July 24, 2010

Friday, July 24, 1931: Dow 142.63 +0.11 (0.1%)

Assorted historical stuff:

Interesting exchange between Francis Welch and T. Woodlock regarding Gov. Roosevelt's position on utility rates. Welch says Roosevelt recognizes the utilities may be entitled legally to higher rates based on reproduction cost, but that if utilities insist on "their full pound of legal flesh" they may be "committing financial suicide"; "there is a mightier court" than the Supreme Court - "the court of public opinion," and it may demand competition for the utilities even if public money is required. "The Governor has not indicated his disbelief in capitalistic society or private initiative. On the contrary, he would have capital train itself into better condition by reducing unnecessary profits and improving its relations with the public. ... Personally, I do not believe Gov. Roosevelt is a Red. I do not believe he is even blushing pink. I believe he has far more respect for capitalistic society than those who would stand idly by and see it commit suicide." Woodlock sets Welch straight in no uncertain terms: "how can a municipality enter into competition - fair competition - with the existing plant on any basis other than that of reproduction cost ... By what magic can it ... create a plant at a cost equal to the 'prudent unimpaired investment'?" [standard backed by Roosevelt, based on original investment]. The two also clash somewhat heatedly over whose side Pope Pius XI's recent encyclical supports.

"With all the tides of statistics which flow from Washington and seldom ebb," there is a lack of useful information on public works projects for unemployment relief. "Figures there are aplenty ... but there is too little light on the field as a whole." Pres. Hoover's Emergency Employment Committee reports contract awards for "public and semi-public construction" since Dec. 1, 1930 are over $2B; this sounds impressive but leaves unclear whether it's a gain or loss in construction volume compared to the previous year. Also unclear is whether the next 3 or 6 months will provide more or less construction jobs than were available last fall and winter. This information is particularly important before the next session of Congress, which can be expected to open with "demands ... from half a dozen quarters for the appropriation of billions to make work. The first test of the merits of such schemes, if they have merit, will lie in the present facts about the building industry ..."

Rep. Howard (D, Neb.) called on Pres. Hoover in effort to win backing for his plan for a five-year extension on payments of principal of all mortgages on homes of US citizens; under the plan, however, interest payments would have to be continued.

"Respect for debts among many wheat farmers has declined with distressingly low returns from grain. At some points in Oklahoma, which are largely affected by the oil credit situation, a state of moratorium has almost been reached." Oklahoma Gov. Murray declared moratorium on payments of 1930-31 rentals on 340,000 acres of farmland owned by state, affecting 2,120 farmers. Southwestern wheat movement to markets has declined to "subnormal proportions" for the season as result of farmers holding for better prices and postponing shipments to Aug. 1 when lower Western grain rates are scheduled to take effect.

Commerce Sec. Lamont, after meeting with Pres. Hoover, announced govt. is inviting coal miners and operators to a joint conference.

US marriages decreased 8.5% in 1930, while divorces decreased 4.2%.

French Colonial Exposition at Vincennes has received an average of 1M visitors a week since opening on May 6; number is increasing with warmer weather.

Canada will complete another milestone in progress this year when telephone lines of the 7 major Canadian systems will be linked. This will allow conversations between Eastern and Western Canada to be carried entirely over Canadian territory, at greater speed. Currently, a call from Montreal to Calgary is routed through Toronto and Windsor, through a submarine cable under the Detroit River, to Chicago, to Helena, Montana, and back across the border to Calgary.

New oil-burning locomotive tested by Canadian Pacific Rwy.; pulls load of 7,691 tons, or about three normal trains; weighs nearly 400 tons and is 100 feet long.

Thomas Young of Bound Brook, NJ became interested in growing orchids many years ago. This is a painstaking job; they require 6 to 8 years of careful coaxing to bring into bloom and must then be handled "like a sickly child." Young mastered the art, and for years has received $3 to $10 apiece for them; last year he sold 11,000 from his 33 greenhouses. He recently sold the business for over $1M.

Travel in Russia "is now regarded by the inhabitants as an exciting adventure." To buy a ticket, you stand in line for 12 to 24 hours, and this must be done at least 2 weeks before the trip. Two men sell tickets at different windows; one is for odd dates and one for even, so care must be taken to avoid getting into the wrong line and wasting an entire day. Once on the train, the adventure has just begun; there were over 15,000 breakdowns and wrecks reported on Soviet railroads in 1930.

Germany special:

London conference ended with agreement on the three-point US program (see yesterday - renewal of existing central bank credit for 3 months; "concerted measures" to maintain existing short-term foreign credits to Germany; BIS to set up committee without delay to examine further German credit needs). Participants in the conference expressed satisfaction that "real progress" had been made toward solving the German crisis and starting a new era of international cooperation. PM MacDonald, conference chair.: "We are very well pleased"; Sec. of State Stimson: "Mr. Mellon and I are very well satisfied"; Chancellor Breuning thanked the US delegation for "what it has done to help Germany" and stressed importance of cooperation and frequent meetings between France and Germany; Premier Laval emphasized good results of French-German conversations in Paris and also hoped for cooperation; Italian FM Grandi hoped conference would serve as start of new era for the whole world, and particularly of better relations within Europe.

London bankers were less positive on the conference, believing the only real result is notification to Germany that she can't count on further foreign aid and must rely on her own resources to overcome the crisis; provided the Germa govt. can remain stable, this could be done using methods similar to those used by the US in 1907. "The conference avoided all the vital issues for fear of unpleasantness and thus it was able to claim that the sessions were remarkably harmonious." "Foreign circles" also saw the conference as a stalemate producing "cheerful statements but few tangible results."

Bank of England raised discount rate 1% to 3 1/2%, higher than any other major central bank but the Reichsbank; observers believe action was made imperative by inconclusive conference results; money market rates rose sharply. Bank of England weekly statement reveals drastic deterioration in the Bank's position. Gold holdings dropped 15.1M pounds sterling in the week, to about 150M or the "Cunliffe minimum," and the Bank has lost about 5M since. The Bank purchased 4.3M of govt. and 1.8M of other securities in effort to combat withdrawals of foreign balances; its reserve ratio dropped to 49.3% from 57.2%. [Note: pretty rough week ...] "How long this will continue is problematical." Bank of France statement showed contrasting trend, as gold holdings increased 419M francs and money in circulation fell 230M. Irish Bank rate raised 1% to 4 1/2%. Bank of Austria raised discount rate 2 1/2% to 10%.

Sterling rose after the Bank of England rate hike but remained below the gold export points. A large gold shipment valued at $4.3M arrived by airplane from London to Paris Wed. evening. S. American currencies were pressured.

One "cheering feature" of the foreign situation was defeat of a joint Nazi-Nationalist-Communist-Landvolk motion to convene the Reichstag immediately. This gave Chancellor Breuning "a further breathing space in which to work for Germany's improvement"; Breuning's retention seen as "essential to European stability."

Leading NY banks stress they have signed no written agreement on maintaining short-term German loans, but that this is a day-to-day working policy also adopted in other financial centers; "in some quarters the ... plan is characterized as ... a course of action which sound bankers had already adopted." NY banks don't contemplate additional credits to Germany, pointing out they would have to be short-term and this would only increase the worry about withdrawal of these credits.

German restrictions on bank withdrawals were relaxed slightly, to 10% of deposits up to 200 marks per day. Germany bought a substantial amount of silver in the US market Thursday for the first time in years, possibly due to announced intention of German govt. to coin silver marks. Britain reportedly plans to extend credit to India, making further silver sales to meet Indian demand for sterling unnecessary. Hungary extended July 16 emergency banking restrictions to July 30.

German unemployed July 15 were 3.956M, down 6,000 from June 30.

Treasury Sec. Mellon will resume his vacation in France which was interrupted by White House request.

Dueling analyses:

Washington report: It's hoped and believed “that the more pressing aspects of the German financial crisis have been met by the decisions of the London conference.” Negotiations on a final settlement were postponed “until a more favorable time. During the period of postponement, certain fundamentals, which are now obscured by ... technicalities, may become plainer than they are.” Premature to say what form final settlement might take, but readjustment of entire intergovt. debt structure is believed essential. Readjustment of German bonds might involve a haircut to a new total within current German capacity to pay, followed by creation of new bonds to capitalize those payments that could be sold to investors, removing political aspect of the debts.

Berlin report: Current crisis came not because of “Hitler politics” but as a reaction to the Creditanstalt collapse; German capital was scared by this failure, but foreign banks, particularly US and British, also began immediate withdrawal of short-term funds; rumors of German bank instability and “inordinate” length of US-French discussions to settle Hoover moratorium plan made matters worse. “No real improvement is looked for until further very heavy foreign credits are obtained. Estimates of the immediate needs run from $150M to $500M”; European opinion generally holds the US must supply most of the funds. “It is generally felt that while the situation is serious, it is by no means irreparable and that, with one further generous credit grant from abroad, confidence will be restored.”

Market commentary:

Market wrap: Stocks absorbed considerable selling early after announcement of Bank of England rate hike. Trading then slowed, and price movements turned narrow. A slightly firmer tone developed around 11 o'clock, and the recovery extended in early afternoon; majors generally reclaimed earlier losses, but trading remained limited. Bond trading featured declines in the foreign list; German issues were under moderate pressure; other Europeans were lightly traded with highest-grade steady but speculative weaker; S. American bonds suffered general decline, with liquidation in Argentine, Brazilian, Chilean and Colombian issues. Domestic bonds were narrowly lower. Commodities mixed; grains narrowly lower; cotton moderately higher. Copper buying small; price 7 3/4 - 8 cents.

Conservative observers remain cautious, favoring sidelines and stop orders to protect long positions; advise against buying even on setbacks.

Early selling attributed to disappointment over results of London conference, particularly failure to produce definite solution for Germany's credit problems. Encouraging afternoon news items included rally in sterling and increase in Youngstown steel rate.

Major bear operators reportedly maintaining positions, being inclined neither to cover nor put more shares out. "They express confidence that eventually the market again will reflect business conditions in this country." With little prospect of business improvement in the fall, see no great incentive to take in short positions.

"Better buying" reported recently in some of the leading bank shares.

US Steel expected to show nominal profit in Q2, pushing dividend questions to the forefront. Strong GM performance in first-half attributed to extensive gains in market share; retail sales were only 2.5% under 1930 vs. a decline of about 27% by the industry as a whole; co. has also tightly controlled operating expenses. Sears - Montgomery Ward merger rumors continue. Rumors are circulating widely of Drug Inc. expansion by acquisition of more companies. Brown Shoe strong; plants are operating about 95% and co. plans new girls' footwear line. Paramount fell after announcement management was considering paying dividends in stock instead of cash.

Economists expect no substantial improvement for commodity prices until "European and domestic affairs have improved."

Robert C. Lee of Moore & McCormack (ship operators) urges US-Russian trade, saying Russia presents greatest future possibility for US products in the world.

Martin J. Insull, Middle West Utilities pres., says German crisis has "completely overshadowed sharply defined improvement in the domestic industrial situation," citing "substantial improvement in the nation's kilowatt-hour consumption as definite evidence of business upturn."

Economic news and individual company reports:

Census Bureau reports total value of US farm lands and buildings fell to $47.9B in 1930 from $66.3B in 1920; number of farms fell to 6.289M from 6.448M; total acreage increased to 986.8M from 955.9M. Editorial: "Rapid inflation" of farmland prices "induced by war-boom prices" and subsequent deflation had the same effect on farmers as "a stock market crash would have on thinly margined speculators who had bought at or near the top ... Foreclosures must be the inevitable result ..., making it necessary for ... mortgage companies to operate many farms; they are finding that a sort of centralized operation under a competent management is the most profitable way in which they can operate a block of such lands until ... they can be sold to real farmers." Some regard increase in tenant farming as negative; however, "the Southern system is largely one of letting out small parcels of land" to black farmers "on a share basis, the owner furnishing the land and supplies and working hard to make the former do his work." In other parts of the country tenant farming allows young men without sufficient capital to get a start on becoming owners. One hopeful sign, considering "all that agriculture has gone through since 1914," is that half of farms are free of mortgages and owner-operated.

ICC advances date for resuming 15% rail rate increase hearings to Aug. 10; says requests for time at hearings have already exceeded practical limits; parties admonished to present evidence as concisely as possible. J. Scott, Kansas RR Commission chair., says rate question represents struggle between industrial East and agricultural West; rate hike would raise farmer's cost of shipping while farm product prices would remain the same. Rate experts from railroad commissions of 11 Western states plan organized opposition.

A. Legge, Int'l. Harvester pres., verifies report that many company dealers are accepting wheat as partial payment for some machinery, on basis of 75 cents/bushel for Dec. delivery.

US cigarette production in first half hit new record of 59.433B, 7M above 1930. Five-cent cigars grew to 70% of total cigar production in June vs. 58% in 1930.

After two failed attempts to sell $20M in NJ highway bonds, the sale has reportedly been postponed to Sept. in hopes of getting a better rate then. Steady progress reported in unraveling "tangled finances" of North Bergen, NJ under supervision of the recently created Municipal Finance Commission of NJ.

Money in circulation July 22 was down $16M to $4.792B, total Reserve Bank credit outstanding down $9M to $942M. Member banks in NY City report brokers' loans down $14M to $1.416B; loans on securities to non-brokers down $24M to $1.679B.

Texas Corp. matches Continental oil price hikes to 35-40 cents/barrel from 10-22 cents, extending the increases from midcontinent fields to West Texas. R. Holmes, Texas Corp. pres., testifying to the Texas House oil investigation, blames antitrust laws for depressed condition of oil and other industries. East Texas oil development continues with no signs of let-up; past week saw a record 135 drilling permits issued.

Youngstown district steel production now operating at 37%, an increase of 3% from the level starting the week.

Dow average of 8 iron and steel products fell $.27 to $43.98. Scrap markets improved at Pittsburgh, unchanged elsewhere.

Northern France textile strike "practically ended"; half the original 1.2M strikers have returned to work, accepting compromise offered by Premier Laval of 3% wage cut; mills expect almost all workers to return by Monday; outcome considered victory for mill owners.

S. Untermeyer charges BMT earnings report showing record profits was exaggerated in order to raise price for company in NY City transit unification; says report conceals substantial losses from elevated lines.

US exports of radio receivers in first 5 months were $5.191M, up 57% from 1930.

Diamond Match [Kreuger-associated] initiates dividend on new no-par common stock at $1 annual rate.

Montgomery-Ward swung to a small profit in Q2 from losses in Q1 and Q2 of 1930.

Chrysler balance sheet substantially strengthened in first half; net current assets increased from $62.6M to $72.8M; cash rose from $41.6M to $55.3M.

Earnings reports: Chrysler Q2 $.73/share vs. $.73; half $.51 vs. $.77. Brown Shoe 6 months ended April $1.72/share vs. $1.83. Butterick Q2 $1.36/share vs. $1.66; half $2.23 vs. $2.04. United-Carr Fastener Q2 $.29/share vs. $.27; half $.30 vs. $.18. Standard Cap & Seal half $1.63/share vs. $1.79. Mapes Consol. Mfg. half $4.78 vs. $4.66. Purity Bakeries Q2 $.70/share vs. $1.45; half $1.48 vs. $3.00. Loose-Wiles Biscuit Q2 $.88/share vs. $.75; half $1.70 vs. $1.73.

Companies reporting decent earnings: Brown Shoe, Butterick, United-Carr Fastener, Standard Cap & Seal, Mapes Consol. Mfg. (egg cartons), Loose-Wiles Biscuit.


"How much are eggs?" "Fifty cents a dozen, thirty cents for cracked ones." "Good - crack me a dozen."

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