August 31, 2010

Monday, August 31, 1931: Dow 142.08 +1.30 (0.9%)

Assorted historical stuff:

Editorial: "Shear All - Skin None." Gov. Roosevelt's unemployment relief proposals "are, so far as they go, commendable." True, the burden of paying for the program is placed on those who pay state income taxes, or only about 3% of the population , but, "as the Governor points out, those shoulders are presumably best able to carry it." However, it might make sense to consider broader forms of taxation as well; "an 'emergency increase' has barnacle-qualities, for 'use' can always be found for the money - especially when three-quarters of the people lay the taxes and the remaining quarter pays them." Furthermore, what's now genuine emergency relief may easily become "a permanent form of 'social welfare'" spending; in which case "emergency taxes" will become regular ones.

Editorial noting call by the Emigrant Bank (second-largest US savings bank) for its customers to spend more. About 13M depositors now have $10B on deposit in US savings banks. A "great problem facing the capitalist world today is how to pry loose from hoardings into productive business the billions of surplus stored in safe places." Various schemes to do so have failed due to the "overwhelming desire for self-preservation" in the air; any scheme that succeeds will have to appeal to self-interest, as the Emigrant's appeal did. The fall in prices due to the depression has redistributed income and wealth; losers include entrepeneurs and at least part of the laboring class, while those on fixed incomes (the "creditor class") have gained. So far, the creditor class has chosen to protect itself by cutting back on spending and investment; there can be no recovery until it sees advantage in buying goods or loaning to the debtor class.

N. Carolina Gov. M. Gardner calls on Pres. Hoover to convene special session of Congress on the cotton problem. Dr. A.Cox of the University of Texas says cotton at corrent prices a good investment, since it's selling considerably below cost of production. Louisiana Gov. Huey Long signed one-year cotton holiday bill and sent it to Texas in hopes a special legislative session would be called to pass it.

Management of Russian state grain farms will be decentralized into 9 operating units "along lines suggested by Stalin's speech in June."

M. Litvinoff, Soviet Commissar for Foreign Affairs, predicts nonagression pact between Russia and France will have more incisive bearing on European situation than any treaty in recent years, and "prove agencies of goodwill between Russia and capitalistic nations with which it has friendly commercial relations."

French govt. to renounce mandate over Syria after "negotiating treaty of alliance with authorities of mandated territory"; will reportedly apply for Syria's admission to the League.

United Air Lines became first air transport company to fly over a million miles in a month, with 1.031M flown last month. Nat'l. Air Transport division of United Air Lines is replacing older mail planes with faster, high-capacity Boeing cargo planes; new planes are equipped with 525 hp Hornet engines, and have cruising speed of 120 mph. Planes will carry night flying equipment and "two-way radio telephone."

A new electric steel furnace with a 25-ton capacity is being built in Sweden. The owner will be the Kopperbergers Berslags Aktiebolag, a firm first chartered in 1288, and possibly the world's oldest industrial corporation.

Columbia Pictures is planning production of "26 feature films and 16 full length westerns" in the next 11 months.

Even a hundred years ago, when candles were the brightest lights available, it was known that plenty of light improved the mood. As Sydney Smith wrote then, "How is it possible to be happy with two mould candles ill-snuffed? You may be virtuous and wise and good, but two candles will not improve your spirits. Every night the room in which I sit is lighted up like a town after a great naval victory, and in this cereous galaxy, and with a blazing fire, it is scarcely possible to be low-spirited. A thousand pleasing images spring up in the mind, and I can see the little blue demons scampering off like parish boys pursued by the beadle."

Week in review:

Stocks sagged early in the weak, but continued to demonstrate strong resistance to bad news; "as the week progressed, it was growingly obvious that stocks were largely lodged in the hands of people who were not to be easily frightened into selling." "Fairly brisk gains" set in later in the week as feeling improved concerning the international situation, though there was some concern bears might resume aggressive operations after Labor Day. Stocks in Paris fell sharply despite improved sentiment after formation of the British coalition govt., as British negotiations for new US-French credit were seen "indicating the depth of the British difficulties."

Steel industry featured continued negative news; lack of rumored US Steel action on wage cuts disappointed the financial community; 1% decline in output set back hopes of seasonal fall recovery; buyers extremely cautious; scrap prices weaker.

Bond prices fell early in the week, with many issues selling at record lows. However, impressive recoveries developed later, with second-grade rails snapping back particularly sharply; convertibles also rallied, as did amusements and oils. British bonds almost recovered earlier losses, while European govts. were steady; S. American irregular. US govts. slightly lower on report of new financing next month.

British Labor cabinet falls; coalition govt. formed to tackle large govt. deficit. Reaction in NY banking circles generally positive. Some return of foreign balances to London reported; this is expected to accelerate as confidence is restored.

German situation "showing steady improvement"; reopening of Stock exchange expected Sept. 3, though trading will be strictly controlled at first.

Foreign currency market featured vigorous rally in sterling in first half of the week; sterling later gave up some of its gains but bankers generally saw this as a technical setback and remained confident in long-term British prospects, while admitting they still have "a difficult course to follow."

Grains sold off to record or long-time lows early in the week; rallies later in the week remained feeble in spite of unsatisfactory weather reports from Europe and Russia. Heavy Russian exports reported.

Cotton rose slightly off lows, as traders awaited possibility of something tangible arising from "the many proposals that have been advanced," particularly the one-year cotton holiday advocated by Gov. Long.

Market commentary:

Market wrap: Stocks were strong on more active trading Saturday, following announcement of new $400M credit to Britain. Buying converged on stocks seen benefitting from more stable world conditions, including Kreuger & Toll and IT&T. Merchandising shares including Woolworth and Macy were also strong following report of pickup in fall orders; amusement shares also active on hopes for seasonal improvement. Trading in leading stocks was not large, but prices moved up impressively. Rails showed firm tone in spite of unfavorable July earnings reports. Bonds continued recent improvement; rail bonds extended rally, with second-grade issues especially active and strong. Convertibles and industrials rose. Foreign list generally steady to firm after report of new $400M British credit. Argentine govts. active and strong. US govts. dull and little changed. Grains mixed, with wheat falling on report of smaller-than-expected 12% cut in planned US winter wheat acreage and higher-than-expected Canadian crop estimate; other grains somewhat higher. Cotton up moderately. Copper price slightly firmer; some sales at 7 3/4 cents/pound and almost no metal available at 7 1/2.

Technical market observers see some hopeful signs in recent stock action in spite of "irregularity on the surface." Stocks have been showing "noteworthy resistance" to bad news. The Dow industrials' upward trend line since June 2 hasn't been broken on reactions, while the bear trend line starting at Sept. 3, 1929 has been "penetrated on the upside for the first occasion since the bear market started. While most active stocks have been subjected to repeated tests, many other issues have been in a "creeping advance"; this is opposite to the pattern in 1929, when market leaders were advancing while many issues were already falling.

Recent pattern of low stock market volume may be a hopeful sign; detailed analysis of bear markets in 1897, 1900,1907, and 1921 shows a similar pattern of very light trading lasting several weeks before the ultimate recovery from the bear markets began. While current period of low volume isn't yet as long, "it has been pronounced enough to demonstrate that the fires of necessitous liquidation are gradually burning out."

Some market interests are concerned about recent weakness in some bank shares, which have broken through their June lows; many believe bank shares often predict the general market trend, though in this case the weakness may be due to "individual situations."

Some traders are staying away from public utilities on fears electric rate reductions will be proposed in the next Congress.

Automotive report: A road trip through the Eastern US gives impression bus traffic is down; not a single fully loaded bus was encountered in 900 miles, while there's a “very evident increase in ... 'thumb' riders, ... resorting to all manner of ingenuity and persuasion to ride free.” On the other hand, automotive freight traffic seems higher as freight shifts from the railroads. Auto dealers report distinct trend to buying lower-priced cars for cash, as much of the car-owning population seems determined to stay out of debt. However, judging by the number of 'wrecks' being driven on the highway, there's a large pent-up demand for new cars when “things pick up.”

Otto H. Kahn [investment banker] denies last two years prove failure of capitalism; on contrary, feels today's problems best solved "within the framework of capitalism." While recommending cooperation with Europe, feels US has resources to turn tide within the country. Suggestions include: first and foremost, take care of "those in unavoidable distress," but at the same time avoid "precipitate actions" due to "strain of a wholly abnormal situation." Revise antitrust laws to meet "modern conditions." Abolish Prohibition. Take constructive measures for railroad industry.

Editorial by T. Woodlock: Nat'l City Bank analysis of industrial profits in the first half shows clear pattern of heavy industries (steel, mining, railway equipment) suffering much more than those producing "necessities of daily life" (food, textiles, cigars, amusements, drugs). This illustrates process of recovery from depression, as basic goods wear out and must be replaced. "In time this process extends to all classes of strictly consumption goods. There is an irreducible minimum in the will of people to do without these things, and when that has been reached (as it clearly has been) wheels again begin to turn, as they are turning now."

Economic news and individual company reports:

Treasury announced successful conclusion of US-French negotiations to extend further $400M credit to Britain, “for the purpose of strengthening still further the exchange position of sterling.” This brings total US-French credits extended to Britain this month to $650M. European currencies rose, led by sterling. About 100 US banks will participate in the US half of the credit; French private banks will take the other half, and will sell half of their share to the public. Cost of credit to the British Treasury estimated at 7% including all charges. British representatives quickly accepted terms, “which is probably explained by the necessity for immediate aid to sterling.”

Huge recent loans to Britain, together with fact that the current $400M credit was arranged in 48 hours, caused bankers to “declare that no better refutation could be found to the alarmist reports recently circulated that England would be forced to abandon the gold standard.” Granting of the credits indicates determination of “international banking authorities ... to uphold sterling's traditional stability ... Sterling plays such an important part in foreign exchange and foreign trade that a dislocation of the exchange would be reflected unfavorably in foreign trade and international finance the world over.”

British bankers reportedly optimistic; foreign balances appear to be returning to London as confidence grows. NY bankers “unanimous” in declaring the British credit constructive; should allow Britain to meet emergencies if any temporary hitches arise in difficult budget negotiations. See Britain as facing difficult and permanent govt. spending cuts, but ease with which credit was raised indicates faith in British govt. and future.

Kreuger & Toll debentures and Swedish Match B shares fell to record lows in Stockholm Friday, with liquidation mainly coming from Europe; however, Kreuger & Toll A shares, which are mainly held in Sweden, didn't trade, indicating local confidence. "Ivar Kreuger stated that an organized bear syndicate has been disseminating adverse rumors with view of raiding the Swedish market," which is vulnerable to such attacks due to its small size. "Inquiring Investor" column answers letter of a reader tempted by K&T's 10% yield, though he's "always bought high-grade issues" in the past. After some analysis, the columnist gives K&T a thumbs up; "yield of about 10% obtainable in this well-managed enterprise seems to compensate more than generously for the risk involved ... might be a good medium for leavening the yield obtainable from higher grade issues in your portfolio."

AT&T seen earning $9.50 - $10.00/share this year, down from 1930 but covering the $9 dividend with something to spare.

Survey of earnings of 65 industrials showed first-half earnings of $248.7M, down 51.8% from 1930. However, seasonal Q2 gain was sharper in 1931; Q2 earnings of $142.2M were up 33.4% from Q1, vs. a mere 11.3% gain in 1930. Best industrial performance was by food companies, down 11.6% for first half; steel and oil industry profits were down sharply. Only one of 18 manufacturers of "miscellaneous industrial products" showed first-half gain in profits - IBM. Chain stores turned in excellent performance, with first-half net up 42.3% from 1930.

Fisher's wholesale commodity index resumed downtrend after holding steady for 5 weeks; fell 0.5 to 68.9, a new postwar low.

Midwest farmers reportedly "feeding enormous amounts of wheat to all kinds of livestock."

Champlin Refining says will buy Russian gasoline to fill orders due to oil shortage caused by Oklahoma and Texas military shutdown.

Treasury is offering $800M in 20 - 24 year 3% govt. bonds; rate is new record low for issue with that maturity.

July net operating income for all class 1 rails estimated at $55.8M, down 32.6% from 1930 and 54.9% from 1929; revenues $377.5M, down 17.3% and 32.3%.

Brazil has to date destroyed 1.250M bags of surplus coffee (132 lbs/bag) worth $10M, mostly by "a series of coffee bonfires." Brazil banned wheat imports for 18 months (after acquiring 25M bushels from Farm Board), in a severe blow to Argentina.

French budget deficit for fiscal year ending Mar. 31 expected to total $100M vs. $80M prev. year; France will also suffer a loss due to the Hoover debt plan.

General Mills sales of packaged goods are running ahead of 1930; Wheaties are particularly strong, after being promoted in the co.'s radio programs.

July sales by US meat packers were down 23% from 1930, due to decreases in both prices and volume.

US canned pea production in 1931 season was 13.3M cases vs. 22.0M in 1930.

Companies reporting decent earnings: American States Public Service.


After Tomorrow - play by Hugh Stange and John Golden, at the John Golden Theatre. Play concerns "tedium of life in a Washington Heights basement apartment." Willie Taylor, an unsuccessful middle-aged insurance salesman, is married to an overworked wife who blames him for "all the unsatisfied romantic dreams of her life." He's also father to Sydney, whose marriage to Pete Piper has been delayed for three years due to financial troubles and the demands of Pete's widowed and dependent mother. A long-awaited promotion clears the way for the marriage, but Mrs. Taylor then elopes with a boarder, "a shock which throws Willie into a stroke of apoplexy"; the resulting doctor's bills again delay the marriage indefinitely. Finally, all obstacles to the marriage are removed when Willie acts as matchmaker between Mrs. Piper and a neighborhood widower, and "the weight of his own sickness vanishes as he dies at the final curtain."


Mistress - The last maid I had was too fond of policemen. I shall expect you to avoid them. Maid - Don't worry about that, ma'am. My father's a burglar.

"Did Harold finally inherit anything from his rich aunt, after pretending to be so fond of her rotten little lapdogs all those years?" "Yes, rather; she left him the lapdogs."

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