June 29, 2010

Monday, June 29, 1931: Dow 156.93 +2.89 (1.9%)

Assorted historical stuff:

Sec. of State Stimson, sailing for Europe aboard the Conte Grande, said vote of confidence by the French Parliament was a clear indication France and the US would reach a satisfactory agreement on the debt moratorium. Fed. Reserve of NY Gov. Harrison says believes $100M credit to Germany not first of a series, since it should be enough to "turn the trick." However, if needed further credits could easily be extended. White House says Pres. Hoover doesn't contemplate any statement on South American fiscal affairs. Report that the S. Amer. situation has come to a head and requires immediate action was discounted. One official said there's no anxiety expressed by interests involved in S. Amer. over current conditions. There were reports independent bankers had asked the NY Fed to supply a man to look over the situation; conditions are naturally being watched closely due to large amount of S. Amer. bonds carried in the US. Under-Sec. of State Castle discounted a moratorium, pointing out it's impossible to declare one on private loans. However, bankers in NY confidently expected some concrete action.

Editorial in favor of development of international law, particularly US participation in the World Court (the Senate has refused to agree). We now smile at the childishness of the old system of settling disputes through "trial by combat"; "will not future generations smile at our ideas of the settlement of international disputes, or rather, will they not wonder at our lack of intelligence in acting as if right and justice were with those best able to kill, maim and destroy? ... A hundred years ago Sydney Smith wrote: 'All the atrocious crimes committed in years of peace, all that is spent in peace by the secret corruptions or by the thoughtless extravagance of nations are mere trifles compared with the gigantic evils which stalk over this world in a state of war.' Why perpetuate such a system in preference to one founded on justice? Why should there not be justice between two nations as well as between two individuals?"

When William H. Seward, Sec. of State in the 1860's, negotiated purchase of Alaska for $7M from Russia, his deal was denounced as "Seward's Folly" across the US. In the past 19 years, two Alaskan mines alone have yielded $200M worth of copper; gold, timber, furs and fisheries have added many millions more.

Another new use for farm products has been found by Agriculture Dept. scientists: an owner of a fleet of trucks reports using honey in an antifreeze solution. Honey has a lower freezing point and higher boiling point than water; however, a disadvantage "is that if gaskets are not absolutely tight the honey will leak into the cylinders and cause considerable damage." [Note: It's a delicious beverage! It's an antifreeze! It's new Prestone-ade!]

Editorial by T. Woodlock: By coincidence, London is now engaged in an even more complicated transit unification than NY City, but is doing so on equitable terms and with remarkably less animosity and noise. Part of the greater heat in NY must be laid to the history of misdeeds in transit development on both the private and public sides. However, much of it is due to the current political environment, in which “the most convincing demonstration that a politician can give of his devotion to the 'public interest'” is an attack on utility or transit rates. “To borrow the slang of the theatre, this kind of thing is universally recognized as 'sure-fire-hokum' in a political sense. It is indeed the 'Abie's Irish Rose' of political politics, and it is playing to crowded houses all over the country!”

The chain store appears to be catching on abroad; it's already popular in Britain, as reflected in the success of Woolworth there; Woolworth is also operating in Germany, though on a smaller scale. Woolworth doesn't operate stores in France, but even there, in the traditional land of the small family-operated boutique, the cold figures indicate that the chain store is now significant; there are large chains in the grocery and wines/spirits categories, as well as four department-store chains.

At request of the Post Office all Irish banks agreed to return money received in future from sweepstakes subscribers in the US.

Editorial praising the NYSE Institute, an educational institution now in its 10th year that's operated for the benefit of employees of the Exchange and member firms. The Institute has a large full-time faculty; there were 1,677 students registered there in the past year.

King George of England recently sent a Mrs. Rachel McArthur of Edinburgh greetings on her 103rd birthday. Confirming his reputation for "rare tact," the letter he sent contained "best wishes for a long life." "Mrs. McArthur is said to be in excellent health, ... so perhaps his majesty's wish will be fulfilled."

Week in review:

Stocks around the world enjoyed a rip-roaring rally sparked by the Hoover plan for a year's moratorium on war debt and reparation payments; leading US stocks experienced their sharpest advances since the fall of 1929. NY City bank stocks ended the week trading at 19.1 times earnings vs. 16.9 a week earlier. Strength spread to commodity markets, with sharp recoveries from the lows in diverse commodities including silver (9%), cotton (17%), lead (13%), zinc (10%), hides (7%), and cocoa (19%); copper price advances were smaller but demand improved substantially; grains were more mixed, with wheat becoming irregular later in the week but corn strong. Rise in commodity prices stirred hopes that their persistent decline, which had been a most disturbing factor in the past 22 months, had finally ended. Steel production was worse than expected, falling close to the mid-Dec. low (excluding the Christmas week). However, sentiment was improve by the Hoover plan and prospects for a rail rate increase. Foreign currencies showed little net change in spite of the eventful week; however, hopeful signs included extending of $100M credit to Reichsbank to maintain reserve ratio, a better tone in mark futures, and decline in Swiss francs, indicating return flow of capital to Germany. Money market remained relatively dull. However, $20M purchase of govt. bonds by the Fed. Reserve was seen as highly significant; this policy had been urged by economists and bankers for some time to increase the supply of credit, and action by the Fed. indicated new confidence the credit would be used for loans and investment “now that economic winds seem blowing favorably.” Currency circulation fell $23M, indicating relief of Midwestern banking “misconfidence.” US gold holdings rose over the $4.950B level. Bonds developed "pronounced strength" with rising prices almost across the list. German govts. rallied sharply, leading an uptrend in European issues extending to many obscure state and city bonds. South American bonds "gave a spectacular demonstration of strength throughout the week" with strength in almost every country; reports circulated that Pres. Hoover would help in stabilization. Australian issues also rose sharply. US govt. issues bucked the general trend to decline on the week, though they continued to sell at premiums. Municipal bond trading was dull most of the week, and prices somewhat easier; Dow average of 20 long-term city and state bonds was at a 3.81% yield vs. 3.78% two weeks ago. Industrial bonds, which had been weakest on the decline, showed marked strength with spectacular recoveries in many parts of the list; oils and amusements showed particular strength, while convertibles rose in response to the stock rally. Rail bonds rose on optimism regarding a rate increase. High-grade utility bonds were firm around the year's highs.

Market commentary:

Market wrap: Stocks opened weakly on an accumulation of sell orders, but firm resistance developed, followed by a vigorous upturn. Utilities moved up briskly, while US Steel and Westinghouse were features of strength among the industrials; rail shares were more irregular, though they closed with fractional gains. Bond rally slowed somewhat; US govts. dull and steady; foreign issues quieter, with prices somewhat irregular; domestic corp. list featured continued rally in railroad bonds, as highest-grade rails were at record highs while second-grade rose strongly; high-grade utilities held around yearly highs. Commodities mixed; corn up substantially but other grains mixed; cotton closed somewhat lower after recovering from early setback. Copper remained at 8 3/4 cents with little metal available; foreign buying continued in good volume. Zinc, tin, crude rubber and silk were strong. Silver rose 5/8 cent to 29 1/2.

Market sentiment cheerful; predictions after the close were for higher prices this week, barring unforeseen developments. Conservative observers favor buying standard stocks on technical reactions, and using stop-loss orders to follow the rally higher.

NYSE volume totaled 1.9M shares, highest since Mar. 28.

Strength in stocks attributed to positive statement by Sec. of State Stimson on prospects of debt agreement with France. Good buying support has been in evidence on recent minor reactions. Leading brokers report increased public buying since the middle of last week. Increased foreign buying has also been evident, attributed both to investment buying and short-covering.

Canadian Pacific hasn't joined in the rail rally, possibly because Wall Street believes the road won't get the benefit of higher US freight rates. Editorial discounting rumors that the ICC will grant the rails an immediate rate increase due to urgency of their problems. These appearances of "Dame Rumor" are similar to those in 1920 and 1910 when previous applications to the ICC were pending. Wall Street never takes the rumors at "full face value," but does "take a degree of anxious interest in them which betrays a will to believe" possibilities that are in fact remote. The President is very unlikely to pressure the ICC, and the ICC is unlikely to be more panicked about the rail situation than the rails themselves. The financial community should at least "attempt to distinguish between the possible and the impossible when it lends ear to rumor."

Copper inventories are expected to rise again in June, though talk of production curtailment has died down since the price started rising.

Wall Street continues to be flooded with rumors of a more liberal view on prohibition from Washington in the near future. Conservative observers point out this would be most surprising, considering what's gone on in the past, but advocates say the step could be taken out of "economic necessity."

Edmund Stinnes calls for international tariff removal; says war debts in long run can only be paid if creditor countries accept goods from debtors.

Guaranty Trust uncertain on war debt plan's importance as economic factor in itself, but believes "as a stimulant to constructive effort and thought it carries great weight and may well mark the change in business attitude which precedes and helps to vivify business recovery." US business went through first half of 1931 at "practically unchanged level of activity". Although no definite improvement has yet developed, there's some basis for the growing belief that bottom has been passed or is near, "and that some degree of tangible recovery" should arrive in the second half. "The very fact that six months have passed without bringing further significant recession can reasonably be regarded as a sign that the process of readjustment is nearing completion." Financial situation strengthened by "elimination of certain weak spots," notably in Midwest; wave of bank failures in Chicago, while unsettling, was fundamentally favorable since it corrected a dangerous situation. "The removal of such an obstacle without greater ill effects should, in the end, contribute to the restoration of confidence."

Cleveland banks optimistic; Midland Bank calls Hoover plan “outstanding event of the year”; Union Trust sees evidence of business upturn in early fall.

Economic news and individual company reports:

Automotive trade has felt a quick revival coinciding with the market rally of the past week, with retail demand felt for low-priced cars, tires and accessories. Chevrolet sales seem to have returned to normal, with June to show the second consecutive monthly gain vs. 1930; rest of year expected to remain above 1930.

Continued decline in Swiss francs and guilders seen as encouraging reversal of earlier rise that gave first warning of German capital flight and crisis. Nordstern A.G., second-largest private German insurance co. and ally of Deutsche Bank, will come under new management due to loss of public confidence following recent large losses. Total Austrian govt. guarantees in connection with the Creditanstalt affair have reached 920M schillings, including 500M in foreign loans, 300M in savings deposits, and 120M in discounts of the National Bank.

Chicago City Controller announces all bond payments of principal and interest due on July 1 will be promptly met; shortfall reported earlier has apparently been corrected; much of needed funds will come from sale of tax warrants to Illinois Bell Telephone Co. First Detroit taxes to be collected after July 15 will be pledged to bankers in NY in return for $6M loan to carry city payrolls until after July 15. Important Ohio Supreme Court decision upholding validity of some $210M special district bonds will be appealed to the US Supreme Court.

Steneck Trust of Hoboken closed; deposits of $19.1M at year-end. Over 400 depositors gathered in front of the bank half an hour after the usual opening time; "police reserves were called out and there were some arguments between police and the depositors."

Chamber of Commerce says 1932 will witness unparalleled effort by business organizations to help reduce cost of government. S. Strawn, pres. of the Chamber, and J. Barnes, chairman, conferred with Pres. Hoover at the White House but wouldn't comment on the conversation.

East Texas oil curtailment efforts ineffective; production somewhat lower at 359,727 barrels/day in week ended June 24, but still far above the 200,000 target; many violators of Cranfill plan to limit production to 300 barrels/day from each 20-acre unit, including some of the major companies. Standard Oil of NJ says effective East Texas curtailment essential, calls for new legislation. Chicago wholesale gasoline prices up 1/8 cent to 2 3/8 - 2 5/8 cents/gallon.

Nat'l Industrial Conf. Bd. reports cost of living in Apr. 1931 was 4.8% below Dec. 1930, and 11.8% below the base year of 1923. Present decline was not as great as in the 1920 depression, though public is inclined to overestimate the decline due to drastic price cuts in many individual lines.

Fisher's wholesale commodity index rose for the second consecutive week for the first time in 1931, to 70.3 vs. 70.0 prev. week.

Amer. Farm Bureau Fed. says will oppose rail rate increase after learning rails don't plan to exempt agricultural products.

Improved sentiment following the Hoover plan was reflected dramatically in the cotton goods market, which had sales in the past week among the highest in history; total volume may have run over 100M yards; this was a sharp reversal from the buyer's market prevailing a little over a week ago.

Youngstown district steel production will remain at 41% this week.

Free Press reports Canadian crop conditions in most critical state, current conditions "worst known to the Free Press' observer in 44 years experience."

Offering of Taiwan Electric Power Co. bonds marks the "first long-term foreign loan of note in this market in about a year." However, the issue has the advantage of being backed by a strong company and also guaranteed by the Japanese govt.; opinion was divided whether this would mark the opening of a much-desired revival of foreign financing; bankers feel process of revival will be slow.

British House of Commons increased govt. borrowing limit for unemployment fund by 25M pounds sterling to 115M; fund would have run out within two weeks.

Canada will postpone 15 cent duty on US magazines "to determine what magazines shall be exempted as religious, scientific and educational" [Note: I guess my Atheist Superstitious Know-Nothing Monthly is out of luck.]

Australian budget for coming year will raise sales tax from 2 1/2% to 5%.

NY Transit Commission reports 1930 total of 3.325B passengers carried on NY City subway, elevated, street railway and bus lines and Hudson tubes, down 30.7M from 1929.

North Pacific whalers will not operate this year due to current low price of whale oil, attributed to competition from Norwegian whalers and large surplus.

"If the 'kitties' of the gambling tables are any criterion, prosperity must be just around the corner." After two poor years, the board of the Society of Sea Baths at Monte Carlo "almost gloated in reporting to stockholders that since April 1 the profits of the green tables have been 5M francs more than during 1930."

J. Wilson, IBM VP, reports Asian sales in first half 1931 considerably ahead of 1930. Says US business equipment, cars and machinery now dominates Asian markets, and still sees practically unlimited field for expansion there; Japan gradually securing some Chinese markets, mainly by adopting US business methods.

Sales and earnings of Century Ribbon Mills are up substantially over 1930, as ribbons return to style for women's wear for the first time in 5 years.

Company earnings reports: Archer-Daniels-Midland 9 mos. ending May $0.65/share vs. $1.74; Bangor & Aroostook RR 5 mos. ending May $5.84 vs. $8.50; Wesson Oil 9 mos. ending May $1.50 vs. $1.73; International Shoe 6 mos. ending May $1.12 vs. $1.75; Century Ribbon Mills first half about $0.60 vs. $0.08.

Companies reporting decent earnings: Canadian Hydro-Electric Ltd.


Prosecutor - Have you any occupation? Youth - No. Prosecutor - Don't you do work of any kind? Youth - Nope. Prosecutor - What does your father do? Youth - Nothin' much. Prosecutor - Doesn't he do anything to support the family? Youth - Odd jobs once in a while. Prosecutor - As a matter of fact, isn't your father a worthless fellow, a deadbeat and a loafer? Youth - I don't know. You better ask him - he's sitting over there on the jury.

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