July 10, 2010

Friday, July 10, 1931: Dow 144.91 +1.08 (0.8%)

Assorted historical stuff:

Former Sec. of State B. Colby says Hoover moratorium plan is "belated recognition of our inextricable involvement in the world situation"; says plan can't succeed with only temporary and limited relief for Germany; calls Young Plan "dead as Caesar." Editorial suggesting "the long habit of American political thought is incompatible with the new role of the US as world creditor" and that an approach more oriented to international cooperation and free trade may be called for, as advocated by Sir George Paish ("The Way to Recovery") and Paul Mazur (" America Looks Abroad"). Sees sign that this approach has begun to catch on in the prompt and ungrudging support for Hoover plan from both sides of the party line. Treasury Sec. Mellon's cold much relieved after day at Cap Ferrat.

Editorial by T. Woodlock on proposals for Fed. Reserve to increase supply of credit by purchase of govt. bonds, with object of increasing prices of commodities and second grade bonds. "Highly respectable authority" has come down on both sides of the idea. Notes problem that prices at this time seem to be dictated by "abnormal ... lack of confidence ... This being so, a merely physical impulse from ... the Federal Reserve ... would meet 'metaphysical' resistance." Points to Federal deficit spending and veterans' bonus payments this year with little visible result. However, allows that the idea might be worth a try, particularly since Hoover Plan has increased general confidence. In any case, "we are certainly not yet ready for 'managed' currencies however appealing may be the theory ..."

An international meteorological conference will be held this year in Havana to seek improved methods of predicting hurricane formation and movements; the US Weather Bureau will attend. Hurricanes have caused "excessive damage" to life and property in the "West Indies" [Carribean] and the US Gulf Coast in recent years; some US insurance cos. refuse to write windstorm policies on Florida coastal property.

British Columbia plans to plant over 800,000 seedling fir trees to reforest areas along the coast, though the province has 8.5M acres in timber reserves.

French wine industry in desperate straits. Trouble apparently started in 1927, when “artificial price measures” raised wine prices; “many thrifty Frenchmen ... cut down sharply on their wine quotas,” and lighter drinks gained popularity. Since that time, there have been 10 decrees and laws attempting to bring prosperity back; this is now culminating in an “amazing” law working its way through Parliament that would: tax new vineyards out of existence, tax those producing extra heavy crops on a steep sliding scale, and provide for govt. control of wine shupments by all growers when oversupply threatens. With most French still living on farms, “farmer protection” is a standard plank in political platforms, and “each succeeding govt. adds a new list of protectionist measures to the already crammed folio.”

Dr. H. Eckener says will delay plans for trans-Atlantic zeppelin service for one year due to unfavorable economic situation.

Actuarial Society says chance of death to passenger on scheduled airplane flight in 1930 was one in 17,000 vs. one in 10,000 in 1929 and one in 4,000 in 1928.

William "Coin" Harvey is coming out of retirement to form a new national party. During the dramatic 1896 contest between McKinley and William Jennings Bryan, Harvey was about as well known as the two candidates, gaining his nickname after the runaway success of his book ["Coin's Financial School"] promoting the Bryan position of free coinage of silver at a ratio of 16:1 to gold.

Since opening of the Panama Canal in 1914, about 65,000 vessels carrying 300M tons of cargo and paying over $250M in tolls have passed through.

Oldest operating race track in the US is at Lexington; next is Saratoga, providing you include the "little Horse Haven track across Union Avenue"; otherwise it's Pimlico.

Market commentary:

Market wrap: Stocks fluctuated through a rather dull, professional session, possibly reflecting "perplexities in the foreign situation." Opening was weak, but declines were checked after early selling. Trading turned very dull, but moderate rallying set in, lifting market to a small gain by noon. Activity picked up slightly as bears resumed operations in early afternoon, but selling dried up abruptly and a brisk rally developed in late afternoon; closing tone was better. Bond trading featured "disturbing breaks" in German issues with weakness extending to weaker European and S. American bonds. US govts. and high-grade corp. issues were firm; some speculative issues rallied along with stocks but many continued to reflect a lack of demand. Commodities weak; wheat again fell substantially to new season and post-1895 lows, while other grains were soft; cotton fell sharply on weather reports and "absence of support from any particular source of importance." Copper remained at 8 cents with buying small and producers holding at 8 1/2; price outlook seen weak due to current overproduction. Silver down 1/4 cent to 28 3/8.

Conservative observers continue to advise sidelines, stop-loss orders to protect accounts, and against shorting.

Short interest has reportedly increased in the past few sessions. Even the usually volatile Auburn Automobile failed to stir up excitement with its bang-up earnings report of $11.05/share for the quarter ended May 31. Diamond Match [Kreuger-associated] has been subject of increased activity on rumors dividends may be initiated on the common stock. American Tobacco (makers of Lucky Strikes) sales have been increasing so rapidly this year that a dividend increase is believed almost certain before year-end.

Bears may have been restrained by firm tone in rails yesterday and late Wednesday. Action of rails in past two years has frequently predicted movement of the general list; rails have also entered a period where they can expect seasonally improved earnings. Car loadings have shown an improving trend; for the week of June 27 declines of 18.9% and 30.7% from previous two years were the lowest since the June 6 week; increase of 20,174 cars from previous week was an improvement over the gain of 16,045 reported in 1930.

Technical observers with a "long-range view" who are still somewhat optimistic now expect the reaction may continue until at least half the ground gained in June is lost; there could then be a period of accumulation laying the ground for a fall rally, "providing, of course, signs of better business conditions appear later in the year."

British capitalists have reportedly been heavily buying second-grade US bonds for their attractive yields and possible price appreciation.

Universal Trust Shares, a "semi-rigid" investment trust [similar to ETF's], which holds 30 "blue-chip" stocks, has an interesting feature by which any trust shareholder can apply for elimination of any stock or stocks in the portfolio and substitution of others; requests are decided on by three independent investment counsel, and other shareholders can decide whether to also switch or keep their existing shares.

Editorial: Govt. report on cotton acreage reveals "how flat the Farm Board has fallen in its efforts to improve the condition of the cotton farmer"; it has concentrated efforts on reducing acreage, but the 10% cut shown was less than usually happens when prices become very low. Barring bad weather, it looks like total supply of cotton will be about 22M bales, or 10% over last year and a record high excepting the 1926-27 season.

While admitting the debt moratium is "highly constructive, many conservatives in the financial district say that other developments are necessary before a substantial improvement in business" in the US, pointing particularly to large supplies of copper, oil, wheat, and other commodities which must be disposed of. This will require "material improvement in general business ... but at the moment no one is willing to predict when it will be accomplished."

Sir Charles Gordon, Bank of Montreal pres., sees general business improvement in Britain; says conditions not as bad as in the US.

Slow motion s**t hitting the fan dept.:

Dr. Hans Luther, Reichsbank pres., left London for Paris after meeting Gov. Norman of the Bank of England; officials were reluctant to comment but it's believed negotiations are in progress for a loan to the Reichsbank by central banks together with a syndicate of private banks. German govt. reportedly won't agree to foreign political demands as basis for the “urgently needed” new loan, including giving up Austrian customs union or construction of second “pocket battleship.” “The Reichsbank and other German banks are determined to prevent any German banking collapse and it is believed they will be able to avert trouble of this nature. Financial circles hold that the most difficult moments already have been passed.” German capital flight rose to 50M marks from 25M on Wednesday. Nordwolle [large German wool firm] reportedly needs about 50M marks in new credit to survive; Reich will probably grant credit to avoid insolvency, but require creditors to renounce 40% of claims. In all 37 banks are involved, 14 in London.

Austrian issue of 150M schillings in Treasury bills is still pending, with Bank of England renewing credit week-to-week; French bankers reluctant to participate until German situation is clearer. Bank of England and Bank of France considering Hungarian Treasury issue of 5M pounds sterling to relieve Treasury deficits and foreign credit withdrawals; some observers doubt this will suffice. Bank of Spain, together with private banks, are coming to the aid of banks in trouble. Bank of Cataluna suspension followed by those of two affiliated banks. Barcelona Stock exchange was closed temporarily, but "banking leaders assured the public that the difficulties would soon be under control." Finance Ministry reiterated necessity of a plan for stabilization of Spain's currency at value below par, noting importance of "abandoning the illusion still maintained by many that our peseta can reach a value par with gold coin"; blamed currency weakness on errors of the monarchy.

Uruguay's provisional govt. will advance funds to city of Cordoba to prevent default on two city loans of $6M and $11M held by NY bankers.

City of Chicago and school system still owe $38.7M from 1929 loans.

Economic news and individual company reports:

Union Oil of California Q2 earnings report gives disturbing indication for the industry; one of the leading integrated oil companies on the West Coast, it showed net profit of 2 cents/share vs. 59 cents in 1930; first half 43 cents vs. $1.20; "other companies ... in the same territory have probably fared no better and the smaller organizations have done considerably worse." East Texas oil price cuts were extended to rest of Texas, Oklahoma and Kansas. Texas Gov. Sterling called special session of legislature for July 14 to tackle oil and gas situation. Gasoline in the Chicago wholesale market firmed to 2 3/4 - 3 cents in spite of crude oil price cuts. Retail gasoline cut 1/2 cent in Detroit. Texas district court rules railroads can't drill oil wells on their rights of way, overturning Texas RR Commission; affects Texas & Pacific and Missouri Pacific RR.

Nat'l Auto. Chamber of Commerce estimates June production in US and Canada at 254,760 cars and trucks vs. 327,853 in May and 349,596 in June 1930; first half 1.633M vs. 2.309M.

Nat'l Assoc. of Real Estate Boards says few US cities are overbuilt; of 381 representative cities throughout the US, 49% report their market the same as or more active than this time last year; 72% of cities report supply of single-family residences about equal to demand, 17% a shortage, and only 11% an oversupply.

Money in circulation July 8 was down $6M to $4.834B, total Reserve Bank credit outstanding up $10M to $960M. Member banks in NY City report brokers' loans down $24M to $1.455B; loans on securities to non-brokers down $20M to $1.713B.

Corporate financing (domestic and foreign, including refunding) in June was $280.3M vs. $392.9M in May and $557.4M in June 1930; almost all of the total ($244.8M) was by public utilities.

Dow average of 8 iron and steel products held at $44.25. Scrap markets continued to show firmness.

Coal operators conferred with Commerce Sec. Lamont and Labor Sec. Doak seeking solutions for problems confronting the industry.

US internal revenue collections for year ended June 30 were $2.428B vs. $3.040B; NY State contributed $615M, down $257M. only states showing increase from previous year were Virginia and Colorado.

US Post Office reports June postal receipts in 58 cities were 5.41% below 1930, an improvement from the year-over-year drop of 11.24% in May.

Commerce Dept. reports conditions in British cotton industry improved slightly in latter part of June.

Farm Board rejects Russian offer to buy cotton on credit. US govt. circles expressed concern that British extension of credit to Russia could hit US exporters. Germany is currently by far the most important source of credit to Russia, offering $125M-$150M; a total of 9 countries now guarantee their manufacturers on Russian orders. Russia is now reportedly offering effective competition to British and Japanese cotton prints in Chinese textile market.

Discussions on curtailment of copper output end without action. Cartel of foreign lead producers agrees to additional 5% cut in output, on top of 15% cut two months ago.

Threatened crisis in French coal industry averted as result of drastic action taken by Premier Laval; production will be reduced 10% and import licenses cut.

Charitable gifts in five main cities of the US in the first half of 1931 were $188M, of which $27M was for "organized relief work." NY City led with $155M.

New Montgomery-Ward fall and winter catalog will carry price cuts averaging more than 10% below the spring and summer catalog.

Fox Film earnings have fallen below dividend requirements so far this year. Continental Can reports substantial recent improvement in sales, with June shipments exceeding the 1930 month. Western Union operating income in May was $994,813 vs. $825,914 in 1930.

Drug Inc. stock about 74; annual div. $4 (yield over 5%); sales running about 10% ahead of last year, and some expect earnings to exceed the record $6.90/share in 1929; balance sheet very strong. White Rock stock about 39; annual div. $4 (yield over 10%), also paid extra 50 cent dividend Apr. 1; earnings in 1930 were $4.78/share vs. $4.42 in 1929. Sales slowed earlier in the year with first half net estimated at $2/share. However, business has improved recently; June profits were close to a record, and July so far is running 10% ahead of 1930.

Companies reporting decent earnings: Corno Mills, Lindsay Light.


The Mystery of Life - "Clarence Darrow, noted criminal lawyer and homespun philosopher," and Zoologist H. Parshley "discourse amiably on the screen about the theory of evolution, between shots from old Ufa nature films." Film is "poorly put together and is a total loss as cinema entertainment." Parshley "lectures in the dull professional manner not unknown to freshman college courses in science, and Mr. Darrow interrupts him at occasional intervals to interject a facetious remark or a pessimistic observation concerning the lot of human beings ..."


Minister - Where's your father? Little Willie - Pa ain't home. He went over to the golf club. Minister - On a Sunday?? Little Willie - Oh, he ain't gonna play any golf. He just went over for a few highballs and a little stud poker.

Young Wife - Going out again? Two years ago you said I was your whole world. Husband - Well it's surprising how much geography you can learn in two years ...

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