May 9, 2010

Saturday, May 9, 1931: Dow 154.41 +5.53 (3.7%)

Assorted historical stuff:

Some bankers and Fed. Reserve officials were skeptical on the ability of the Fed. rate cut to drive more long-term lending, saying it will have little effect until bankers regain confidence in the business situation; large banks have been reluctant to borrow from the Fed and expand lending "at a time when they have a large volume of none too liquid loans, substantial bond holdings on which they have losses, and others which have no active market." As a historical example, Bank of England kept its rate at 2% for 2 years 8 months in the 1890's depression with little visible result in speeding up recovery. Cuts in bill rates will have more practical effect, but there too, bankers are skeptical of the impact "at a time when banks are primarily interested in keeping sufficiently liquid to meet any contingency." Editorial: The Fed. rate cut is a “drastic remedy”; rate is record low for any central bank. However, idea that this will force funds into business and revive trade is an exaggeration of Fed. powers, as seen by failure of previous cuts to stimulate business. If the cut helps to pressure funds into investments, or if it changes direction of foreign currencies and flow of gold, then it will be beneficial; so far, however, “foreign exchanges have been strikingly obstinate to money market influences.”

Effect of depression on consumption of various foods: per capita meat consumption has dropped about 4% from 1929 (has been in downtrend since 1925); dairy down 2%-3%; "large reduction in consumption of sugar and a small drop in consumption of bread." Vegetables and fruits stable, except oranges. Overall per capita food consumption in 1930 down about 4% vs. 1929 by USDA estimates.

Internat'l Chamber of Commerce meeting approves resolution calling for silver conference; Britain intervened to remove talk of stabilization, resulting in "rather indefinite tenor" of the resolution. Rep. Snell (R, NY) issued sharply worded attack on proposals to cut war debts or tariff, accusing delegates of "making Uncle Sam the goat." W. Stucki, Swiss member of League of Nations econ. committee, says differences between European countries make concerted tariff action impractical; says bilateral agreements are more effective. Editorial: Only Germany can assert that current war debt payments are a burden; Britain's in and out payments are balanced, while France, Italy, and Belgium collect more from German payments than they pay out. As long as Germany continues to pay, other countries can hardly ask for debt revision on their own behalf; they must base their pleas for revision on consideration for Germany or on the indirect effects of war debts on world prosperity.

Private cables from Argentine indicate "favorable solution of the political uncertainty which has prevailed lately in that country appears imminent." Provisional govt. has been meeting with all factions that supported last fall's revolution to decide policy. "The Antipersonalist leader, Alvear, has decided to reorganize the radical party and eliminate all partisans of the deposed regime. ... The only grounds for recent reports of disturbances are said to be the closing of an alarmist newspaper and some student disturbances of no consequence."

Another opinion piece by D.C. Harrower castigating the Farm Board: even the US Treasury is too poor to maintain wheat stabilization attempts.

Anthony Fokker and Commerce Dept. reach agreement on ending suspension of Fokker planes "after modifying certain aerodynamic principles."

British govt. licenses Vickers-Armstrong to produce 100 military tanks for Soviet govt. at reported cost of $3M. Soviet govt. plans to develop 60-70 GWatts of electric power within next 10 years.

Fine Arts Federation submits proposal to NY City Board of Estimate for new North-South avenue between 5th and 6th Avenues, from 42nd to 59th Streets.

Back in 1918, the US Bureau of Engraving and Printing made a rare mistake, printing and putting into circulation a sheet of 100 24-cent airmail stamps with the plane printed upside down. One of these was sold recently by a collector for $2,360; what's become of the other 99 is unknown.

A feline visit. "Eluding the corridor vigilantes, a cat meandered into the office of the Wall Street Journal during that witching hour which precedes the opening of the Stock Exchange. ... A whiskered waif, ... the feline bore herself with dignity. ... Encounters with the sordid were evident in her contours, but her eyes were lustrous and trusting. ... She made no more obesiance to the young man who rustled her a container of milk ... than she did to the species-conscious who mutteringly withdrew. ... Then, at the ringing of the Stock Exchange gong, she disappeared." [Note: no word on whether she was black.]

Market commentary:

Market wrap: Bears maintained early pressure on stocks in spite of rediscount rate cut, concentrating again on US Steel and American Can and forcing further declines in those stocks; however the general list remained on an even keel, showing "amazing indifference" to those declines. At mid-day, Steel and Can recovered their losses while vigorous buying spread across the list; after a pause in early afternoon, the upswing picked up momentum in the last hour, bringing urgent short covering and substantial rallies from recent lows; Consolidated Gas led vigorous advance in utilities, and NY Central in the rails; market closed strongly. Bond market strong across the list following rate cut; US govts. and other high-grade issues at new 1931 highs, leading to optimism on ability of Treasury to float large long-term issue later this year; corp. list generally higher with rails notably strong; many recently weak speculative issues joined in the rally; foreign list generally firm; Brazilian issues rallied after report of budget revision. Commodities firm; grains somewhat higher; cotton up substantially; coffee and sugar higher. Some copper remains available at 9 cents, but in smaller supply; buyers refuse to go above 9, but producers are holding at 9 1/2. Lead price reduced again.

Market observers advised reducing long positions on the upturn, but warned against taking short side; advise customers out of the market to stay on sidelines.

Strong spots included Woolworth, GM, Reynolds Tobacco, Sears, and Drug Inc. on reports of improving business. Woolworth sales are expected to approach the 1930 record high, while low production costs may result in better profit margin and earnings. GM is expected to show Q2 earnings over $1/share vs. $0.61 in Q1, based on the prediction by J. Raskob that earnings for the first half would exceed dividend requirements by 20%; previous experience has shown Raskob's predictions can be taken at face value. Gillette continues to draw favorable talk, with reports of some interests switching from preferred to common stock because of confidence in their outlook.

Fed. Reserve NY discount rate cut to 1 1/2% had been anticipated by Wall Street for several weeks. Bulls say it will eventually lead to more long range investment buying, while bears say it reflects a lack of commercial demand for money. The cut was seen as highly constructive in foreign currency circles as a step to restoring long-term lending; London, Paris and Berlin appear likely to follow suit. Sterling rallied again even though support was removed from the London bill market and 90-day rates fell to 2 5/16% from 2 9/16%.

Underlying cause of weakness in sterling seen as drastic decline in British income from abroad, affecting balance of payments; "thus, central bank manipulation of money rates is to be considered as temporary expedient pending restoration of more normal times."

Much of the selling in US Steel over the past four days is attributed to bears aware of that stock's influence with the public; peers were successful in uncovering stop-loss orders, helping to drive the stock into new low ground.

Weekly bank reports showed brokers' loans reported by NY City banks declined again to new low record of $1.699B, while loans to non-brokers [considered to be stronger hands] rose for the second consecutive week. In the past, this pattern has indicated at least a temporary turn in stock prices. Bank reports showed some effect of Fed. easier money campaign in funds leaving NY City. Some of recent increase in Fed. Reserve credit outstanding appears to be due to banking disturbances in various parts of the country and hoarding of currency; money in circulation increased $42M in week of May 6, an unseasonal move.

Demand for newly issued high-grade municipal bonds has been strong.

Berlin stocks fell in past week on low volume; stock market average is down about 10% in past 2 weeks but still up 10% over Jan.

Some of the recent decline in brokers' loans is attributed to the large number of low-priced stocks; over 200 stocks are now selling below $10 a share. Brokerage customers are more inclined to buy these shares outright, while those who bought at much higher prices now tend to own them outright after margin calls.

Recent trend seen by leaders in business and govt. "to face business conditions as they are instead of attempting to explain away the recession and predict improvement." Many maintain that overly optimistic statements in 1930 were important influences in prolonging the depression; by contrast, "when sentiment is entirely resigned to continued poor conditions," any slight improvement could stimulate the stock market and business.

Redmond & Co. see no fundamental improvement in business yet, but point out that in the past the stock "market frequently has established a bottom some months before the absolute bottom in a business depression was registered"; give examples of US Steel and GM from the 1921 bear market.

T. Le Breton, new Argentine ambassador to France, says reasonable balance in world price of wheat would restore all other economic factors to normal; sees wheat rather than gold as establishing relationship of world currency values.

Economic news and individual company reports:

Interesting chart showing total stock and bond values since 1925; stock and bond values were each about $48B-$49B in early 1928; then stocks went on a wild ride to a peak approaching $90B, while bonds remained relatively stable; now, both are back at about $48B-$49B. Total known security loans (more comprehensive total than brokers' loans) was down $256M in April, to $7.456B. This total hasn't declined as drastically as brokers' loans; it's now down 43.5% from the peak on Sept. 30, 1929. Looking at the categories of security loans shows an interesting pattern. In the first year of the bear market, severe liquidation took place in brokers' loans by non-bankers (from $5.379B to $1.052B), while bank loans on securities actually rose significantly (from $7.826B to $8.483B). Since Sept. 30, 1930, liquidation shifted to bank security loans; these have declined $1.431B to $7.052B. The total figure seems to be "fast approaching minimum levels"; it is now only $971M above the low on Apr. 30, 1926 (figures before 1926 not available), while stock and bond values are $27B higher.

It's now apparent that steel production peaked in March, and spring demand didn't reach even the most conservative estimate from earlier in the year. Buying has been tapering off for the past few weeks, and there's little likelihood of much improvement until after the summer; production will therefore probably continue to drift down. Farm situation is one of the factors adverse factors; many farmers still owe money on machinery already bought.

Bradstreet's weekly review reports business picture little changed, with the few apparent changes roughly balanced between positive (slight gain in retail, signs of stability in industrial production) and negative (renewed weakness in commodity prices). Dun's is somewhat more pessimistic; says overall evidence in past week “pointed rather to a continuance of the decline in general business activity than to any perceptible slackening in the rate of recession”; some positive news, but mostly “of an uninspiring nature.”

Relative weakness in cotton market in spite of unfavorable weather attributed to large selling of July futures by govt.-sponsored cooperatives as they transfer holdings ahead to future months.

Oil drilling has dropped to the lowest point in several years outside of the new East Texas area; decline attributed to low prices and large developed production.

NYSE announces requirements that fixed trusts [similar to ETF's] must fulfill in order for member firms to sponsor or market them. These include "a clear statement in narrative form summarizing all charges"; past performance charts must go back to creation of the trust and can't show theoretical results from before creation. About $100M was invested by the public in fixed trusts in the first quarter, bringing current total to about $650M.

Call money fell to 1% for the second time since 1915.

Many of the leading rails, to attract summer tourist trade and compete with buses, are offering lowest passenger rates in history.

ICC reports class 1 rails as of mid-Feb. had 1.316M employees, down 14.75% from a year earlier; total wages were $175.8M, down 17.53%.

Brazilian govt. reportedly has cut spending from about $205M to $171M, and increased taxes by about $30M to balance budget after decline in customs revenue.

April sales vs. 1930: A&P (4 weeks to Apr. 25) $85.160M, down 1.1% (tonnage up 13.8%); Safeway Stores $17.952M, down 2.0%; Lane Bryant $1.692M, up 2.0%.

Company reports since Apr. 1: 131 companies reported higher earnings vs. 1930 and 521 lower; 314 dividends unchanged, 8 increased, 77 cut.

Boating special:

Second international motor boat competition sponsored by Gabriele D'Annunzio is under way on the Riviera. Participants include Kaye Don, holder of the world speed record; main event will be for the Gabriele D'Annunzio Cup, offered in honor of the late Sir Henry Seagrave, former world speed record holder killed in the speed test that set the new record. Gar Wood proposes international commission to standardize measurements of attempts at motor boat speed records. Annual Albany-NY race, the world's longest outboard motor boat race, will be run on the Hudson today; about 112 drivers will compete for $3,500 in prizes.

Bath Iron Works has launched 146-foot yacht built for Charles Sorensen of Detroit, powered by twin 400 hp diesels, reaching cruising speed of 12 mph and top speed of 15 mph; currently building 279-foot yacht for Eldridge Johnson of Camden, NJ. Wall Street men are increasingly going for economical boats, typically small cruisers 22 - 36 feet long, sleeping 4 - 6, cruising at 15 mph, price $3,000 and up. Chris-Craft introduces new runabout priced at $795, 15 ft 6 in long, powered by 43 hp marine engine, able to reach 30 mph.

Gordon Grant, marine artist, has produced "Sail Ho!", a book of 64 drawings of "windjammer" sailing ships, with subjects ranging from humor to tragedy.


Betty, Be Careful - new comedy about eugenics, by Willis Goodhue, at the Liberty. Betty, a biologist and scientifically measured 98% perfect woman, is resolved to give birth to a "superman" whose father will be a 95% perfect man discovered by investigators. Unfortunately, the man is engaged to [note: wait for it ... ] Betty's sister! Missing the "light and properly comic touch" that would be required to make a successful entertainment on this subject; result is flat and mediocre.

The theatre crowd is abuzz over the unexpected award of the Pulitzer Prize to Susan Glaspell's drama Alison's House, which played last winter at the Civic Repertory Theatre on 14th Street. Award is seen partly as a rebuke to Broadway, which has suffered through a "sad season" with the worthiest plays failing immediately. While "not a first-rate play dramatically," Alison's House may have been recognized for its "dignity and warm idealism." It will now be presented on Broadway starting Monday, with the original 14th Street. cast; "Broadway may be seen as acknowledging its sins and doing penance for them."


"'Tilly, you were entertaining a man in the kitchen last night, were you not?' 'That's for him to say, ma'am. I did my best.'"

"'I'm going to the hospital tomorrow for an operation.' 'Good luck to you. I hope everything comes out all right.'"

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