July 30, 2010

Thursday, July 30, 1931: Dow 136.19 -5.34 (3.8%)

Assorted historical stuff:

Editorial: Recent reports from the Northwest indicate a serious situation is rapidly developing; drought, heat, and grasshoppers are combining to cause partial, and in some locations, complete crop failure. Western half of the Dakotas was already in bad condition, but Eastern half and much of Minnesota had previously been in better shape; now, extreme heat is changing the picture. Damage also reported in Nebraska and Iowa; situation in Canada similar and possibly even more severe. Regions involved will suffer grave losses. Crops including spring wheat and corn will come in below expectations. "The situation ... has not been fully realized up to now." One misleading factor has been repeated reports of beneficial rains, which can't make up for dry subsoil; as a leading Canadian crop expert said, "If would help a lot if ... folks who have no practical knowledge of the matter could ... refrain from writing of the beneficial effects of a teaspoonful of rain on a country that has been dry for three years."

Flood in Central China drowns thousands and destroys crops, threatening famine.

Editorial by T. Woodlock: Two great US industries, coal and oil, "afford a spectacle to the world which for combined waste of labor and material and chaos in human relations can not be matched." Situation in these industries demonstrates folly of the US idea of antitrust law, that "whatever lessens or 'may tend to lessen' competition 'restrains trade'"; this idea is "entertained nowhere else in the civilized world" and is "flatly inconsistent with modern economic conditions."

Judge John B. Payne discussed the unemployment situation with Pres. Hoover. After leaving the White House, said they discussed best way of coordinating all the agencies dealing with unemployment. Payne said main responsibility lies with local govts. and there's no reason for Federal govt. to be called on for funds to create a dole system. Believes the question can be dealt with by the country if kept where it belongs. Says Red Cross hasn't received any alarming reports, and conditions are going on as well as last winter, not taking into account the drought.

Rep. S. Major (D, Missouri) dead at 62; his death restores Republican majority in the House to 2.

Provisional Spanish govt. established after overthrow of King Alfonso formally resigned, enabling Constitutional Assembly to elect a new one. Provisional leader Zamora said greatest achievement was creation of civil power not dominated by army or clerical factions; if elected by Assembly would continue with same cabinet.

Overthrown Chilean leader Ibanez, exiled to Argentina, said would remain there "at the disposition of my govt."; insisted he had not fled Chile but retired, retaining claim to Presidency. New Chilean regime headed by J. Montero attempting to restore normality and tackle pressing economic problems; two army regiments ordered to provinces to handle rumored trouble planned by state police; govt. will seek foreign loan of $21M to meet immediate urgent obligations.

Political riots in Sao Paolo, Brazil paralyze business; authorities fear serious outbreaks from 70,000 striking textile workers; 4 reported killed.

Mexican financial circles in “utter confusion” following enactment of law putting country on the silver standard; it's feared the Pachuca gold and silver mines may increase production, worsening silver price situation. Mexican Pres. Rubio says passage of new Labor Code a necessity, criticizes those attacking the bill; says govt. will continue policy of protecting the laborer.

Accidents at highway grade crossings in the first 4 months were 1,480 vs. 1,643 in 1930, injuries 1,691 vs. 1,474 and deaths 645 vs. 643.

Wired Music, a NY organization, asks for ruling on whether NY Telephone must lease lines for "transmitting audio frequency currents which can be converted into music in the home."

Within 18 months, the US govt. expects to report definitely on the commercial feasibility of a long-discussed proposal "for destructive distillation of straw to produce gas and various chemicals." The US Bureau of Chemistry and Soils is cooperating in experiments at a plant in St. Paul, and is also working with full-size commercial equipment at a new location.

Giant German flying boat, the Dornier DO-X, to be placed in permanent service between the US and Brazil; first trip from Brazil to NY planned for this week.

"The young people of Germany are becoming a race of sportsmen. All the energy that formerly went into military training now goes in to team work in various forms of athletics." Youths are going so far as to abstain from alcohol, to the delight of the dry crusade but the consternation of liquor interests. Even breweries have converted to making soft drinks; because of oversupply, alcoholic drinks are now very cheap throughout Germany.

Interesting Lincoln story correcting a joke published on July 17 that had him entering Richmond by stagecoach after it fell. In reality, he landed in Richmond by boat on April 5, 1865 and walked through the still fiercely burning city protected only by a guard of 10 armed sailors. [Note: after walking unscathed through the war zone, he was assassinated on April 14 at Ford's Theater.]

Market commentary:

Market wrap: Stocks "distinctly reactionary" on heavier trading, apparently due to disappointing US Steel dividend cut; main body of stocks broke sharply at the open and further setbacks developed as the session progressed. Weak spots included US Steel, Bethlehem and American Can, but pressure spread across the market and many leading shares came close to the June 2 lows. "Rallying tendencies were apparent" in the final hour, but trading slowed and and closing prices were near the day's lows. Bond prices worked generally lower in quiet market; foreign list reactionary, particularly S. American issues; German bonds slightly lower; US govts. and highest-grade utility bonds were steady while rest of domestic list was weaker in sympathy with stocks. Commodities mixed; grains higher, with corn up sharply on short-covering; cotton moderately lower. July corn shot up 9 7/8 cents to 68 1/2 on heavy short-covering in the last few minutes, with other months up 1 1/8 - 1 1/2; "action of the July position was the cause of considerable comment." Copper remained at 7 3/4 - 8 cents; some copper reportedly sold Monday at new record low of 7 5/8.

Market observers generally bearish; most "interpreted the US Steel dividend action as reflecting the attitude of leading industrialists and bankers toward business in the immediate future"; general advice was to keep out of the market, use technical rallies to reduce long positions, and use stop-loss orders to protect accounts.

Large overnight declines uncovered stop-loss orders under the previous closing prices; "this increased the supply considerably."

US Steel dividend cut to $4 annual rate came as a shock to the Street, as $5 had been widely expected. Considerable liquidation came into the stock; this was likely responsible for "considerable selling in other directions" due to large public ownership of Steel. Foreign stock markets were generally unsettled after the US Steel dividend cut.

Editorial coming close to complaint that US Steel directors, after cutting the dividend 42% and executive salaries by a reported 10%, have still maintained a "discreet silence" on wage scales. That wage scales are apparently not yet going to be cut, while dividends have been slashed even with an accumulated surplus ample to cover them for another year or more, has "put a deep 'crimp' in the theory that any common stock dividend is a stable thing, no matter how deeply buttressed in accumulated liquid resources the corporation concerned may be. On the record to date, the Steel Corporation directors have come close to saying ... that its resources are subject to a wage earner's lien senior to that of the common stockholders." Bethlehem Steel seen likely to cut dividend rate but maintain some payout in spite of not earning any balance for the common stock; “this will recompense common stockholders for the periods when no payments were being made on the junior shares.”

Sherwin-Williams is close to its 1931 high after reporting strong earnings trends. Worthington Pump declined on poor earnings report.

Freight loadings report showing a small decline for the July 18 week was disappointing; gradual gains had been hoped for.

T. Hentges of the NY Auto Club says proposed Federal gasoline tax of 1 cent/gallon would cost US car owners over $150M/year.

The oil industry generally believes little will be accomplished by Oklahoma Gov. Norman's "extreme" threat of an enforced oil well shutdown unless prices reach $1/barrel by Saturday. However, voluntary shutdowns already taken should bring higher prices than the current 50 cent maximum, provided there's no further increase in East Texas output.

Another opinion piece about why wages must be cut, in this case by the rails. An industry can't continue paying workers more than the economic value of their labor; rails are now doing so by a wide margin. Management talent, on the other hand, is rare and always in demand, so if their salaries are cut too much, “the brains will leave the railroad business.” [Note: it's pretty amazing that this argument is still being made today in the financial “industry,” several orders of magnitude later.] Finally, rails must cut dividends since much of the corporate surplus on balance sheets isn't available for dividends but has been reinvested in equipment, etc.

An observer at a leading broker says present state of US trade and agriculture along with foreign situation demands conservatism in forecasting business outlook. Expects some seasonal recovery in fall but "certainly no boom"; period of limited corp. profits likely to extend well into next year. "Perhaps we are not going any deeper into depression; but there is a fairly hard winter ahead," even granting good seasonal fall gain; any recovery likely to be slow and get little help from exports.

F. Croxton, chair. of Pres. Hoover's Emergency Employment Committee, reports "improvement in employment conditions in some directions and little change in others"; NY City among centers showing some improvement.

Paine, Webber says “disappointment coming from the key industrial corp. [US Steel], and its implications with respect to wages, may represent the final element of deflation in a liquidating movement that is now of nearly two years duration.”

Economic news and individual company reports:

Negotiations for $100M credit from French banks to the Bank of England have been suspended and may be on hold until Gov. Moret of the Bank of France and Gov. Norman of the Bank of England meet Sunday in Basel before the BIS directors' meeting. Reported French willingness to grant British credit seen as “complete reversal of French opinion,” reflecting realization that in spite of little direct French exposure to Germany, French balances in London have been reloaned to Germany and so may be threatened by a continuation of the British gold drain. Bank of England lost 400,000 pounds sterling in gold to Holland, but gold drain to France has apparently stopped; sterling is being supported above the gold export point in Paris and NY and Switzerland is refraining from importing British gold even though sterling is below the gold point there. Austerity committee appointed to advise British govt. will reportedly recommend drastic cuts amounting to 90M pounds, including large cuts in social services and govt. salaries; likely to meet with strong opposition from Labor; no action will be taken until Parliament reconvenes in October. Negotiations for a 7M pound loan to Hungary reportedly near completion, but London banks are unable to participate due to "large amounts of credits which are locked up in Gemany."

Yet another analysis of the roots of the German crisis, this one from a leading German banker. In five years after the Dawes Plan (original reparations plan) took effect, the reparations debt was converted “into an enormous number of individual debts”; this made the “crowd of creditors” impossible to control. There followed the scares of the Young Conference, the Reichstag elections, and finally the Creditanstalt collapse; this caused creditors to pull back. The Hoover moratorium plan might have saved the day, if not for delays in its acceptance; Germany wound up like a patient laid on the operating table, opened up, and left exposed. Banking suspension was inevitable, and in fact delayed too long, allowing “less worthy creditors to get away at the expense of the more worthy.”

US savings banks set records; in the year ended July 1, depositors rose 966,826 to over 13M, and deposits gained $831M to $9.977B. Rate of gain in deposits accelerated in the first half of 1931, reaching 5.41% vs. 3.67% in last half of 1930.

Weekly steel reviews report some positive news, including unseasonal rise in output and apparent decision of US Steel to maintain wages. However, too early to say if output gain will reverse; sharply lower automotive production schedules for August and decline in canning “do not augur well”; pipe line orders are falling and railroads are only buying absolute essentials. Construction continues to be a relative bright spot, and price picture in scrap and finished products appears firm, though untested. Steel production for week ended Monday was 33% vs. a little over 31% previous week, 31% two weeks ago, 57 1/2% in 1930, and 96% in 1929. Almost all of the increase was at smaller independents. Disturbing trends in canning continue; output at tin plate mills fell again to 55% vs. 65% two weeks ago, at what should be the seasonal peak of production; further declines are predicted. Major can mfrs. including American Can and Continental Can had been expected earlier this year to approach their 1930 record earnings; this is now unlikely.

Price war in the cement industry that broke out some months ago continues with little sign of an end; inventories are at the year's low but some manufacturers persist in "price shading and the offering of secret concessions" and have been "getting more than their fair proportion" of available business; the more responsible companies that have "attempted to stabilize the industry by adhering to a one-price policy" have been losing business and may be forced to match the price cuts.

Officers of the Southern Rwy. voluntarily reduced their salaries but said the rail didn't contemplate cutting wage scales for unionized labor at this time. Int'l. Shoe announced pay of office and stockroom employees will be cut 6%; officers accepted a 15% cut two months ago.

Rail freight loadings for first 29 weeks this year were 21.169M cars, down 18.0% from 1930, and 26.1% from 1929.

US electric output for week ended July 25 was 1,680 GWHr, down 1.9% from 1930, vs. a 1.6% decline prev. week and a 0.3% rise two weeks ago.

Earnings of 103 telephone cos. in May were $23.721M vs. $23.062M; first 5 months $117.7M vs. $114.9M.

J. Lang, New South Wales premier, asked Australian govt. for 500,000 pounds sterling to cover the state's July needs. PM Scullin replied this couldn't be done until the state accepted responsibility for overseas interest on its debt and cut spending by 20%, among other things.

About 7M acres in East Africa, including the entire year's corn crop, devastated by locusts; worst infestations around Lake Victoria.

North Atlantic Shipping Conf. agrees to reduce transatlantic passenger fares 10%-30% in effort to stimulate recently diminished travel.

Deere & Co. omitted dividend "until business conditions revive"; company remains in "excellent financial condition but directors believed it wise to discontinue common dividends in view of the present situation." [Note: fairly common language for these announcements.] The Street is also expressing doubts on whether the J.I. Case dividend will be maintained. Farm equipment sales showed some pickup a little earlier in the season but have fallen off sharply since.

Earnings reports: American Ice Q2 $.91/share vs. $1.35; half $.62 vs. $1.09. Warren Foundry & Pipe half $1.05 vs. $.68. Conde Nast Publications Q2 $.43/share vs. $1.04; half $1.12 vs. $2.68. Standard Brands Q2 $.33/share vs. $.31; half $.63 vs. $.57. Royal Baking Powder half $.50 vs. $.47. Endicott-Johnson half $2.51 vs. $2.12. United Piece Dye Works half $.78 vs. $1.85.

Companies reporting decent earnings: Warren Foundry & Pipe, Standard Brands, Royal Baking Powder, Endicott-Johnson (shoe mfr.).


"Radio," said one reporter, "will never replace the newspaper. You can't wrap up a lunch in a radio." [Note: replace/radio/iPad/.]

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