August 11, 2010

Tuesday, August 11, 1931: Dow 134.26. -0.68 (0.5%)

Assorted historical stuff:

Radicals in the Prussian election fell far short of the total needed to dissolve the Diet and call new elections; total was 9.793M vs. the required 13.656M. General relief was felt since a close vote had been anticipated; Chancellor Breuning's rule is now believed assured at least until the Reichstag convenes in the fall. Sentiment is improved, and "the feeling is general here that the German situation is fast clearing." There have been no heavy runs on banks since they reopened, and even savings banks now report more deposits than withdrawals. Bond prices rose sharply after the election results; some over-the-counter trading is taking place in stocks. A cut in the 15% Reichsbank rate is anticipated shortly. Total German unemployed on July 31 were 3.976M, a surprisingly small increase from the 3.954M on June 30 considering the crisis in July. "Serious rioting continued in Berlin, but this was regarded as a natural sequence to the failure of the radical parties and its significance was minimized, bankers maintained that the Berlin police were in complete control."

The Yangtze Valley of China suffered the worst floods in 50 years, threatening crops that 100M people depend on. A reporter described the Valley as a vast inland sea for hundreds of miles over one of the country's richest areas. Widespread epidemics are feared when the floods subside; no real relief is expected for another 3 weeks.

Based on current cotton prices and crop forecast, this season's crop will be valued at only about $585M vs. $781M last season and an average of $1.5B in the previous five seasons. There are over 2M farm families that raise cotton, and almost all of it is raised on credit; about 20M people in the South are dependent, directly or indirectly, on the cotton production industry. "That this will mean a drying up of purchasing power and be troublesome for Southern banks is obvious." "Wild scenes were witnessed" in British cotton exchanges after publication of the govt. crop estimate Saturday; "anxious traders rushed about, gesticulating while prices sagged throughout the morning ... The visitors' galleries ... were crowded with spectators eager to watch the excited trading below." Possible unified action of Southern states to curtail cotton planting was nullified when the Texas Senate defeated a bill for 50% curtailment of cotton acreage; opponents argued it was Socialistic and unconstitutional. C. Williams, Farm Board member, said drop in cotton price was just a "panicky" reaction; saw no reason why cotton prices should go much lower.

Editorial favoring Gov. Roosevelt's stand for operating self-supporting public works projects through independent agencies. In addition to advantage cited by Roosevelt of avoiding "legal red tape," this prevents incompetence in carrying out the projects from being "unloaded on the taxpayer."

Jackson Brothers, Boesel & Co. note that while percentage of US population engaged in farming has declined from about 38% in 1900 to 20% now, farm products still supply raw materials for about 30% of all factory operations, or 40% including leather and lumber. While no immediate improvement appears in sight for farm prices, study of the past 55 years shows regular pattern of high farm prices being followed by industrial depression, and vice versa.

Census figures show 193,562 US manufacturing plants that normally employ 500 or fewer people, vs. 2,747 that employ more than 500.

In a single average hour, US railroads load 5,238 freight cars and board 80,371 passengers.

Successful experiments reported at Sheffield, England in casting alloys of aluminum and copper to imitate various shades of gold color.

Cost of holding municpal elections in NY State estimated at average of 76 cents per vote recorded, varying from 43 cents to $1.57.

Leading exporter of candy to the US in the first half was Russia with 1.757M pounds, over seven times the total in the previous year.

[Note: Disinterested Observer Dept.] Return of beer would employ 1.250M people, provide govt. revenue of $400M annually and provide market for 80M bushels of grain, according to August A. Busch, pres. of Anheuser-Busch. The AFL also urges return of wine and beer, saying this would stimulate 60 industries.

Market commentary:

Market wrap: Stock trading continued sluggish; pressure against the rails was again the feature, with many rail stocks hitting new bear market lows. Industrials were also lower but showed better resistance; moderate recovery took place in late dealings. Bond trading dull with prices irregular; German govts. rallied and other European issues were firm; S. American bonds were irregular, with rallies in many groups; US govts. dull and a shade lower; domestic list irregular with losses outnumbering gains. Commodities mixed; cotton fell very sharply in the first NY trading after the high govt. crop estimate; grains were strong with wheat up sharply. Rubber fell very sharply, hitting new record lows; the August contract traded at 5.00 cents. Silver fell 3/8 cent to 27 1/8.

Some market observers anticipate a technical rally, but few are advising clients to buy stocks for it.

Positive result of the Prussian election was countered by break in cotton prices, lower than expected unfilled orders report from US Steel, and rail weakness.

Since GM's declaration of its regular dividend, some "quiet liquidation" has come into the automotive stocks; this is attributed to expected lower production and earnings in the second half. Johns-Manville also ran into selling following announcement of better than expected Q2 earnings and regular dividend. US Tobacco sales are reportedly doing well, thanks to sharp increase in June snuff production and low-priced tobacco for rolling cigarettes.

Wall Street is abuzz with speculation of further dividend cuts in coming months; many stocks that have been highly rated for years are now cited as probable cutters, including Western Union and J.I. Case . "Talk in this strain has been responsible for much of the quiet liquidation in individual issues. The view is spreading that many companies maintained their distributions in the hope of a definite improvement in business beginning with the fall months." If this fails to materialize, dividend actions are likely. Dividend speculation is particularly heavy on rail shares, with a number of important meetings in the near future.

Harvard Economic Society says "incipient business revival" apparent early in Q2 was interrupted by the European crisis; that crisis has now become serious enough to bring up possible analogy to the 1890's; business outlook "is now uncertain."

Economic news and individual company reports:

Recent Chicago bank troubles seen possibly leading to legalization of branch banking in Illinois. The argument is made that larger and better supervised branch bank systems would have avoided "the preponderance of real estate paper" that caused trouble for the failed banks. [Note: banks were too small to succeed?]

Commerce Dept. business survey shows "the more than seasonal decline in business through June was less marked during the first two weeks in July." Seasonally adjusted index of industrial production fell 3.4% in June; average adjusted index in first half was down 16.3% from 1930; factory payrolls were down 5.5% in June and 25% below a year ago. Fed. Reserve reports department store sales dropped somewhat more than seasonally in July; sales were 8% lower than July 1930; sales for first 7 months also down 8%.

East Texas oil situation appears worse. After the Texas House finally passed a conservation bill backed by Gov. Sterling, the Senate rejected it and passed a substitute that practically nullified curtailment; prospects of enactment of any effective bill now seen as remote. East Texas production continues to increase; daily average last week estimated at 662,000 barrels. Oklahoma oil shutdown continues; refiners are using up oil in storage but will apparently go to East Texas for new supplies rather than pay higher prices in Oklahoma.

Of 30 leading railroads, 15 failed to cover fixed charges (interest on debt) 1 1/2 times in the year ending in June. [Note: this was the standard requirement in order for bonds of the railroad to be legal for savings banks to buy. Therefore, a railroad's falling out of this class would tend to lower its bond prices and make it harder to for the railroad to raise needed capital.]

Agriculture Dept. Aug. 1 estimate of corn crop was 2.775B bushels, down 193M from the July 1 estimate; wheat crop estimate 894M bushels, up 24M.

Farmers in Texas have reportedly stored about half their wheat crop in improvised trenches. Much Texas wheat is being fed to cattle and hogs.

As previously in the depression, food companies showed one of the best earnings records in Q2, although the effects of the depression were more in evidence than previously. A group of 17 food companies reported Q2 earnings of $26.4M, down 16% from 1930, vs. a 6.8% year-over-year decline in Q1 and a 6.3% decline for all of 1930. Companies reporting higher Q2 earnings included Hershey, American Chicle, and Loose-Wiles Biscuit.

US Steel unfilled orders as of July 31 were 3.405M tons vs. 3.479M on June 30 and 4.022M on July 31, 1930. Decrease was larger than expected considering very low level of operations during the month.

Australia undertook one of the largest loan conversion operations in history, as Premier Scullin appealed to owners of 556M sterling in internal bonds to recognize the country's grave situation and accept a 22 1/2% reduction in interest paid. Bondholders are given 3 weeks to respond; those not responding are assumed to agree to the conversion. [Note: this voluntary appeal seems bizarre today, but Britain later undertook a much larger one; the result was a great success for the govt. but had awful long-term results for the bondholders who accepted the conversion.]

Sterling strengthened on reported support by a large NY bank; gold losses continued but at much lower level.

Chicago wholesalers reported best buying by retailers in the week ended Aug. 8 that they have experienced in recent months.

NY City Emergency Employment Committee reported $8.551M in contributions from about 225,000 people from Oct. 30, 1930 to July 1, 1931. The funds provided work for 26,039 people at the peak in January.

Companies reporting decent earnings: Canadian Hydro-Electric Ltd.


Huckleberry Finn - Paramount film. A worthy sequel to the delightful Tom Sawyer (“one of the finest cinematic achievements of the year 1930”). Jackie Coogan and Junior Durkin reprise their roles as Tom and Huck. Features fine natural acting, beautiful photography, and flawless dialogue. "Humor and pathos from the original book are carefully mingled to produce a photoplay that would make Mark Twain nod with approval if he could witness it."


Jack and Jill went up the hill, at sixty miles or better; A cop unkind was right behind - They're seeking bail by letter.

Diner at a Small-town Hotel - Why does that dog sit there and watch me all the time? Waiter - You've got the plate he usually eats from, sir.

1 comment:

  1. [Note: banks were too small to succeed?]

    The trick seems to be to create banks that are too medium-sized to blow the system up.