June 27, 2010

Saturday, June 27, 1931: Dow 154.04 +3.68 (2.4%)

Debt relief special:

In the week since the Hoover plan was first announced, NYSE-listed stocks have increased $7.225B in market value, while visible supplies of important commodities increased $364M in value. Pres. Hoover's stock is up along with the markets; his plan "may prove the turning point in the fortunes of his administration - if there is a turning point" and is seen "very likely to carry Mr. Hoover from the political pits to the political heights." Even some conservative economic observers and officials believe the turn in the depression may be marked by, if not caused by, the Hoover plan. Fundamentals of the recovery have been in place, in the form of easy money, deflated prices and low inventories, making it merely a question of "psychological impetus"; it's still too early to say Hoover plan has furnished this, but worldwide reaction is encouraging. Plan also counters image of Hoover as "weak, ineffectual and hesitating." It required courage to go against the perceived popular sentiment against debt relief. Pres. Hoover had to handle this delicate task in a great hurry, and he did so in a way to bring the political opposition and public opinion to his side. Hoover still faces tough issues of unemployment, taxes, and deficits, but is in "far better position to deal with these things."

Editorial: Prompt British acceptance of the Hoover plan in Parliament has thrown French reservations into relief. Germany's scheduled reparations and loan payments this year are about $427M, of which Germany proposes to continue paying $50M in any case (for bonds sold to private investors). France proposes that an additional $117M should be paid by Germany to the BIS, to be reloaned to Germany. These differences "contain no vital principle." France is unlikely to want to risk isolation by opposing measures for world relief, and she shouldn't be isolated as long as "her course is not extreme ... Compromise is in order."

Full text of French response to Hoover plan, along with positive statement by Sec. of State Stimson, raises hopes a complete agreement is imminent. French stocks advanced sharply; German market also rallied; capital has been flowing back into Germany.

Conflicting reports are circulating on possible debt relief for South American countries. More authoritative sources say private banking interests who have loans outstanding in certain countries will extend the credits to ease the situation, with the Federal govt. not actively involved. Other reports that the US govt. has been asked to assist are attributed to one individual who "has been particularly worried over the spread of moratoriums in that continent."

England will reportedly extend a debt moratorium to its "colonial and dominion possessions."

William Randolph Hearst elaborated on his war debts stand in London; says US has already "been compromised on about half what is due her and I am not willing to have those settlements further reduced. People over here blandly believe the moratorium is the first step toward permanent debt cancellation."

Wall Street has heard persistent rumors that, following his war debt plan, Pres. Hoover's next step to revive business will be revision of Prohibition to allow light wines and beer. However, "high Administration circles" deny the rumor and attribute it to a "persistent effort to embarass the President."

Assorted historical stuff:

AFL Pres. W. Green estimates US unemployed at 5.3M, up 150,000 since May; sees difficult conditions in winter despite possible business improvement, and urges immediate plans to meet emergency. Gov. Theodore Roosevelt, Jr. urges organized US assistance for Puerto Rico.

Building railroads is no longer the "slipshod, haphazard and extravagant affair" that it was in the old (pre-ICC) days. Now, each proposed extension of any rail line must receive a certificate of "public convenience and necessity" from the ICC; in order to do so, it is "subjected to a thorough analysis and report" delving deeply into the purpose of the new line, the practicality of proposed usage, climate, insect pests, etc. Northwest rails receive permission from ICC to grant lower emergency rates for transport of cattle out of drought areas in Western North Dakota and Eastern Montana.

The depression has reacted on the 110,000 Shinto shrines, thousands of Buddhist temples, and hundreds of Christian churches in Japan. For example, the temple to the Buddhist goddess of mercy at Asakusa, which would get $500 a day in small coins 3 years ago, now only gets about $65.

Navy has ordered two more autogiro planes [first successful rotorcraft] from the Pitcairn Aircraft Co. for $44,076.

One of the unexpected new markets for safety glass is as a base for beer mugs in England. By law, the mugs must have glass bottoms "to assist sanitary inspections," but this has caused many a smashed mug due to the custom of slamming the container down on the bar to order another, or simply to "emphasize an argumentative point." This can now be done with "impunity and frequency."

Gar Wood is installing super-chargers in the Miss America IX boat for a try at regaining the world speed record, now held by Kaye Don with Miss England II at 103.49 mph. The chargers may step the boat's horsepower up to 3,700 from the present 2,120; Mr. Wood anticipates a top speed about 110 mph.

Kroger will expand its successful "master" store in Cincinnati to include a model kitchen and dining room, and a laboratory where "guinea pigs and white rats will be used to demonstrate to patrons the effects of various foods."

Market commentary:

Market wrap: Stocks fluctuated most of the day, with vigorous advances alternating with sharp setbacks; market factors included uncertainty on French response to the Hoover plan, profit-taking and short-selling by those skeptical of the rapid advance. Final hour featured a burst of strength led by the rails on reports the ICC had decided to allow an immediate 7 1/2% freight rate increase, though an ICC official promptly denied this. Both rails and industrials closed strongly at new rally highs. Bonds very active and strong on positive international news; US govts. dull and steady; foreign generally strong, featuring sharp rallies in S. American and Australian; even defaulted S. American bonds rose substantially. Domestic corp. issues also were active and strong; oils continued recent rally; convertibles moved up in sympathy with stocks; rail bonds rallied sharply late. Commodities strong; grains rallied, led by sharp rise in corn; cotton up very sharply. Copper remained at 8 3/4 cents; foreign buying continued heavy while domestic improved. Other commodities rallied, including sugar, coffee, rubber and cocoa.

Market observers optimistic, noting market's good ability to hold its ground near highs and absorb profit-taking; advise buying standard stocks on all setbacks.

Ability of leading shares to move impressively ahead in the past week has brought renewed bull pool operations in many shares.

Bank and trust shares, disregarding the general market irregularity, were strong through the session and closed up sharply. Sears-Roebuck and Montgomery-Ward were strong on renewed reports of a possible merger, though no official information was forthcoming. Rumors circulated of a revival of the Bethlehem Steel - Youngstown Sheet & Tube merger. Important spelling correction: report yesterday of bull pool operating in Walworth should have been Waldorf.

Pattern from June 3 - 24, in which brokers' loans declined substantially while stocks rallied, is similar to that seen at the end of the 1921 bear market (and against the usual relationship between brokers' loans and stock prices). At Friday's highs, the market had recaptured almost 50% of the decline since Feb., and encountered resistance about where anticipated. Chart-oriented students will now be watching action around the 50% area closely; a further advance on volume would be a good signal.

Two items of good news appeared in the weekly Fed. Reserve reports. Purchase of $20M in govt. securities wasn't an amount of great significance in itself but was taken as indicating an important policy change; this is the first such purchase in a year aside from temporary seasonal moves, and may indicate Reserve officials now feel business confidence has improved, so expansion in bank credit would be useful (“businessmen will borrow and banks will be willing to lend”). Banking problems in Chicago appear to be quieting down, judging by sharply reduced demand for additional currency.

Economic news and individual company reports:

An "inquiring investor" wrote in asking about "Chicago City Tax Anticipation Warrants, 6%" which the city was asking him to accept in payment for products. Reply - this is "simply taking the city's promissory note as a substitute for cash ... we do not doubt for a moment but that these tax warrants will be paid. How soon they will be paid is another matter."

Total US registrations of new passenger cars in May estimated at 248,000 vs. 265,732 in Apr. and 354,031 in May 1930. US gasoline consumption in April showed a decline vs. 1930 for the first time this year; total was 1.193B gallons vs. 1.212B in 1930.

Rep. Andresen (Minn.) urges Pres. Hoover to help keep Farm Board wheat off the market this year, saying it would mean at least 25 cents/bushel more to farmers. Farm Board chair. Stone, after meeting with Pres. Hoover, says has no statement to make. Editorial: There are arguments on both sides concerning whether the Farm Board should hold its wheat off the market this year. On balance, however, it's "not certain that a mere promise to hold the wheat will affect the situation," and its also likely to inhibit buying; "it would seem preferable to liquidate this monumental folly and get through with it as quickly as possible. ... 'Without assuming an 'I told you so' attitude," this newspaper warned price pegging would eventually leave the farmer worse off than before; that has how happened, .leaving us with "the choice between the devil and the deep sea."

M. Steuer urges legislative investigation of NY State Banking Dept. focusing on system of supervision, rather than individuals; calls for exclusion of politics and partisan aims; says Supt. Broderick's job too big for one man. Gov. Roosevelt denies Republican request to summarily dismiss Supt. Broderick. NY Appellate Division affirms dismissal of $13M suit brought by Thea Isaac on behalf of Bank of US stockholders against directors, on grounds such proceedings can only be brought by the State Banking Supt.

New bond offerings were up sharply in the past week, to $187.8M vs. $87.3M last week and $90.5M in 1930; largest total since Apr. 10; public utilities accounted for $142.8M of the total.

A group of insurance companies of various types, banks, trusts, and colleges formed a committee to protect values of their rail securities by backing a rate increase.

Bradstreet's reports sentiment improved but retail trade didn't show upward progress, though last week's decline seemed to have paused; retail still features many "sales"; retailers keeping inventories low; men's clothing selling poorly. Dun's reports warmer weather has broadened retail demand, particularly for lightweight clothes, furniture, sporting goods, etc.; "persistent inquiry for low and medium-priced merchandise."

European currencies were generally lower on anticipated British discount rate cut next month; cut was made possible by large recent increase in gold holdings.

Russia's trade deficit has increased rapidly this year, reaching 84M rubles in first 4 months of 1931 vs. 22.5M in all of 1930. This is raising questions regarding whether the 5-year plan is adequately developing exports. Russia has re-entered the wheat export market for this year; weather conditions there have reportedly been favorable, and the crop this year is expected to match or exceed last year's unexpectedly heavy crop of 1.097B bushels, most in Russian history.

French Chamber of Deputies added $96M for completion of frontier fortifications.

Japanese bond market has improved; recent govt. long-term bond issue was oversubscribed 10 times, and officials plan to try a 4 1/2% coupon, first since the war, on the next flotation.

New South Wales Premier Lang introduces emergency income tax in State parliament to raise $30M with special tax of $1.25 per $5 on incomes over $50/week.

Youngstown district steel output to decline 2% to 39% this week.

Out of each dollar spent in chain stores in 1929, 80.6 cents were spent by the chains for the merchandise sold, and 18.2 cents for operating expenses, leaving 1.2 cents as profit (Harvard Business School estimate).

Company reports since Apr. 1: 239 companies reported higher earnings vs. 1930 and 823 lower; 1,146 dividends unchanged, 20 increased, 275 cut.

Companies reporting decent earnings: Collins & Aikman (pile fabrics, mainly for cars).

Report from Paris:

Latest French cause celebre is Texas Guinan, AKA “queen of the nightclubs” and her “bevy of pretty choristers.” [Note: Well, it sounds snappier than the Dreyfus affair ...] Her arrival in Paris was “anticipated by a fanfareof trumpets and a whirlwind of front-page publicity,” but she was unceremoniously turned back at the port of Havre by order of the French Minister of Labor. This has drawn attention to France's extremely strict controls on foreign labor, which are partly credited for its relatively low levels of unemployment. All foreigners staying more than two months are required to register with the police, who give them a carte d'identite; those working must also have a permis de travail; foreigners can be expelled without reason. The Labor ministry is particularly sensitive to foreign entertainers due to the “great distress which has endured for nearly three years among all classes of French artist - a distress sadly augmented by the talking film.”


Sweepstakes - an RKO-Pathe film, at the Mayfair. “Feeble attempt to dramatize life around the racetracks.” Hero is a lad of 21 who, under influence of a girl, signs a contract with her employer, a hotel proprietor with a more profitable sideline fixing races. After “throwing” a race, our hero is suspended from jockeydom and reduced to being a singing waiter in a Mexican cafe. His old trainer finds him there and, together with three bartenders at the cafe, buys the horse he used to win with back in the good old days. He refuses to ride again, until the girl who got him in trouble returns and convinces him to give it another try. Happy ending ensues.


'Say, I met a real optimist yesterday.' 'Was it the bird who believes the company isn't going to lay off any more men?' 'No, it's the fellow who got his leg cut off in a railroad accident and exclaimed - Thank God, it was the leg with the boil on it.'

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