August 15, 2010

Saturday, August 15, 1931: Dow 144.15 +3.93 (2.8%)

Assorted historical stuff:

Editorial on political brouhaha now flaring up as Pres. Hoover is charged with deliberately blocking the St Lawrence hydropower project in order to take it out of the hands of Gov. Roosevelt, the anticipated Democratic Presidential candidate next year. In an important [and rather surprising by modern standards] qualification, however, the editorial makes it clear that "the Governor himself is wholly guiltless of any part in this midsummer madness of partisan politics. ... But he has supporters who are probably less well-informed, less meticulous as to the truth, and more willing to use any and all means to advance his political fortunes."

Palmer Pierce, assistant to the pres. of Standard Oil of NJ, meets with Pres. Hoover to discuss business conditions and "also a proposed movement on the part of industry to help meet the unemployment situation this winter." The President's Emergency Committee for Unemployment has initiated a program for canning of surplus food and vegetables to provide food for the unemployed during the coming winter.

Extensive review of circular distributed by Livingston & Co. titled "Legislation Cannot Alter Natural Law" (refers to economic law). Decries calls by politicians and labor leaders to depart from sound examples of the past and force govt. to assume new responsibilities, in spite of cautionary examples of failure of such ideas. Failures cited include the British dole, the ever-popular Farm Board, and the "new era" theory of high wages based on the idea that "the more people spent, the richer the country became.": Some fallacies can only be detected by experience, but there are some "of which scarcely experience itself can destroy the influence; ... and which, though every trial ends in disappointment, ... persuade us to try again what we have already tried ..."

Sen. Borah says French demand for security, if carried beyond that already assured through treaties and heavy military power, "can mean nothing less than the destruction of Germany, Austria and Hungary. And the world will not consent to see that brought about."

Editorial noting German celebration of 12th anniversary of founding of their republic. The past 12 years have been difficult; "they recall the struggles ... that confronted the early days of our own republic ... In addition to her internal difficulties Germany has had to live down foreign prejudice as to her war-like aims. Germany has held its own "against its Hitlers and Steel Helmets," but is still struggling with its credit crisis caused by reparations. However, even the recent emergency has created hope of a solution. Germany has demonstrated "desire to maintain her constitutional form of govt. ... It is a very different Germany today to that ... prior to 1919," and this makes revision of reparations more likely. "Fancy the French premier paying a courtesy visit to Berlin twelve years ago! The world is in a receptive mood" on debt reduction, "and Germany should know now on which side her bread is buttered." Visit of French Premier Laval and FM Briand to Berlin postponed due to ill health of Briand.

Largest world consumer of copper in 1930 was the US, with 1.618B pounds, or 47% of world consumption; second was Germany with 410M, or 12%.

Mexican Congress passes new Labor Law opposed by business.

"Sugar interests not alarmed over Cuban revolution." Holders of Cuban bonds should remember they "are in a stronger position than most Latin American issues, because they have protection under the Platt Amendment which gives the US unusual power and responsibility in the finances of the Cuban Republic."

Traveler's Insurance reports US auto accident deaths in the first 7 months of 1931 were about 17,800, up 5.7% from 1930.

In spite of repeated warnings by scientists, flour dust "explosions of great violence continue to cause death and destruction throughout the US." A chemist recently estimated that if the flour in an ordinary 100-pound sack were diffused through a 10x20x20 foot room and ignited, the resulting pressure could raise a weight of 2,500 pounds a distance of 100 feet. The US Bureau of Chemistry is working on ways to avoid dust explosions.

Construction of Hoover Dam will resume after strike; 1,200 men who walked off must re-apply for work.

AT&T will extend phone service to the Canary Islands Aug. 15; calls will pass through London and Madrid; a call from NY will be $40.50 for the first 3 minutes and $13.50 for each additional minute.

Julius Fleischmann, yeast manufacturer, leaves estate of $20.6M.

George Bernard Shaw is paid the highest royalty of any playwright - 15% of gross receipts, giving him about $80,000 annually on plays produced in the US. James Barrie gets 12%, and other "important playwrights" 10%.

Market commentary:

Market wrap: Stocks experienced the most vigorous session on the upside since end of the "moratorium rally" in late June. Spirited buying began early in many sections of the list; leading shares including Steel, Westinghouse, Allied Chemical strong; short covering heavy at times; bullish operations spread to an increasing number of individual issues including Radio and Ward; J.I. Case rose sensationally on a short squeeze attributed to Danforth interests. Notably, a number of leading rails that have recently been favorite short targets rose sharply, and the whole rail group showed relief from pressure. Bond trading more active, with rallying in many sections. Foreign list generally strong; Colombian bonds rallied sharply as did some other S. Americans, but Cubans declined on reports of revolution. US govts. steady. Sharp rallies in many industrial bonds. Rails hit new yearly lows but then rallied. Grains and cotton moderately lower.

Some observers changed their cautious stance due to ability of many stocks to top their highs of last Tuesday; they now recommend picking up stocks during any technical reaction, but still advise stop orders near the buying prices to protect accounts. If the market encounters resistance to further upturns, they recommend selling long positions and moving to the sidelines again.

Short position has reportedly been appreciably reduced; bears were discouraged by good support shown for industrials and utilities early in the week when the rails were under pressure; bullish demonstrations later in the week have prompted short covering that was active and, at times, urgent.

Almost all high-quality bank stocks "appear attractive at present levels, the important institutions, including City and Chase, having written off the losses incurred in the stock market and set up generous reserves for contingencies. Earnings records for the first half of this year were surprisingly good despite heavy write-offs.

A number of brokers have turned bullish, including the memorably named Hornblower & Weeks: "We are more than halfway through the normal seasonal period of summer dullness, and with the normal fall period of increased activity only a few weeks ahead, we believe a broader bullish position is warranted. ... Both technical and seasonal considerations favor a more extended rally, and the market during recent sessions would seem to forecast such a development."

Promotion of new fixed investment trusts [similar to ETF's] joined managed investment trusts [similar to mutual funds] in the doldrums; only 3 fixed trusts and no managed trusts were started in the second quarter.

Howard Heinz, H.J. Heinz pres., says expects biggest year's business in company history; introducing new products; "we are very optimistic about the future."

E. Beatty, Canadian Pacific Rwy. pres., believes depression has passed bottom, but sees no tangible evidence yet of return to normal conditions. Praises extensive and carefully worked out Canadian plans to relieve unemployment in upcoming winter.

Economic news and individual company reports:

British govt. decision to balance budget drew some favorable early reaction in the London stock market, though financial circles were skeptical due to lack of specifics on cutting spending; the only specific govt. proposals so far were war loan conversion (lowering interest paid on those bonds) and an extra tax on bond interest. Bank of England Gov. Montagu Norman "reported to be on verge of breakdown and is ordered to take complete rest." Committee set up by British Chancellor Snowden in Nov. 1929 to investigate banking and credit delivered its report. Committee was diverse, including bankers, industrialists, economists, a "trade unionist," and "an ex-Communist." The report, running 300 pages, is mainly the work of economists Keynes and Gregory. Emphasis is on inflationary policies including reducing gold backing required for currency. However, there's no recommendation for radical changes such as the nationalization of banks demanded by the Labor party.

Discussions continue in Basel on prolongation of short-term credits to Germany; agreement expected soon.

Hungarian govt. will "release" bank accounts starting Aug. 17; govt. will guarantee gold value of deposits not withdrawn.

Oklahoma Gov. Murray proposes plan to install meters on all oil wells to keep closer track of production; will discuss several other "drastic changes which he will recommend for control of the Oklahoma oil industry." Texas will continue old controls on oil output pending Aug. 25 hearing on new law. While gasoline in the Chicago wholesale market has firmed to 4 1/8 - 4 1/4 cents/gallon, retail consumers are benefitting from a price war among the majors that has produced record low retail gasoline prices in Chicago and St. Louis.

Bradstreet's weekly review reports clearance sales once more the main feature of retail trade; general volume at least as great as last year, but achieved mainly though bargain prices; retailers cautious in buying and stocking up less than usual for fall, but some improvement seen in wholesale. "Customers ... are fast acquiring the habit of expecting low prices on all goods."

[Note: Strangely Unfamiliar.] John G. Jenkins of Mineola, L.I., after 24 years, finally repays over $1M owed to depositors of his father's banks (failed in 1907).

Sharp and unseasonal rise in Fed. Reserve credit outstanding in last weekly bank reports attributed to shortage of funds at local banks due to failure of several small banks in the city and withdrawal of Bank of France funds from the bill market. However, Fed. Reserve was able to handle the sharp rise in credit without causing higher money rates, indicating "both the extreme liquidity of member banks and the determination of the monetary authorities to allow no factors ... to destroy the cheapness of credit." Decline in "all other" loans attributed to bank sales of bills rather than fall in commercial loans.

A check with officials of leading car makers in the Detroit area fails to confirm suggestion of higher-than-expected retail demand; business is said to be following the expected seasonal trend accurately. There are no cases where previous production schedules have been increased; the industry is focused on “a thorough 'clean-up' of present cars in anticipation of 1932.”

Last week saw the first significant railroad bond offering since March, a $10M issue of one-year 5% notes by the Minneapolis, St. Paul RR marketed at 100.

Shippers appearing before the ICC repeatedly testify that granting the 15% freight rate increase would drive traffic away from railroads.

Lower grain transport rates that took effect Aug. 1 have largely failed to help farmers due to declining grain prices. Current wheat prices in many cases leave Southwestern farmers with less than 25 cents paid per bushel at country locations. Farmers, "having shipped as much as necessary of their bumper crop at the disastrous prices during July in order to pay their immediate debts and mortgages, ... are storing and withholding their wheat from the market."

Combined sales of 40 leading chain store and mail order houses in July were $306.6M, down 2.6% from 1930. Sales by unit and tonnage were likely well ahead of 1930. Groups with best sales performance were novelty and drug chains, which both showed increases. Largest chain store in sales is A.&P., with $627M in the first 7 months of 1931; nearest competitor is Sears Roebuck with $185M.

Company reports since July 1: 151 companies reported higher earnings vs. 1930 and 444 lower; 464 dividends unchanged, 12 increased, 92 cut.

Companies reporting decent earnings: Drug Inc., Western Auto Supply.


Pilot, After Daring Nosedive - I bet half the people down there thought we were going to crash. Copilot - Half the people up here did too.

"How do you make a balloon rise?" "You remove the ballast." "Correct. And when you want to descend?" "You put it back."

The best after-dinner speech in history - "Waiter, how much for everyone?"

Movie (Birth of a Tradition Dept.):

Men Are Like That - Columbia film, at the Strand. Adaptation of an outmoded melodramatic play (Arizona) involving love quadrangle between West Point college hero, his NY mistress, her sister, and his future commanding officer in Arizona. Before the film "had got far advanced, it was apparent to the majority ... that its sentimental plot was not to be taken seriously. They therefore began to greet the most serious points in the story with unrestrained laughter. Some persons even ventured to volunteer audible answers to various questions asked by the actors on screen. In short, they decided to turn what had begun for them as a search for genuine entertainment into a sort of Roman holiday."

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