May 28, 2010

Thursday, May 28, 1931: Dow 130.76 -2.35 (1.8%)

Assorted historical stuff:

Authoritative sources” say Germany will take “definite action looking to the revision of the Young Plan for reparations” at the Anglo-German conference starting June 6. It's expected that Pres. von Hindenburg will issue a dictatorial decree imposing severe austerity cuts beforehand, and the hardship this “would inflict ... can only be eased by a promise of swift action in curtailing reparations ...” It was insisted that debt service on loans outstanding and govt. debts won't be affected. German sources deny knowledge of reported 2M mark loan to be guaranteed by England, France, and Italy; Berlin Foreign Office says loan wouldn't help solve reparations problem; what's needed is reduction of burden, not continuing to pay obligations with new loans.

Editorial by T. Woodlock engaging in a little good-natured ribbing of Sen. Brookhart and his advocacy of inland waterway development. “Sen. Brookhart is sui generis ... after Nature produced him she broke the mold. But there are not a few people in this country who share his hatred of the rail carriers and have an unlimited appetite for public money to be spent on waterways. If it were proposed to cut a canal from coast to coast on the Chicago parallel of latitude at a cost of a billion dollars ... there would be plenty of people to back it as a government project and saddle the cost on the 'higher income tax brackets.'” Criticizes record of Inland Waterway Corp. (govt. sponsored waterway co).

J. Farrell, US Steel pres. and Nat'l Foreign Trade Council chair., addresses the Council. Minimizes role of tariffs in depression; notes similar conditions in countries with low or high tariffs and free trade; other causes are the major factors in worldwide imbalances. Rise in commodity prices essential, hits uneconomic and unfair competition. While US must find export market for at least 10% of production, economic foundation is home market with high living standards and efficient industry; calls for intense study of ways to stabilize domestic conditions during world depressions.

Editorial on close Supreme Court decision denying US citizenship to D.C. Mackintosh because he wanted to retain the choice of whether to bear arms in any future wars [Note: Canada-born professor of theology at Yale; case also involved wartime nurse Marie Bland; became cause celebre, decision was reversed 15 years later]. Mackintosh, not content with the exemption for conscientious objectors that Congress has so far allowed, asks to be granted a special class of citizenship denied by the Constitution to others. Chief Justice Hughes, in his dissent, bemoans exclusion of a man of such undeniably high character and achievement when "a host far less worthy" are admitted, but this doesn't justify "purchasing ... allegiance with whatever variety of citizenship the applicant happens to prefer."

H. Cullman, Port of NY Authority commissioner, says US foreign trade hampered by unnatural barriers including high tariffs, immigration bars, and Prohibition; says barriers will cause US production to move abroad and make repayment of US loans abroad less likely.

Pres. Hoover orders restriction of timber sales from national forests for duration of the depression.

The new Hoover Dam in Arizona will be of staggering proportions. It's estimated the combined length of the drill holes required for rock removal will be 15,000 miles, or about twice the earths diameter. The basin created by the dam will take 1 1/2 years for the Colorado River to fill, and the surface area of the lake formed will be 193 square miles, containing enough water to cover the state of Connecticut to a depth of 10 feet.

A recent poll of 1,705 female students at the University of Kansas, Lawrence on their plans after graduation resulted a total of 36 desired professions; 879 wanted to be teachers, 84 journalists, 80 nurses, 60 business women, 16 doctors, 15 lawyers and a mere 7 wives and home makers.

The French telephone system, renowned worldwide "for its particular way of getting on the nerves of American tourists," is finally getting some badly needed upgrades. Many sections of the country are still unable to communicate with one another, even though they can telephone New York, Buenos Aires, Tokyo etc. However, new circuits are now being installed all over France, and service in Paris is expected to be fully automatic by the end of 1937.

NJ Republican and Democratic parties both adopt platform planks demanding repeal of Prohibition amendment and restoration of state option.

Tomorrow is 20th anniversary of Supreme Court decision breaking up American Tobacco as an illegal monopoly in 1911; it produced over 80% of US tobacco products and also monopolized licorice and tin foil. The industry has grown tremendously since; total net income in 1930 was about 5 times the best trust year.

Satirical issue of the Bawl Street Journal produced by the Bond Club sells 15,000 copies [Note: if anyone knows where to find one, let me know ...]

Interesting anecdote from H. Alloway about establishment of the Pennsylvania RR's pension plan about 1900 - plan was sponsored by Alexander J. Cassatt, "saltiest of expanders in the Pennsylvania presidential line," after considerable argument from his sister Mary Cassatt [the painter].

Market commentary:

Market wrap: Stocks suffered day of violent fluctuations with periods of heavy selling. Rails broke badly following the ICC's refusal to initiate rate increase investigation; new bear market lows in major rails including NY Central, Union Pacific, and Atchison. Selling broadened as the session progressed; news of decline in steel output brought another flood of selling into US Steel; new bear market lows in major industrials including Steel, Westinghouse, Allied Chemical; bad breaks in trading favorites including Auburn; utilities sold off after reported decline in electric output. A moderate rally broke out near the close, but market remained unsettled. Bond trading more active, prices generally lower; sharp irregularity in many parts of the list; US govts. and highest-grade corp. issues relatively steady; lower-grade rails weak; foreign issues irregular, with weakness in German and S. American; heavy selling broke out in the last few minutes of trading. Commodities weak; grains down substantially on beneficial rains in Northwest spring wheat area; cotton down moderately to new lows in spite of bad weather report. Copper remained at 8 3/4 cents, but news came that a record low of 8 1/2 was set last Friday in unpublicized sale of about 12M pounds by a large producer; domestic buying quiet; foreign buying large after 1/4 cent price cut to parity with domestic; outlook believed weak. Raw sugar prices approached record lows of last fall.

Conservative observers say there might be short covering in the next two sessions leading up to the holiday weekend, but urge remaining on the sidelines until next week, and giving "the market an opportunity to indicate its next important movement."

Market may have been technically weakened by short-covering in last session following NYSE action.

Stop-loss orders are increasingly in favor on Wall Street; conservative interests cite the market break on Monday as showing the wisdom of protecting long positions; at least part of the recent decline can be attributed to uncovering of stop orders that increased selling at a time when buyers were few.

Rail loadings report for May 16 week was slightly improved, showing a decline of 19.4% from 1930 vs. a 19.8% decline prev. week; however, initial reports of individual rails for the May 23 week are poor. Rail authorities don't look for much improvement in earnings in the next few months, but anticipate a much more encouraging showing in the fall when crops will be moving and industrial activity should be increasing.

American Can has been drawing buying support from interests close to the company and traders after being a bear target this year; "in semi-official quarters" it's said net profits have been running only slightly behind last year. US Steel may be a laggard when the market recovers; in the past it's been the last to suffer during a decline and also lagged the market when a recovery started.

While reports have been circulating of investment trusts [similar to mutual funds] selling stock, a survey of ten major trusts received almost universal response that they have recently been buyers on balance.

Editorial: Refusal of the ICC to ask for investigation into need for higher rail rates is unsurprising; it means the ICC is "disposed only to help those who help themselves." Rails must now end their "personal differences," come up with a specific and unified plan for higher rates, and be ready to answer objections from shippers and defend current practices on maintaining wages and possibly excessive passenger service. Carriers must convince the ICC that, as in 1920, an emergency rate increase is required, and any resulting problems can be sorted out afterward.

A. Wood, Chicago Stock Exchange pres., praises development of the Exchange; calls for Chicago to develop into financial center able to serve Midwestern businesses; calls upon bankers to take more liberal attitude on accepting stocks and bonds of Midwestern businesses as collateral for loans.

Edward B. Smith & Co. note current downtrend has lasted about 3 months; believe stocks not yet at levels where they can be confidently bought for the long term, and recovery will be slow and halting; do see trading opportunity for a technical recovery if a "clearly defined climax" occurs with the Dow in the 125-135 range. A number of brokers believe several stocks may be entering "buying zones" attractive for long-term investment, but aren't yet willing to advise extensive accumulation; most are "inclined to wait for evidence of important buying by banking and corporation interests." Recent steady decline on low volume has been "disturbing and discouraging ... a day or two of heavy trading at lower prices would convince many that the time had arrived to buy for at least a good technical recovery."

Col. L. Ayres of the Cleveland Trust says outlook for summer not encouraging but “real basis for hope that definite recovery may get under way after Labor Day.”

Dow industrial average closed at a new bear market low; there were 3 new yearly highs and 206 new lows.

Economic news and individual company reports:

Austrian govt. action on Kreditanstalt apparently only warded off immediate disaster; Finance Min. official has been sent to Berlin to "endeavor to interest German govt. and banks in supporting Kreditanstalt," while Nat'l Bank of Austria is attempting to gather consortium of Bank of England, German and Dutch banks, Rothschild's of London, and Lazard Freres to prevent withdrawal of foreign credits and put large sum at bank's disposal. An informal committee has been formed in London representing interested parties in Kreditanstalt to deal with “the policy to be adopted in the near future”; it's stated this “is not a creditor's committee in any form.” Berlin market calmed following sharp decline Tuesday, but additional foreign capital was withdrawn from Germany and mark remained weak.

St. Petersburg, Florida bondholders committee says city defaults and financial difficulties present complicated problem far beyond normal refunding operation; ask all bondholders to deposit their securities with the committee so that unified action and negotiation can be undertaken.

About $121M of the total $276M Cook County tax bill for 1929 remains unpaid; 3,000 property owners have sued to prevent collection on grounds assessments are "confiscatory and discriminatory."

Steel production for week ended Monday was about 43% vs. 44% prev. week, 46% two weeks ago, 73 1/2% in 1930, and 96% in 1929. Weekly steel reviews reported "frank airing of views" at the Steel Institute meeting had improved sentiment among executives, making them more aware of industry straits and consequences of further instability. However, industry conditions were little changed. Estimates of production from different sources varied more than usual, from 41% to 44%, but decline apparently has continued; construction is holding its own but not showing expected improvement; automotive may be off a little further. While producers seem more determined to maintain prices, weak areas remain in the price structure.

US electric output for week ended May 23 was 1,600 GWHr, down 4.4% from 1930, vs. a 3.3% decline prev. week and 2.4% two weeks ago. While electric output in Q1 was down 5.3% from 1930, utility revenues were only down 1.7% from 1930 and were 4.8% above 1929. Industrial use of electricity is down, but home and light commercial use has been resilient.

Govt. weather report: cotton conditions unfavorable; winter wheat fair to very good; spring wheat belt still in need of moisture, soil blowing still reported in places.

A list of 20 large industrials and rails covered preferred dividends in 1930 earned by a range of 1.8 times to 55 times; yields are 4.5%-8.7%. While earnings are down in 1931, all have continued to earn preferred dividends, in most cases by a good margin.

Spanish pesetas weak on inflation fears after reports govt. may permit increasing note circulation from current 4.983B up to legal limit of 6B.

J. Calder, US construction engineer, appointed advisor to Russia on all construction; built tractor plant at Stalingrad, will attempt to speed current projects.

Commerce Dept. reports economic conditions in the Far East and S. America remained dull.

Small California oil producers making progress in organizing to curtail production; objective is to cut state production from 536,700 barrels/day to 427,500.

Consolidated Gas of NY $60M 4 1/2% bond issue quickly oversubscribed, offered at 101 and rose to 101 1/4 bid.

GE and Westinghouse receive $16M order for 150 electric locomotives as part of Pennsylvania RR's $150M electrification program; largest single order for electrical equipment in months.

Auburn Automobile reports shipments in year to May 25 were 22,759 cars, which exceeds total 1930 shipments by 9,066, and the record 1929 full year by 10.

Companies reporting decent earnings: Kansas City Power & Light, McIntyre Porcupine Mines.


A Son of the Land - in Russian with English subtitles, at the Cameo. “It is interesting to note the way in which Russian producers are developing stereotyped plots which are as highly romantic as the American Westerns.” A poor peasant, exploited by his overlord, harkens to the message of the Soviets and rebels. The local peasants are starving from lack of water; our hero goes to a nearby city, learns modern irrigation at a government school and returns in time to help build a new dam which will assure all the peasants a steady supply of water. Rich landlords attempt sabotage but are thwarted by the hero. “Plot is related without the usual subtlety of the Russians and without their customary dynamic treatment”; a feeble sermon, poorly edited; however, Boris Ivanitski is “extremely forceful” in the lead.

Always Goodbye - a Fox picture, at the Roxy. An unworthy vehicle for the promising Elissa Landi; padded and unconvincing. Story of Lila Banning who is “always saying goodbye to suitors”; first to Sir George Boomer who offers her a house in the country to marry him; then to John Garrick, romantic but poor young Englishman; then to a shady character she previously met on an ocean liner; finally she discovers true love with her cultured host at Lake Como, Italy.


[Note: it's funny because it's true.] A mechanic who has lately started buying small lots of stock asked his banker for some suggestions on railroad shares. The banker suggested Pennsylvania Railroad and presented a list of statistical information. The investor perused the information, and was particularly drawn to the huge number of shareholders reported. "Well, there's one sure thing," he remarked, "if I am making a misstep I'll not be alone."

A corporal was marching in front of his squad when he overheard a voice in the rear rank say: "This squad is like a flivver [old, cheap car]. The crank is in front." "Yes," snapped back the corporal, "but the nuts are all behind."

"How's business?" a traveling salesman asked the new barber. "Boy," replied the barber, "it's so quiet here you can hear the bonds drawing interest at the bank."

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