August 17, 2010

Monday, August 17, 1931: Dow 145.80 +1.65 (1.1%)

Assorted historical stuff:

Soviet dictator J. Stalin announces abolition of domestic rationing plan, which had kept the 160M population on a wartime basis; step seen sharply cutting that nation's wheat exports in the coming season. The Soviet grain crop is believed smaller this year due to unfavorable weather, though actual figures on output haven't yet been issued by the Soviet govt. [Note: the Soviet famine that killed millions, largely in the Ukraine, was under way about this time or possibly a little later - information is still in dispute on this.] Farmers in Iowa have organized "burn-a-bushel-of-corn-a-day-clubs." They argue that corn is $3 a ton cheaper than coal and has heating qualities that make it an economical fuel. In addition, low prices for wheat and oats are increasing use of those grains as animal feed, releasing "millions of bushels of corn for fuel purposes."

Editorial: Recent Russian news demonstrates “the economic fact that Russia, as a country without capital, constitutes no serious international challenge.” The depression, contrary to popular belief, has hit Russia harder since it depends on commodity exports to get money for industrialization. Large wheat crop last season was deceptive, caused by extraordinary yields. Russian industrialization is also reportedly running into trouble due to “shirking and inefficiency ... the amount of damaged machinery caused by inexperienced hands is said to be appalling. ... And now, where does that vivid red bogey flaunt?”

China has taken a drastic step to divorce politics and business, prohibiting public officials from all business activities.

Norway bans installment sales on many items including clothing, shoes, glass, crockery, kitchen utensils, and various luxury articles.

England is suffering a countrywide shortage of small silver coins, particularly shilling and two-shilling pieces. Cigarette machines are responsible for the shortage of shillings, while the "totalizator," England's new pari-mutuel betting machine, accounts for the missing two-shilling coins.

Chevrolet expects to produce its 8 millionth car late this month.

New 38-passenger Hercules airplane built for London-Paris service has successful test flight. Plane includes drawing room for 18 persons and saloon for 20, cocktail bar, chart room, and wireless cabin.

"The Supreme Court of the District of Columbia has recently ruled that only members of the National Association of Real Estate Boards have the right to use the name 'realtor.'"

Brooklyn Borough pres. Hesterberg says borough govt. will require $7.061M for next year, an increase of $770,931 over this year.

Dow, Jones activities, including production of the Wall St. Journal, have moved temporarily from 44 Broad St. The historic building at 44 Broad, built in 1890, "is one of the oldest still standing downtown and with its eight stories was one of the first skyscrapers in NY."

Week in review:

Stocks recoiled abruptly from recent pessimism, starting with a sharp rally Tuesday; attention appeared to shift from unfavorable economic factors to the possibility of a seasonal fall recovery, and "large-scale operators initiated an aggressive campaign for higher prices." However, "prominent banking interests" were more conservative, noting foreign credit complications and the looming problem of domestic wage adjustment, though granting that "drastic deflation" had put the market in good position to respond to even moderate economic improvement.

Steel production increase of 1% (to 32%) was modest cheer to those looking for a seasonal upturn, though "many still cling to the opinion" that a larger-scale increase will get under way in the next few weeks; a rise to 45%-50% in coming months would satisfy the steel trade.

Bonds irregular. Domestic list generally lower, led by a sharp decline in rails with both high- and low-grade rail issues hitting new 1931 lows. However, industrial issues showed rallying tendencies and many speculative bonds rose sharply. Amusement co. bonds were a strong feature, and oils rose late in the week. Public utilities characteristically steady. US govts. dull and firm. European list strong, led by German govts. Hungarian bonds rallied sensationally after agreement on $25M loan. Cuban bonds fell sharply due to "revolutionary activities."

Cotton broke sharply to 32-year lows after higher than expected govt. crop forecast; spot cotton fell to 6.75 cents/pound. Some recovery took place later in the week after Farm Board recommendation to plow up a third of the crop, though the plan was almost universally opposed as "weird and unworkable." Grains moved in a narrow range; record-high govt. forecast for winter wheat was offset by forecast of smallest spring wheat crop since 1910 due to widespread drought damage.

Foreign news featured continued improvement in German situation; Reichsbank was able to cut discount rate to 10% from 15%, the feared currency inflation has not appeared, and commercial banks are operating without trouble although some withdrawals continue from savings banks. Sterling rose quietly but steadily, and London bill rates fell slightly to 4 3/16%. However, "confidence in the exchange is not yet fully restored," and "conservative quarters" don't look for a cut in the Bank of England's 4 1/2% rate until progress is made on govt. spending cuts and balancing of the budget.

Banking week featured sharp and unseasonal rise in Fed. Reserve credit outstanding (up $138M to $1.105B). Rise was attributed to shifting of Bank of France balances out of bills and govts. ($50M), increase in circulation due a number of small bank failures ($42M), and to member banks increasing reserves by selling bills and govts. to the Fed. Reserve. Remarkably, the rise in credit outstanding caused almost no increase in money market rates; this was seen as "evidence of ... the determination of the monetary authorities to keep money at the present cheap levels."

Market commentary:

Market wrap: Stocks trading more active, with prices again advancing, in "pleasant contrast to the dull, sagging dealings recently familiar on Saturday." Brisk buying in evidence in leaders including Steel, GE, Can, Allied Chemical and GM; rails scored additional gains, turning in their best session in 10 days; merchandising shares strong under leadership of Woolworth; pool operations apparent in issues including Radio and United Aircraft; trading favorites including Kodak and J.I. Case set a fast pace. Bond trading dull, prices irregular. Foreign list rallied further; German govts. strong; Australian govts. gained after success of conversion plan. US govts. up slightly. Domestic list mixed; rails irregularly lower while convertibles and industrial issues rose. Wheat rallied to close somewhat higher on Soviet news; other grains mixed. Cotton moderately higher.

There was no business news to account for the recent rally. Many in the Street believed the advance followed the tradition of a rally in August anticipating improved fall business. In addition, drastic deflation in stocks over the past two years "unquestionably has largely discounted existing conditions" and also "placed stocks generally in strong hands. ... Recognizing that people who had clung to their stocks in face of the prevailing apprehension were obviously stout-hearted, large-scale operators have come to the conclusion that internal conditions in the market favored the inauguration of a campaign for higher prices at this time." Bull operators including the "Danforth, Meehan and Hiscoe groups have provided aggressive leadership on the upside over the last several sessions." Judging by the pickup in volume as prices rose, it was clear "substantial buying power had been awaiting the first indications of a better market."

Some observers encouraged by recent rise in security loans to non-brokers; these are believed to represent a better quality of investors than brokers' clients.

At the start of last week, "many reports of unsatisfactory conditions were in circulation, but after the market had rallied all the rumors were of bullish developments to come." In other words, stock market action itself appears to be prompting rumors. [Note: No way!]

Wall Street continues to discuss railroad dividend doubts; NY Central is subject of particular question after reporting drastically lower first-half earnings. The Pennsylvania RR is also unlikely to earn its dividend this year.

Editorial by T. Woodlock: Arguments of the opponents to the 15% rail rate increase are reminiscent of the young lawyer who defended a man accused of stealing his neighbor's pig. He informed the court that he would show, first, that his client had purchased the pig, second, that the pig was a gift, third, that the pig was an uninvited visitor, and, finally, that the pig in question did not exist. Similarly, opponents of the rate increase tell the ICC that there is no emergency, that the emergency is due to rail "propaganda" frightening investors, that the emergency exists but doesn't justify raising rates, and that increased rates will actually hurt revenues. Stepping back from the immediate rate question, rails are fundamentally like "a man who is slowly dying of tuberculosis, attacked by pneumonia." The current rail emergency is, of course, the pneumonia which must be brought under control, but the real trouble is the tuberculosis of excessive competition; to restore health of the rail industry it's essential to "bring inter-railroad competition under reasonable control." This will ultimately require legislation; in the meantime, cooperation from the ICC and action by the rails would be helpful. "This country can no longer afford ... inter-railroad competition as now carried on, and investors can not afford to furnish it."

J. Raskob (GM exec., Democratic Nat'l Committee chair.) says bottom of business depression has been reached; predicts improvement by Christmas and more pronounced upturn in Feb. when auto industry resumes heavy activity.

Removal of expected Soviet wheat exports of as much as 100M bushels is seen positively affecting wheat prices at a time when world supply is less than consumption requirements for the first time in five seasons; total world production is estimated at 250M - 350M bushels less than last season.

Comment of M. Wolfe, Farmers Marketing Assoc. GM: "Regarding the Farm Board proposal to plow up one-third of the cotton crop, I would suggest that it would be better to plow up the Farm Board."

Economic news and individual company reports:

Editorial: June 30 report on national banks reflects lower use of bank credit in business and reduction in number of banks (6,805, down 447) and total resources ($27.643B, down $1.474B). “But the system is sound, and its technical position is stronger and more liquid.” Loans and discounts of $13.177B are down $1.710B and are now 59.36% of deposits vs. 63.98% a year earlier; banks are holding $528M more in cash and govt. securities and have borrowed $76M less.

At least 8 car makers will be competing in the low-priced ($500) car field early next year, doubling the current list of Ford, Chevrolet, Plymouth, and Willys. One established producer is said to be planning a $395 car made possible by buying parts, bodies and accessories in volume from leading parts companies. Ford's response to the new competition is a subject of speculation. it has already suffered a loss of competitive position this year attributed to overproduction last winter in an attempt to maintain employment. However, Ford's balance sheet is impregnable, with $350M in cash, and few believe he has exhausted his resourcefulness. New automotive innovations include the Gabriel automatically adjusted shock absorber and the Hudson “Startix” which automatically starts the motor when the ignition key is turned - no more starter pedals. About the only development in driving comfort that has yet to appear is the air-conditioned car; some expect this in 1933.

US Chamber of Commerce is reportedly considering “guarantee of uninterrupted work during greater part of the year for a specified number of employees in all major industries ... Proposal said to be receiving close attention of Pres. Hoover.” The state of Oklahoma and the city of Youngstown, Ohio plan programs to relieve unemployment this winter, supported by special taxes. Oklahoma Gov. Murray will also ask Federal aid. Youngstown's city and charitable funds for relief are almost exhausted.

US gold holdings continue to rise and are now at a record high of $4.977M; total expected to exceed $5B by Oct.

Sterling steadiness is raising belief of a “peg of some sort,” though London financial circles don't believe the Bank of England is using its $250M credit. The Bank's gold holdings are rising, and it's believed this increase may continue for some time. London bill rates have declined, but a return of full confidence isn't expected until “the govt. has set its house in order by drastic budgetary economies.” Bank of England Gov. Montagu Norman embarked for Quebec on the liner Duchess of York; told reporters he was travelling for health reasons.

Hungarian decree ending bank suspension takes effect Monday; new currency created, the gold pengoe (3,840 pengoes = 1 kilogram gold).

After failure of the Berkowitz Bank, the Rumanian Nat'l Bank and govt. have been forced to aid other banks in the country.

Colombian Pres. Herrera says movement for debt moratorium “never attained importance”; govt. “feels certain” of ability to meet obligations and “reaffirms its unchangeable policy in this respect.”

French industries employing 100 men or more and subject to labor inspection report 2.624M employees on July 1, down 7.2% from a year earlier; this percentage decline has steadily increased from 4.2% in Jan. However, the official count of unemployed has declined to about 36,000 from a peak of 51,804 in April. The explanation is apparently that much foreign labor has left, and many workers have gone into seasonal farm labor.

Yugoslavia is the lone holdout against the Hoover moratorium plan; it is to get $19M in reparations but pay only $3M on war debts.

N.B.C. is negotiating for transatlantic radio exchanges, particularly of music programs. Only four European countries are attempting to work out commercial arrangements for radio - France, Belgium, Spain and Holland; in most European countries the airwaves are govt.-controlled if not operated, with revenues provided by license fees charged the user. France has private radio stations in addition to govt.-run ones, but advertising revenue is tiny compared to the US, where radio advertisers pay $160,000 - $500,000 for a year's programming of one hour a week.

Labor Dept. reports for July shows 4.492M people employed by 46,058 establishments in 15 major industrial groups, down 2% from June; payrolls fell 4.8%.

Road building for the year to July 18 was 100.1M sq. yards vs. 91.5M a year ago; decline of 7.5M in street and alley construction was offset by gain of about 15M in highways, stimulated by extra $80M Federal fund to relieve unemployment that was advanced from future Federal aid.

Total value of building permits issued in 38 West Coast cities in July was $11.234M in July, down 1.9% from June and down 26.9% from a year ago.

Oklahoma refineries have purchased several million barrels of East Texas oil at prices ranging from 14.5 cents/barrel and up.

Youngstown district steel operations will rise to 43% this week from 42% starting last week, recovering from a dip of several points in the last few days.

Fisher's wholesale commodity index unchanged at 69.5 vs. the postwar low of 69.3 reached two weeks ago.

Companies reporting decent earnings: Detroit Edison, Jewel Tea, Armstrong Cork, Mortgage Guarantee Co.


The Miracle Woman - Columbia film, directed by Frank Capra, at the Mayfair. The miracle woman of the title is "an evangelist who works with a gang of crooks who subsist on the money contributed to a tabernacle they run." She is eventually reformed by the love of a blind ex-aviator [note: as usual]. Barbara Stanwyck works hard to "lift the picture out of the stereotyped category in which it rightly falls," but has to contend with "highly improbable" plot.


"What's all the shouting about?" "Mr. Blank is talking to London." "Well, why on earth doesn't he use the telephone?"

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