May 27, 2010

Wednesday, May 27, 1931: Dow 133.11 +0.24 (0.2%)

Assorted historical stuff:

White House says Pres. Hoover's advisors see many favorable indicators in the business situation. Inventories of both merchandise and raw materials have declined since Dec. for the first time in the depression, showing almost a 10% reduction in Q1; reduction of inventories usually begins at the bottom of depressions. Hoover's advisors also cited improvements in cars, food, department store sales, cotton and wool textiles, shoes and leather, cement, tobacco, and chemicals.

Sen. J.H. Lewis, speaking to Illinois State Bankers Assoc., advocated govt. financial aid for cities on verge of bankruptcy due to "inadequate borrowing facilities."

NYSE, for third time in recent history, will ask members for information on their short positions (first two times were in 1917 and Nov. 1929). Members will be asked for detailed report of short positions as of May 25 and for daily updates until further notice. Current conditions are in some ways similar to those in Nov. 1929 when the NYSE previously launched an inquiry into short selling; after that inquiry, the NYSE pres. announced short selling during the crash was found to be "inconsequential." Editorial: The NYSE's recent decision to ask members for reports on their short positions is wholly justified. NYSE facilities may be used "to express ... any variety of personal judgment as to the reasonableness of security prices but not for organized attempts to depress them through the terrorism of mass selling." Distinguishing between "legitimate and reprehensible shortselling in specific cases" is difficult but far from impossible; NYSE governors have shown their ability to do so in the past. Security owners "may well take this action ... as a timely warning ... against substituting their emotions for their reason."

Interesting series of full-page all-text ads starts today, making a case for fixed investment trusts [similar to ETF's]. “Growth has been the dominant economic force in American life” ... stock prices reflect this in the long term ... “periodic depressions have always proved to be only temporary interruptions in long-term growth ...”

Sen. Couzens says tax increase inevitable at next session of Congress; favors enactment of gift tax, raising estate tax, and extending graduated surtax past $100,000; says statistic that 380,000 people pay 97% of income tax indicates excessive concentration of wealth; opposes sales tax.

Editorial by D.C. Harrower: Farm Board policy of working for drastic reduction in wheat acreage is “not only dangerous but vicious” since it puts wheat supply in danger from bad weather and crop pests.

The USDA warns of severe soil erosion. The Mississippi River is estimated to transport 400M tons of mud each year into the Gulf of Mexico, most of it from cultivated fields in the valley; it's likely that a hundred times as much is washed each year from farms along the banks of the Mississippi and tributaries. In Oklahoma, 13M of 16M acres devoted to farming are suffering from soil erosion.

Editorial by T. Woodlock citing cautionary case of govt. owned electric plant in Mapleton, Iowa (pop. 1,500); an auditor found there were no proper books or filing system, and that a claimed profit of $34,128 was in fact a loss of $13,620.

Portugal's recent census ran into trouble as peasants supplied with forms suspected a trick to obtain more taxes and destroyed them.

A. O. Smith recently conducted a test of the heavy steel spheres, about 8 feet in diameter, used to store helium gas by the Navy. First, the sphere was pressurized to 2,360 pounds/sq inch. It was then put on a turntable and subjected to powerful blows by air hammers for 72 hours, a total of 30M blows being struck. It was then pressurized to 2,620 psi, placed on a steel foundation, and subjected to blows from a "skull cracker" weighing 1 ton and dropped from a height of 23 1/2 feet, delivering a blow of 11M psi. This made a dent about 13 inches wide and 3/16 inches deep. Finally, pressure was raised until failure; this happened at 5,700 psi.

Consolidated Gas of NY recently detected a clog in one of its uptown lines and discovered it was caused by the bond section of an old newspaper. The trouble apparently took 46 years to develop since the paper was dated Feb. 9, 1884. No word on whether the work crew compared bond prices with current quotes.

Market commentary:

Market wrap: Stocks opened under heavy pressure; selling again converged on Steel, which broke to a post-1923 low of 93 1/4; other majors also declined. A brisk and broad rally set in at mid-day after report of the NYSE action against bear "raiding tactics" caused "increasing nervousness" in bear quarters; Steel rebounded over 3 points and "the whole market enjoyed momentary relief from pressure." However, renewed irregularity cropped out as the afternoon progressed; Steel weakened, and sharp breaks took place in trading favorites including Auburn and Vanadium; selling increased late. Bonds mixed in quiet market; US govts. slightly irregular but not far from recent record highs; European issues steady but S. Amer. heavy; corp. issues resumed pattern of firmness in highest-grade issues (particularly public utilities) and "readjustments" in other parts of the list. Commodities mixed; grains up sharply on short-covering following poor crop news; cotton down substantially, again hitting new season lows; July down to 8.62 cents. Copper held at 8 3/4 cents; little available at that price but buyers aren't willing to go higher; outlook uncertain. Cocoa set another record low.

Conservative observers unmoved by NYSE action, continued to recommend sidelines until market demonstrates it can hold on its rallies.

The stock loan market at Monday's close had indicated a heavy short position, with 24 stocks loaning at a premium and almost all active stocks loaning flat; traders apparently covered today after news of the NYSE action.

Bull operators discouraged by decline on low volume, feeling this indicates unwillingness of "important interests" or the public to buy stocks despite materially lower prices. Brokers report even customers carrying credit balances are unwilling to buy during reactions as they usually would. Investment trusts [similar to mutual funds] have reportedly shifted their buying to senior (preferred) shares this year for greater safety. Many chart students are now bearish for the near future based on the Dow averages breaking through previous trading ranges.

Many keen observers discount long-term impact of anti-chain store taxes, saying the chains have been so successful at reducing living costs that the public is unlikely to approve of discriminatory taxes. GM has materially strengthened its position this year, resulting in more stable earnings than competitors; other lines such as the Frigidaire division also seen helping. Cigarette industry this year "has been forced to accept only a moderate increase in total production"; most of this increase is likely to have gone to just two companies, American Tobacco and Reynolds. Wrigley seen benefitting from higher profit margins due to lower raw material prices; 1931 earnings seen matching or possibly exceeding 1930.

Considerable comment has been heard recently contrasting the extreme enthusiasm in 1929 with extreme pessimism now; however, many have held back from buying since they remember "how long the bull movement continued after it was clear that it was exceeding the limits of safety." On the other hand, the NYSE may provide a "safeguard against carrying things to extremes on the bear side" through its action to prevent undue depression of stocks by organized bear raids.

Most severe liquidation in lower-grade bonds has been in the industrial division; many NYSE-listed industrial bonds are now selling to yield over 7%, with some as high as 37%. While some face strong possibility of default in the near future, others are seen offering good speculative possibilities.

Editorial: Over the past week, the market for Colombian bonds acted like a herd of cattle that stampedes without knowing the reason and then settles down again; the bonds plunged and then recovered close to their former level. There seems to be "no just reason" for the decline. Unlike Russia, which is rich in natural resources but "lacks in the great asset of character," Colombia is entitled to confidence in this respect. The govt. is relatively stable, having had only one revolution in the past 30 years; Pres. Olaya is able and commands confidence. While Colombia overborrowed in the past as many other countries did, it's amply demonstrated a determination to pay its debts with a program of spending cuts more severe than the US, and is now living within its income.

Liquidation in bank credit continued last week, and bank holdings of non-govt. securities declined. To date, the Fed. Reserve's easy money policy has failed to cause expansion in general bank credit or to induce banks to seek higher returns in the general bond market. There was a $45M increase in "all other" loans, but this was entirely in the NY district and it's unclear if it was due to loans made to businesses or to bank buying of bankers' acceptances.

G. Sheridan, Ohio Council of Retail Merchants dir., warns Indiana anti-chain store tax may be "the entering wedge for retail store taxation of all kinds," particularly for discriminatory taxation against large volume retailers.

D. Kelly, Nat'l Retail Dry Goods Assoc. head, endorses J. Farrell's stand in favor of maintaining wages.

Royal Dutch Co. 1930 annual report says future of oil industry depends on cooperation; “if all pull together the near future will be a good one ... but should there be a lack of cooperation, then the near future will be very dark for many ...”; calls for production restriction and expense cuts.

H. Petry of the NY Produce Exchange says business in the US has been improving steadily for the last three months and is now in a definite uptrend.

Economic news and individual company reports:

Berlin stocks plunged in first session after 3-day holiday; break attributed to nervousness over Austrian banking situation, "which is not thought to be completely solved yet." Other unfavorable factors included fall in NY stocks and political developments; some new emergency decrees are rumored. Foreign exchange featured sharp drop in marks and surge in Swiss francs; capital flight was blamed; as far as could be learned no NY credits were withdrawn. Pesetas also fell sharply.

Some nervousness attributed to news of the failure of two small London Stock Exchange houses, though they didn't affect prices in London.

Newfoundland govt. making strenuous efforts to solve crisis; many depositors withdrew money after the weekend but all demands were being met; Canadian savings banks not affected; govt. negotiating for loan with Bank of Montreal, has made temporary arrangements with them to honor current checks.

Bank of US trial likely to end within 10 days. Tennessee House votes to create committee to consider impeachment of Gov. Horton. Cyrus Eaton and Continental Shares sued for $1.1M based on allegation of illegal loan made by Continental Shares in June 1930.

Despite worldwide gold production at highest rate since the war and the cooperative efforts of central banks, gold holdings in the US and France during the first 4 months of 1931 rose by more than double the amount of new monetary gold produced in that period; US and France already hold over 60% of world's monetary gold (first 4 months output was 6.758M ounces or $139.7M, of which about 65% went to monetary use; US gold increased $128M and French $73.4M).

ICC refuses request of Eastern rail executives to initiate investigation of whether general rate increase should be ordered; rails will have to present definite proposal themselves, though it's believed the ICC will give it expedited consideration [rails had hoped a request by the ICC would be better received by the public]. Rail freight loadings for week ended May 16 were 747,732 up 283 from prev. week, down 19.4% from 1930 week, and down 28.5% from 1929. First 31 rails reporting April earnings were down 24.4% from 1930; the same rails reported an 18.1% year-over-year decline in March.

Major oil cos. cut buying price for oil from East Texas fields by about 50% due to overproduction and oil market conditions. Price cuts expected throughout midcontinent region. Gasoline prices in Chicago market weakened. Refineries ran at 68.4% in week ended May 23; stocks of gasoline fell 214,000 barrels to 45.449M. Crude oil production in week was 2.437M barrels/day, up 10,350 from prev. week and down 142,350 from a year ago.

American Machinist reports machine tool markets continue "to present a picture of unrelieved dullness"; demand light and irregular, no visible change in outlook.

Youngstown district steelmakers seen opposing rail rate increase since it would favor other steel areas with access to waterway transport.

Fairchild Cotton Service forecasts this season's cotton area at 40.983M acres, down 11.1% from last season.

Hog prices plunged 39 cents to $6.46/100 pounds in the week ended May 23, vs. $9.99 a year earlier and lowest price in 21 years.

Cigarette production dropped less than 1% in April vs. 1930, but first 4 months were up slightly. Cigar production showed a pronounced shift from the higher-priced 8-15 cent class (down 16.1% in April) to the 5-cent one (up 6.6%).

Commerce Dept. reports economic conditions abroad continued generally dull in the past week.

Brazil expected to shortly use proceeds of export tax for first incineration of a part of the country's heavy coffee surplus; coffee conference seen unlikely to reach any definite agreement for international coffee cartel.

Canadian steel production in first 4 months was 331,037 tons vs. 441,980 in 1930.

Japanese Ministry of Railways agrees to avoid layoffs and makes concessions on worker pay, avoiding a strike.

Spanish Cabinet votes to cut peacetime army from 16 divisions to 8, saving $20M/year.

Massachusetts House votes to increase inheritance tax to finance old-age assistance measure that becomes effective July 1.

Companies reporting decent earnings: Public Service of NJ.


Appearing at the Palace: Harriet Hoctor held over, with a new dance version of Louis Alter's "Manhattan Serenade," performed before a grouping of skyscraper sets designed by the Art Guild that sway with the music as the ballerina dances among them. James Barton offers "a new drunk impersonation and a dance and pantomime number called 'The Ballroom Lizzard.' He also sings a song about being 'all dressed up with a broken heart.'" Master of ceremonies is "the leisurely Jack Benny." Also on the bill are "Doctor Rockwell, the 'medical quack,' and Armida, the Mexican dancer."


Kick In! - Clara Bow, "America's 'It' girl," triumphs over typecasting, giving an outstanding performance revealing "previously hidden dramatic propensities" in this melodrama that gives the "reliable old situation of the police hounding ex-convicts" some new trimmings. Male lead Regis Toomey acts superbly.

Shipmates - "Robert Montgomery is elevated to stardom" in this tale of life in the navy and on shore leave, where romance develops between the admiral's daughter and his character, a humble sailor who masquerades as a young oil magnate from South America. Highly romanticized but good entertainment.


Visitor to Jail - What terrible crime has this man committed? Warden - He didn't commit any crime at all. He was going down the street a few days ago, and saw one man shoot another, and he is held as a material witness. Visitor - And where is the murderer? Warden - Oh, he's out on bail.

Policeman - What's your name? Suspect - Smith. Policeman - give me your real name. Suspect - Well, put me down as William Shakespeare. Policeman - That's better. You can't bluff me with that "Smith" stuff.

Technician 1 - What should I use to light the Noah's ark scene? Technician 2 - The flood light.

1 comment:

  1. I was wondering if they had any bans on short-selling back then?