan. Members consider the “stock market at rock bottom levels” even with no business improvement.

Washington report: Financial circles here interpret the Bank of England rate cut to 2 1/2% as “meaning that the English financial strain may be considered as passed”; recent relief of gold shortage there “removes ... the London money market as one of the sore spots.” Washington attitude skeptical on proposed unemployment conference; it's questionable whether the one in fall 1929 did more harm than good. American Legion's advocacy of the conference is noteworthy considering failure of the veterans' bonus to stimulate business as promised. Discussion by Progressives of Gov. Gifford Pinchot as possible Republican candidate in 1932 not believed a serious threat to renomination of Pres. Hoover.

M. Hart, NY State Economic Council pres., calls on businessmen to take interest in local govt. affairs, particularly enormous rise in public spending at state and local level over the past 12 years.

Editorial: A nonpolitical meeting on unemployment, as called for by the American Legion, may be hard for Pres. Hoover to arrange at this point. A better plan might be that "half a dozen businessmen of Chicago ... should meet more or less by accident at luncheon ... after having eaten frugally, these men should telegraph to five or six of their like in each of such cities as NY, Baltimore, Pittsburgh, ... Atlanta, New Orleans ... and perhaps others, to meet them a week or two later in French Lick, Indiana. No resolutions, no credentials, no agenda, no publicity ... no predetermined objectives save the one and only purpose to bring about a brutally outspoken discussion of what ails business."

Editorial: More consideration should be given to complaints on tariffs at the recent Int'l Chamber of Commerce meeting. "If we are to lead the way out of the present world wide set-back, we must be prepared to consider world problems occasionally from the other fellow's viewpoint." Sir Arthur Balfour, British steel mfr., says tariffs will have to be reduced along with reparations payments.

About 10,000 workers at Pennsylvania silk mills are idle due to general strike conditions in raw silk industry.

In the brisk competition among oil companies to find the best spots for drilling, a number of companies have taken to the air, using planes equipped with stereo cameras to film prospective fields, producing detailed relief maps and allowing location of crown, or lowest point, giving likely spot for underground oil deposits.

NJ Supreme Court rules playing the stock market is not gambling, reversing previous decision relieving client of $7,637 debt to a brokerage.

One man reports that several NY City subway clerks were kind enough to give him a nickel for a ride when asked. Upon investigation, he found this was not the general subway policy; the nickel was apparently coming out of the clerk's pockets. The man reportedly now feels guilty.

Dr. L. Williams, "physician of international reputation," recently announced bald man are usually immune to colds due to thicker skin on top of the head, while blondes are more susceptible.

Treasury Sec. Mellon reportedly buys life-size bust of Alexander Hamilton for $15,000.

Week in review:

After a brief rally following the NY Fed. rate cut, stocks resumed downtrend, with both rails and industrials reaching new bear market lows. US Steel reached its lowest level since June 1924, before start of the memorable Coolidge boom. Poor rail conditions were emphasized by NY Central's report of a first-quarter loss; it hit a post-1922 low while many other major rails hit new bear market lows. Bank stocks were sharply lower on the week. Berlin, London and Paris stock markets slumped. Steel decline continued, but opinion was stronger that it was near stability; however, price weakness clouded profit outlook. Creditanstalt of Austria, largest bank in Eastern Europe, ran into difficulty but was bailed out by Austrian govt. Fed. Reserve continued aggressive campaign for money ease, and the money market now expects the Fed. to persevere until results are visible. Rate cuts in NY and London caused francs to strengthen well above point at which gold might be exported from Paris. Bonds continued two-tier trend; highest-grade issues showed pronounced strength with many record highs, given further impetus by rate cuts, while many second-grade and speculative issues displayed acute weakness, carrying them to new lows. US govts. reached 1931 highs and in several cases record highs; NY City $52M 4-year issue sold for record low rate of 2.997%; highest-grade corp. bonds including utilities and the best rail issues were firm; NY City tractions [mass transit cos.] rallied on progress of unification plans. European issues were mostly steady, while S. American were erratic. Grain prices trended downward, with corn relatively weaker than wheat. Cotton sagged almost continuously, with new current deliveries reaching new lows.

Market commentary:

Market wrap: Stocks fluctuated in a light Saturday session; bears looked to take advantage of unfavorable news with industrials near bear market lows; Steel and Can came under attack, causing "dragging declines" in the first hour. However, selling showed little sign of broadening and trading turned very light. Some efforts were made at bull operations in individual stocks including Auburn and Montgomery Ward in the final hour, but the market was unresponsive. Near the close, American Can sank to a new 1931 low and the market became unsettled. The Dow industrial and rail averages both closed at new bear market lows. Bonds continued trend of firmness in highest-grade issues, weakness elsewhere; foreign issues generally steady. Commodities weak; cotton down substantially to new lows, with May selling at 9.31 cents; grains weak with wheat down sharply.

Dow theory students focused on the Dow rail average. On Friday, it closed below 80 for the first time since 1924. This brings it into an interesting range; there have only been 3 periods since 1897 when it broke below 80. In 1900 and 1917, it held above 70; in the severe bear of 1921, it bottomed at 65.52. Rail action now seen as telltale for the general market; support would be bullish, while "further extensive declines ... would point to indefinite prolongation of the bear market."

Automotive industry observers continue to expect May production to exceed April; gain expected is about 4%, though abrupt changes are possible. Market students are starting to consider stocks that might do better in the summertime, including Borden, Canada Dry, and Coca Cola. Bears have been meeting stiff resistance in du Pont, with interests close to the management accumulating the stock based on sales increase each month since Dec. Continental Shares [investment trust and holding co.] common stock is now selling at 3 5/8 in spite of liquidating value of about 15; unsettled by shift of management from Eaton-Otis interests to Cleveland bankers. Diamond Match [Kreuger-associated] drawing attention for good earnings performance and strong financial position.

Brokers' loans latest figure of $1.671B, vs. the high of $6.804B in Oct. 1929, shows clearly that forced liquidation of margin accounts is no longer main factor in the persistent stock market decline. Investors seem to be selling due to poor sentiment, particularly discouragement over dividend cuts and concern over how rails and large industrials will deal with the problem of wage rates. However, many companies have already tackled this problem, with workers accepting lower pay either though wage rate cuts or fewer hours. Attention is currently being drawn to subject of wage cuts by strikes against Empire Steel and by mine workers in West Virginia, both precipitated by attempted cuts; problem seen likely to grow unless business stages abrupt revival.

Market students note growing tendency to favor senior securities [bonds and preferred shares] of many companies; safety appears to be in greater favor.

A number of brokers report over half of customers' operations are on the short side, with major industrials and rails favored targets. Short selling seems to have become popular with the public after bear efforts have proven profitable in the past few months.

Foreign currencies showed some improvement to close the week; observers are watching Paris and Berlin for indications of possible rate cuts.

A. Mallon of Pillsbury Flour Co. says US millers of flours for export have suffered most disastrous year since 1904 due to higher tariffs and laws requiring use of domestic wheat for flour in many countries in Europe and elsewhere. Says defenders of the tariff as lower than some previous ones overlook fact that US has become a creditor nation in the meantime; countries must service their debts with additional loans, gold, or by exporting goods and services.

Lord Barnby, Lloyd's Bank dir. and wool mfr., says adversity has greatly increased efficiency of British industry and positioned it well for when recovery arrives. Says England handicapped by inability to make foreign loans as before the war when it was a creditor nation.

Irving Bush, Bush Service Corp. Chair., returning from European trip, says little economic improvement there in the current year, but courage to face problems was apparent everywhere and will ultimately be important factor in recovery.

O. Wolfe, cashier of the Philadelphia Nat'l Bank, says US bankers keenly aware of the need to do something to correct widespread bank failures of the past 6-8 years; "since, so far as we know, there is no method by which the law or official regulations can make banks sound, bankers must take it upon themselves to teach each other ..." Says history of last 100 years shows well-managed banks do not fail.

N.L. Amster, Nat'l Railroad League pres., says increase in rail freight rates would "do more at this time to restore prosperity than any other single move"; cites "magical effect" of large rate increase on general business in 1920. Arthur Curtiss James, large rail stockholder, says it's of paramount importance to the US as a whole that rails be on solid financial footing; points out hundreds of millions of dollars in rail securities are owned by insurance cos., trusts, and savings banks.

Dow industrial average closed at a new bear market low; there were 4 new yearly highs and 54 new lows.

Economic news and individual company reports:

Cook County Treasurer calls meeting of bankers to ask for their cooperation as about $176M of the $276.2M in taxes due for 1930 remains unpaid after payment deadlines; normally about 75% of taxes would have been collected by now. Financial situation uncertain as both Chicago and Cook County are in urgent need of funds. Poor collections attributed to unemployment and efforts by some real estate organizations to discourage payment of 1929 tax bills.

Empire Steel settles strike by rescinding wage cuts announced Apr. 30; will aim for greater efficiency instead. Youngstown district steel output to decline 1% to 41% this week, but seen likely to stabilize for next few weeks.

Canadian crop report finds general lack of rainfall and of surface and subsurface moisture in three provinces; farmers in the most dry and windswept sections have been holding off on seeding; soil blowing has caused serious damage to growing crops in many districts.

BLS reports 15 major industrial groups showed 0.2% increase in employment in April, but total payrolls fell 1.5%.

Commerce Dept. reports April exports $217M vs. $235.9M in Mar. and $331.8M in Apr. 1930; imports $187M vs. $211M and $307.9M.

Q1 earnings for leading industrials showed mixed trends; total profits were down 47%, but only 28% excluding steel and automotive; food had the best showing.

Att'y Gen. Mitchell says will continue vigorous enforcement of antitrust laws until changed by Congress; while depression and unemployment make it "a delicate matter" to take actions that may unsettle business, he has no authority to refrain from enforcement; does see need for "particular care" to avoid unjustified cases.

Savings banks deposits in NY State rose $41.4M in April to pass the $5B mark; gain for first 4 months was $222.9M, more than the gain in any previous full year. Average rate paid on savings as of Apr. 1 was 4.24% vs. average of 4.41% for full 1930 year. Major West Coast building and loan assocs. cut interest rate paid on deposits from 6% to 5%.

Veterans' bonus loan applications to May 9 were 1.888M, of which 1.865M have been processed, for $711.1M.

Fisher's wholesale commodity index decline slowed, but it again hit a postwar low of 71.8 vs. 72.0 prev. week, 73.1 two weeks ago, and 88.7 a year ago. Commerce Dept. says farm price index for May 15 likely to show decline from Apr. 15.

Oil production in Kettleman Hills area of California is rapidly growing due to production outside the “unit” [cooperative] development area; some action is likely to be needed if Calif. production is to be kept within bounds.

France denounces commercial agreement in effect with Brazil since 1900, which expires Sept. 10; will impose surtax of twice general tariff rates on all imports of Brazilian meat and cocoa.

Canadian govt. revenues in April were $14.716M vs. $17.060M in 1930; largest declines were in customs duties and excise taxes.

Retail cigarette prices will be lowered, reversing the price rise established on Apr. 10.

Trading starts today in new wool futures market on floor of NY Cotton Exchange; observers believe this will help producers worldwide hedge against the wide price changes previously experienced. Another editorial by T. Woodlock defending role of speculators on grain futures markets; speculators as a whole lose money, paying costs of operating the market and in the long run getting farmers more for their grain. Restricting futures markets to pure hedging operations and banning speculation would also make markets less liquid.

At the FTC's utility investigation, the FTC utility expert complimented the North American Co. and its Cleveland Electric subsidiary.

Int'l Paper announces price schedule on newsprint for next 6 years; calls for avg. price of $59 vs. current $57; seen as discouraging further industry expansion, reassuring consumers that possible mergers won't increase prices.


Party Husband - at the Winter Garden. Laura and Jay Hogarth "enter into marital relations in the so-called modern manner, each retaining an individual latchkey ... Jay, who is susceptible to colds, medicinal stimulants, women and morning heads, oversteps the bounds of privilege, however, and Laura ... retaliates by taking a business trip on the Albany Night Line with her employer. The modern pair are finally reconciled by an astute mother-in-law." Flimsy and flavorless box office concoction.

Poem by F. Caverly:

"You hear it said, where men powwow, 'The finest stocks are cheap;
A man should really buy 'em now, if he'd a fortune reap.
Across the Board the best blue chips are yearning to be bought.'
And then they all have further dips to fret a mind distraught.
That frequent urge harasses me: 'Man, buy - get on the job.'
As if I were, perhaps, J.P., or Henry Ford, or Schwab.
Four times have stocks seemed at their low, (some say this is the fifth),
While men cried 'Buy, you dumb bozo,' but failed to say what with."

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