July 23, 2010

Thursday, July 23, 1931: Dow 142.52 -4.18 (2.8%)

Assorted historical stuff:

Nikola Tesla, on the occasion of his 75th birthday, looks back on his previous achievements including alternating current and "the wireless." However, "what I have in the past done I am now surpassing. The world is about to have machines that ... will attain speeds of around a mile a second [note: about Mach 5 or 6] through the rarefied medium above the stratosphere." Foresees time "not too distant" when wars will be carried out without a single soldier crossing the border; "at this very time it is possible to construct such infernal machines which will carry any desired quantity of poisoned gases and explosives, launch them against a target thousands of miles away, and destroy a whole city." This is likely to be the future of war if it's not done away with because "it is the most economical means of inflicting injury and striking terror ... that has ever been imagined. Densely populated countries, like England and Japan, will be at a great disadvantage" as compared with the US and Russia. George Westinghouse, Tesla's closest US business associate, says Tesla gives his company an edge over competitors: "What talent have they to match our Tesla? Erratic? I'll say he is. Creative? Since the Garden of Eden there's nothing beyond him!"

Interesting letter from reader proposing converting all German foreign govt. debt into 3% bonds guaranteed by the US, Britain and France that would then be freely convertible back and forth to an international currency with a fixed value vs. dollars, pounds, francs and marks. Believes Germany would then not need to pay interest since all the bonds would be converted to currency. "Gold and silver as money belong to the times of Abraham and not to our day ... You will note that this feeling is shared by some very prominent men in England. Write something to wake our leaders up. One-third of the population affected by unemployment ... Every debt ... has been increased 50%. The rich are not getting richer and the poor poorer; every person is getting poorer. ... Poverty and want in a country of plenty. Can you blame men for wanting a change?"

Sen. C. Glass says Senate subcommittee on banking won't investigate Fed. Reserve regarding bank failures in their jurisdiction.

Editorial calling the US Ambassador to Mexico to task for his recent "utterly ridiculous, ill-advised" statement that the US and Mexico were on the verge of war two years ago. [Note: don't know if this was actually the case.] Statement will have mischievous effect since "Mexicans have an inherited fear and suspicion of the US, the 'Colossus of the North.' Often their politicians represent this Govt. as an ogre waiting a favorable opportunity to devour them." It's important the US govt. disarm these fears not only on the part of Mexicans but all other S. Americans, and "win their trust and friendship. Ours is a different temperament and psychology from theirs, but that does not imply that we are thinking in terms of war and conquest when talking in terms of business."

Argentine govt. forces reportedly have lost a hundred men in battle with the rebels in Corrientes; 30 planes arrived to bombard the city. Argentine Pres. Uriburu declares revolt "of no importance." Buenos Aires and other parts of republic reported calm.

Serious riots took place in Santiago as Chile's third cabinet in less than two weeks was sworn in at 1:00 a.m. today; demonstrators sought to dissuade members of the new cabinet from accepting posts in the govt. of Francisco Gana by throwing stones at their houses. "Chile had been free from political turmoil until recently" when its foreign exchange position made it impossible to service debts, precipitating the govt. crisis.

In 1899, Paris had 12,017 horsedrawn cabs available to the public, and 4 of the newfangled motor taxicabs; now, it has 19,750 motor and 5 horsedrawn cabs.

NY City Board of Trade approves most expensive of three sewage disposal plans, to cost $377.9M and provide for 92.4% purification.

German titles of nobility have been abolished in the German republic. Confusingly, a court has now decided that the "von" indicating nobility can no longer be dropped from a name without legal procedure; "Nobility having been wiped out by the war, the syllable 'von' can no longer indicate nobility, because there exists no nobility. It is now an inherent part of the name proper." Republicans suspect the court is trying to preserve signs of the old monarchist regime.

Prof. A. Einstein, "of relativity fame," asked by a German newspaper to contribute to a collection of one-sentence philosophies: "The true value of a man is assessable by how far and in what sense he has succeeded in achieving freedom for himself."

Germany special:

Despite slow progress at the London conference, nervousness in Berlin “is diminishing as the general belief is that the worst days have been passed. ... Bank offices are again empty of unusual crowds.” However, “various financial decrees confuse German banks.” Bankers expressed satisfaction over voluntary extension of short-term credits but believed a more definite arrangement was needed since there's no prospect of a new international loan in the near future; it's believed such a loan will eventually be necessary, if only to consolidate short-term debts of local govts. estimated at 1.5B marks. German decree provides for issue of 500M silver and 100M copper marks to relieve currency shortage.

Finance ministers meeting in London have reportedly agreed on plan for German relief including: govts. to recommend central banks use all possible means to prevent withdrawal of short-term credits; formation of committee to examine further short-term credits and possibility of converting credits from short-term to long-term; and 3-month renewal of previous $100M central bank credit. The Belgians argued that the French proposal for a long-term loan was the only worthwhile one, but had been abandoned, while the US plan was superfluous because banks were already maintaining credits. An effort to direct the conference “toward investigating fundamental causes of the German crisis failed because it was felt such inquiry would take too long.” Sec. of State Stimson said conference was making progress; “it is not hopeless but it may finish tomorrow”; situation difficult but discussions friendly. An international advisory committee of bankers is leaving for Berlin “to help Germany restore its financial credit.”

Editorial: Pres. Hoover's proposal for freezing short-term loans indefinitely through govt. pressure on banks in all countries has "been received with some reserve in American banking quarters." However, there may be no alternative; it would be unacceptable to have a renewed exodus of capital the moment Germany relaxes its emergency controls. Although information from London is sparse, the French proposal of a new large long-term loan to Germany secured by "political and financial guarantees" appears to be fizzling. Unless confidence can be restored, new loans would be "pouring water into a sieve"; restoring confidence will be impossible if further political or financial concessions are demanded that seriously threaten the German govt. "At the appropriate moment, no doubt, Premier Laval will yield ground sufficiently to permit of agreement upon some plan of salvage, more or less along the lines of the Washington proposal." This will only be a start, "but a first step must be taken, and that without much longer delay."

Bank of England's heavy gold losses continued, with 3.5M pounds sterling sent to Europe. Since last Thursday, Bank of England has lost 15.2M, all to Europe (and most to France); it's now close to the so-called Cunliffe minimum of 150M. Sterling fell sharply, and London bankers expected further heavy gold losses this week. However, the money market apparently believes the Bank of England won't raise its discount rate. Of course, much depends on results of the London conference; a successful finish to the negotiations would likely end the Bank's problems, but failure would increase the flow of funds from London and make measures to protect the gold reserve inevitable.

Stocks in London and Paris were heavy on "growing belief that the London conference was unlikely to produce definite results." Many market observers seemed disappointed by delays in settling the German situation, maintaining each day a settlement is held up "takes away some of the potential bullish influence."

Market commentary:

Market wrap: Stocks opened weakly on apparent disappointment over developments at the London conference. After initial setbacks, trading turned dull and narrow. Decline picked up again briefly around noon, and again in the late afternoon; leaders including Steel and American Can hit new lows and the market was heavy in the final dealings. Bond trading somewhat more active, featuring sharp declines in German section; other foreign issues were weak. Domestic bonds, including both high-grade and speculative, were unsettled with the dominant trend slightly lower. Commodities soft; grains narrowly mixed; cotton again down sharply. Copper again became available at record low of 7 3/4 cents after small sales were made at 8. Silver down 1/8 cent to 27 3/4.

Conservative observers remain cautious; continue to advise sidelines "until something definite happens to affect the market."

Some market interests are carefully studying domestic business conditions, believing the market will be governed by fall developments in general business once the effect of the European situation has passed. It's believed fall buying will be smaller and later than usual, since consumers are more cautious than ever and the price structure remains uncertain. Steel interests are trying to strengthen and hold price quotations, and the outcome of this effort will be of great interest.

Technical traders were holding off on commitments as the market was seen at a "crucial point"; ability to cross the July 10 high of 146.70 would "convey bullish implications" while inability to overcome resistance there would give an unfavorable signal.

US Steel dividend prospects will draw great interest until the directors' meeting Tuesday; many traders have stepped out of the market entirely until the decision; "no intimation has come from responsible quarters as to what action will be taken." Earnings for Q2 will likely be poor, justifying a cut; many expect the annual payout to be cut from $7 to $5. Bulls believe directors may take the "courageous move" of maintaining the rate, which would be possible because of strong financial position. Goodyear was sold on expectation of poor earnings. Kroger Grocery continued recent advance after strong first half earnings report.

National Biscuit earnings somewhat lower in Q2 due to "slowing up in the sales of higher-priced fancy crackers." Coty sales have fallen off sharply as customers of cosmetics and perfume have switched to lower-priced and less well-known brands.

The past decade has produced plenty of excitement for traders in crude rubber, along with plenty of grief for the far-flung producers of this "commodity which has a larger number of physical properties and a larger variety of uses than any other raw material." Experts "see no severe price fluctuations ahead, but are often wrong." In particular, attempts to predict tire demand have been wildly off; a year ago, 1930 production was estimated at 78M but it wound up at 51M.

NY Trust Co. says rising costs of govt. at all levels "proving a serious obstacle to the restoration of economic prosperity." Point out high costs of US military spending and veterans' pensions, which together cost much more than all other Federal govt. functions put together.

Economic news and individual company reports:

Trial of lawsuit against Gillette directors saw some interesting legal argumentation. E. McLennen, defense counsel, defending against charges of incorrect figures in annual reports argued that "what was reported to stockholders is of no value, for the corporation was not hurt by what was reported to stockholders and this is a suit by the corporation, if it is a suit at all." D. Hall, for the plaintiff, pronounced this argument "ingenious but unsound ... Those reports that were issued to stockholders were the only basis upon which the stockholders and the public had to value the stock of the company." Directors, using the reports, "created an illusory price. If the public had known the truth, the stock would not have sold at anything like the high levels it reached." W. Thompson, also for the plaintiff, said that while the company's bookkeeping may have been honest up to 1924, it became dishonest after that date and got progressively worse until "finally the company was behind to the extent of over $10M"; charged that directors ignored reports of auditors.

Leading Chicago wholesalers report good buying from stores in rural districts, many of which are optimistic due to good current or expected crop yields; crop conditions have been favorable over most of the country, except the Northwest where drought still prevails.

Weekly steel reviews report sentiment moderately stronger in spite of further fall in output during week (however, another report says US Steel will maintain its output rate this week). Industry now expects current output level to be maintained through August with an upturn in Sept., though attaining even a 50% output by fall would be considered a noteworthy achievement. Success of industry efforts to stabilize prices difficult to judge since demand is so low. Scrap prices continue to strengthen. Canning operations have tapered off somewhat from early July though this is normally the peak season; tin plate mills have reduced output to 60% from 65%; one factor has been decision of California peach growers to limit pack to 9M cases and raise a fund to buy up the 8M case surplus and uproot trees.

Rail freight loadings for week ended July 11 were 763,581, up 95,702 from prev. holiday week, down 16.6% from 1930 week, and down 28.3% from 1929.

Editorial by T. Woodlock: Gravity of rail credit crisis is clear from a simple look at the bond list; many even among the rail "aristocrats" will be removed from the legal list due to lower earnings. Rail position that they now wish to raise rates across the board even though in past months they've requested ICC permission to lower rates on various commodities to meet highway competition has "a certain superficial inconsistency but also a certain elemental logic."

US electric output for week ended July 18 was 1,667 GWHr, down 1.6% from 1930, vs. a 0.3% rise prev. week and a 2.8% decline two weeks ago.

Oklahoma City oil wells continued to be closed in, with production down to 114,000 barrels from 251,000 before shutdowns started; further price increases seen possible; operators in Oklahoma City said to want price of $1/barrel. Texas House and Senate continued their parallel investigations of the oil industry. Prices paid for East Texas oil in past week averaged 13.8 cents/barrel, down 2.4 cents. Amer. Petroleum Inst. estimates increase of 3.7% in US demand for gasoline in second half of 1931 vs. 1930 and decline of 2.4% in total crude oil demand; warns refineries against entering 1932 with a "ruinous surplus of gasoline" as in 1931. Standard Oil of NY - Vacuum Oil merger seems assured based on proxy voting so far.

GM performance for Q2 even stronger than it first appears; income excluding nonrecurring item in 1930 rose to $1.22 from $1.17; cash position rose to $246M vs. $176M a year ago and $179M at start of the year, and working capital showed similar increases.

Earnings reports: GM Q2 $1.22/share vs. $1.34; half $1.83 vs. $2.32. Procter & Gamble year ended June $3.37/share vs. $3.37. Abbott Laboratories half $1.80/share vs. $1.83. Brillo Mfg. Q2 $.44/share vs. $.19; half $.83 vs. $.38. Anchor Cap Q2 $.88/share vs. $1.28; half $1.49 vs. $2.04. General Gas & Elec. year ended June $.40/share vs. $.54. Nat'l Cash Register Q2 $.72/share vs. $.65; half $.41 vs. $1.41. Household Finance Q2 $1.55/share vs. $1.18; half $3.01 vs. $2.56. Century Ribbon Mills Q2 $.44/share vs. $.17; half $.60 vs. $.10. Bickford's half $1.10 vs. $1.05. Deisel-Wemmer Gilbert Q2 $.59/share vs. $.70; half $1.11 vs. $1.20.

Companies reporting decent earnings: Procter & Gamble, Abbott Laboratories, Brillo Mfg., Household Finance, Century Ribbon Mills (benefiting from return of ribbons in women's wear), Bickford's (low priced restaurants).

Theatre report:

Theatre has suffered more than the usual seasonal decline this year, with only 12 venues occupied last week, 11 less than the low point in 1929. However, activity seems about to swing upward again. Rumors on upcoming Broadway productions include Whistler, based "more or less," on the life of the painter; Lord and Lady Byron, written by Michael Strange, who will play both parts; an adaptation of Sholom Aleichem's Yiddish play If I Were You by the author's granddaughter Tamara Berkowitz; and many others. Jed Harris' office is particularly active, with a black play, an Irish play, and two American plays "definitely in prospect," one of the American plays being Twentieth Century by Ben Hecht and Charles MacArthur. With some 30 summer colony theatres in full swing in NY and New England resorts, many featuring Broadway veterans, actors should be sufficiently tanned and rested by fall.


Old-Dashioned Visitor - My dear, don't you ever nurse your darling little baby boy? Modern Mother - No, it's so very difficult; I'm always afraid of my cigarette ashes falling in his eyes.

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