August 14, 2010

Friday, August 14, 1931: Dow 140.22 +2.59 (1.9%)

Assorted historical stuff:

The Farm Board proposed that cotton farmers voluntarily plow under every third row of cotton growing in their fields in order to increase prices; in return for this cooperation in reducing the surplus, the Board offered to hold its own surplus cotton off the market for a year. Reception to the proposal could, at best, be characterized as mixed. The cotton trade responded apoplecticly; "chimerical, impracticable in the extreme, were some of the mildest designations used." Even a cable from "staid Liverpool" was rather caustic, noting "your weather is perfect for the crop and perfect for plowing too." Practical obstacles were also cited, particularly the likely reluctance of indebted farmers and creditor banks to destroy the crop securing existing loans. However, cotton prices did rise sharply on apparent concern that the proposal might be carried out. Editorial: Farm Board proposal is "the crowning act of the Board's two-year record of ineptitude and foolishness. The proposition is one of appalling waste." If a group of traders "set up incubators and bred untold billions of weevils and scattered them over the cotton belt with the intent of destroying this amount of cotton, they would have been given prison sentences, yet the Board gives this advice in all seriousness. If the advice is good," why doesn't the Board start by destroying its own holdings of surplus cotton and wheat? Instead, the Board should "go into complete seclusion for a year, and carry its surplus cotton with it."

[Note: Strangely Familiar Dept.] Letter from "R.N.D." notes that over $600M in bonds held in the US had defaulted in the first half, and notes "not a single bond house or bond department of a bank" had yet taken any responsibility for bonds they sold, even for the ones they had underwritten. Asks why "a reputable bond house or bank should decline responsibility for bonds which they have sold to investors any more than a merchant of high standing would decline responsibility for a defective or shoddy piece of goods." Editorial by T. Woodlock sets R.N.D. straight in no uncertain terms. "It is a propensity of human nature to blame others for one's troubles, for it at least soothes one's pride ... Putting the matter upon the lowest ground, that of mere expediency, there is the strongest motive to induce an 'issuing house' to exercise great care in the selection of securities" that it offers. “Nevertheless, it is also true that in this country investors as a class seem to have rather short memories and are apt to forget - perhaps to condone - mistakes.” In any case, holding issuing houses responsible for defaulted bonds is impossible unless the public is willing to pay the necessary premium.

Letter from "E.R.W." responding to Gov. Ritchie's implication that if business can't take care of the unemployed, govt. will have to raise taxes to provide relief. “That would work fairly well as long as the well-to-do had anything to tax, but that would only be a few years. ... If Gov. Ritchie's threat is carried out ... common stocks will be worth just about as much as cancelled postage stamps, and not rare old issues either. Please do not meet the issue by saying that prosperity is just around the corner. I am so sick of hearing that ... I do not believe it. I think we are in the process of an economic evolution, which can and very likely will develop into a social revolution. Europe ... is well on the way to socialism, and socialism must be followed by communism. ... When will we wake up? Not until starving people have taken up communism?”

AFL pres. Green asks Pres. Hoover to call immediate industry-labor conference on unemployment; demands five day workweek. The administration was reportedly opposed to the conference, believing it would lead to immediate proposals of wage cuts by employers and open conflict. "In view of the difficulties which are more severe in some industries than others, administration officials believe that the best method now is to tamper with the situation as little as possible and avoid large face-to-face conferences."

Assoc. of Community Chests and Councils has notified Pres. Hoover that organizations in 227 cities are completely confident they, in cooperation with cities and other local agencies, will be able to handle unemployment relief this winter; plans are actively proceeding and more cities are reporting daily.

Gov. Roosevelt, addressing smaller industries conference, urges US business to adopt "more progressive attitude toward political economy and take up seriously experiments with long-range planning." Suggests major change from current conditions in moving industries away from extreme urban concentration.

Editorial: The experts' committee has finally, after much study, finished working out details of the Hoover debt moratorium. However, ten months from now debt payments are supposed to resume, when it should be universally clear this will be impossible without "a miraculous intervention of Providence. ... Why in the name of common sense do we not look this fact in the face now, instead of waiting until the fire in the cellar blazes up again?"

Strikers in several Spanish cities returned to work as "labor situation appeared to be moving toward clarification."

To prevent forest fires, engine crews of the NY Central RR have been instructed not to throw “hot clinkers” from the fire boxes of locomotives.

A remarkable natural phenomenon is the spring migration of about 2M seals from their "winter quarters in the tropics seas of the Pacific" to their summer breeding home on the Pribiloff Islands off Alaska. "In the water, they look at close range like millions of dogs swimming on the surface of the sea." By international agreement, there is no slaughter of the seals while migrating; govt. boats accompany them to guard against lawless hunters.

Market commentary:

Market wrap: Stocks opened irregularly after Wednesday's late reaction, but a good rally then set in, starting in the leading shares and spreading across the list. Some profit taking developed in the afternoon. Bond trading featured improvement in European issues, led by rally in German bonds; Hungarian issues rose sharply on report of $25M loan. S. American bonds irregular on rumors of default by Antioquia (area of Colombia). US govts. were steady and industrial bonds improved, but liquidation was again evident in railroad bonds, extending to all grades. Grains were lower after report of record 319M bushel US wheat carryover. Cotton rose sharply after Farm Board proposal.

Conservative observers see contest in progress between bears and bulls; recommend waiting it out on the sidelines.

Strong spots included stocks of companies likely to benefit from seasonal improvement, notably food and chain store issues; oil shares moved up after Texas Gov. Sterling signed new oil and gas law. Dow averages for both high-grade and second-grade rail bonds fell substantially, again hitting new yearly lows.

NY Central sold off on dividend fears following poor earnings report. Recent selling in Kreuger & Toll attributed to "confused state of affairs" in Europe, where the company has most of its investments. Traders who have been active in the stock in the past haven't yet turned bullish on it, expecting further liquidation. First Nat'l Stores has shown exceptional stability in both earnings and stock price over the past 18 months; the stock is about 59 1/2 vs. the high last year of 61 3/8.

Interest in consolidation of investment trusts [similar to mutual funds] is reportedly strong. There's a general belief among trust executives that some large units “would welcome an opportunity to retire from the field if it could be done on somewhat higher levels of value than now prevail.”

Many floor traders continue to expect "the market to encounter a real test" when rails test the lows of early June. An age-old dispute continues between market observers, with one camp seeing recent dull trading as characteristic of "the final phase of a prolonged bear movement" while the other maintains that in spite of "technical rallies from time to time ... the real turn will not come until a selling climax has taken place."

One of the most optimistic on an August stock market rally is longtime bear operator turned bull W. Danforth; he was also active in the June upswing following the Hoover debt holiday proposal and believes technical market conditions are similar now.

As usual, market observers were divided on whether Tuesday's rally had marked the start of a seasonal recovery in stocks; August has produced higher prices in every year since 1921, including 1930 when business results were bad. Bears have plenty of ammunition in the wage problem, uncertain steel industry outlook, rebellion in Cuba, proposed debt moratoriums in S. America, and concern over the British credit situation. Bulls argue [note: kind of feebly] that "the recent sharp rally ... in the face of a flood of unfavorable news should not be lightly dismissed" and hope "seasonal influences may overcome, temporarily at least, the effect of unsettled economic conditions throughout the world."

Economic news and individual company reports:

Texas Legislature finally passes oil and gas conservation bill with aim of curtailing production, only 6 hours before end of their special session. Gov. Sterling signed the bill but maintained the threat of martial law to curtail east Texas production. Bill gives broad authority over production to new oil and gas division of the Texas Railroad Commission; it apparently intends to move at once to clean up the situation in East Texas, where production has continued to rise. Consensus of major oil executives was that the new law was an improvement, though "not all they had hoped for." East Texas oil price rose to 25 cents/barrel; some offers of $1/barrel reported in Oklahoma. Gov. Murray of Oklahoma repeats demand for $1/barrel oil price, threatens to take over pipelines if major buyers attempt to boycott Oklahoma oil; proposes to force Oklahoma producers to "unitize" (cooperatively develop) fields.

Gillette involved in still more litigation; files lawsuit charging patent infringement against Segal Lock (also made safety razors at the time). Segal, in turn, will sue Gillette charging violation of Clayton antitrust act and asking $1.5M in damages.

German situation continued to improve. Money market rates fell; call money was about 8.5%. Further cut in Reichbank discount rate (now 10%) believed possible. Plan to reopen stock exchange Wednesday not yet assured. Leading German bankers are in Basel negotiating on extension of short-term foreign credits; "at least a partial agreement" is anticipated; difficulties attributed to Dutch and Swiss banks. German savings banks a trouble spot as withdrawals exceed new deposits; indebtedness to Reichsbank now about 200M marks. French Premier Laval will visit Berlin before end of month.

British Labor govt. considers financial situation a “national emergency,” may convene Parliament a month early in late Sept.; agrees “in principle that all classes must make equal sacrifices.” Govt. and opposition leaders including PM MacDonald, Neville Chamberlain, and Herbert Samuel, are gathering in London; Stanley Baldwin arrived back in London “almost without baggage,” returning early from a vacation in France. British bonds sold off on fears a “conversion” (to lower interest rate) was being discussed. “While financial circles are willing to support the govt. patriotically in any measure that may be necessary, ... they are insistent” that austerity measures should “affect all classes equally.” Sterling again rose slightly. Bank of England statement was scrutinized carefully to determine whether it had used any of the $250M US-France credit, but yielded “little satisfaction ... as the institution is extremely chary in the matter of reporting its operations.” Bank of France statement showed yet another record high in gold holdings at 58.556B francs, up 149M in the week ended Aug. 7.

Hungary receives 18-month $25M credit from French, Dutch and Italian bankers.

Detroit arranged "one of the most important municipal loans of 1931" as a syndicate of banks bought $30M in bonds as part of program between NY and Detroit bankers and city officials to refinance short-term debt maturing within weeks. The bonds will take priority over other city obligations for the next five years.

Money in circulation Aug. 12 was up $42M to $4.890B, total Reserve Bank credit outstanding up $138M to $1.105B. Member banks in NY City report brokers' loans down $17M to new low of $1.329B; loans on securities to non-brokers up $9M to $1.697B.

Dow average of 8 iron and steel products rose $.27 to $44.25.

Manufacturing Chemists Assoc. testifies against 15% rail rate hike; says it would restrict their markets and divert traffic from rails to trucks and pipelines.

Standard Oil of NJ follows the lead of Standard of Indiana and Sinclair Oil, introducing a new low-priced third grade of gasoline to combat "bootleg" gasoline.

NY City Board of Education adopts record-high budget of $146.3M for 1932, up $6.0M from this year; expects more high school students due to depression.

Earnings reports: NY Central Q2 $.93/share vs. $2.93; half $.90 vs. $4.63. Int'l. Nickel Q2 $.08/share vs. $.20; half $.16 vs. $.50.

Companies reporting decent earnings: Monsanto Chemical, Best & Co., Int'l. Cigar Machinery, Claude Neon Electrical Products.

Report from Paris:

After 150 years of "spasmodic protests," the legitimate theater in France is finally being granted relief from the 10% "right of the poor" tax applied to their tickets for benefit of French charities. This may seem like an unduly long wait, but "nothing moves quickly in France, except taxicabs. Life is leisurely. Frenchmen find life sweet and take time to live it. Diplomacy, legislation ... and taxes alike, all are shelved on a golden day." [Note: C'est vrai.] "Recent halting dramatic seasons riveted governmental attention on the condition of the legitimate theater. ... As in America, the movie has increased the hazards of theatrical production by halving audiences and doubling costs"; this has been particularly true in France since advent of the talkies.


"I'm worried about my husband. After breakfast, he left a tip on the table, and when I handed him his coat he gave me another tip." "Well, that's nothing to worry about. It's just force of habit." "The problem is, when I gave him his hat, he kissed me."

"I don't know whether to be a barber or an author." "Toss for it - heads or tales."

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