August 26, 2010

Wednesday, August 26, 1931: Dow 136.65 -0.97 (0.7%)

Assorted historical stuff:

British Premier MacDonald announces new coalition govt. including 4 Laborites, 4 Conservatives, and 2 Liberals; appeals by radio for sacrifice to tide the nation through its crisis. Confirms govt. decision to cut unemployment benefits by 10%. London stocks showed improved tone; sterling was higher. Most current Labor members of Parliament expected to move to the opposition in protest at cuts in social spending. Trade unions organizing "virulent campaign of opposition" to cuts, accusing "MacDonald ... of accepting dictation from the Federal Reserve Bank of NY" that further credits to the Bank of England depend on cuts in the dole. Life of current govt. and future realignment of parties difficult to predict. Editorial: Split within Labor party seen likely to end its prospects of returning to power for “some time to come”; fate of Right wing uncertain, but Left wing is likely to become more radical; it has increasingly been challenging traditional British “tacit acceptance of ... 'economic inequality.'”

"Paris is of the opinion that PM MacDonald's resignation emphasizes the seriousness of British finances and invites further flight of capital." The London Times report that the $250M US-French loan to the Bank of England is nearly exhausted has been widely quoted, with predictions of a new loan. Paris newspapers urge England to quickly institute economic reforms, "for each day of delay is bringing a new sterling break nearer." By contrast, reports from the US are more reassuring. NY bankers say they haven't been approached on any new British loan; while "there is no question ... the British govt. ... could obtain all the credit that was needed" from NY, existing credit is believed adequate for now, particularly after formation of the new govt. which "practically assures" balancing of this year's budget. NY bankers generally optimistic on the new govt., believing it will, “voluntarily or not,” tackle the economic crisis by cutting spending; this will increase confidence and allow the govt. to easily obtain any additional credit needed in the future. Washington officials denied any communication with the British govt. over the crisis, and further denied the Fed. Reserve had put any "stipulations bearing on the British change of govt."

S. Untermeyer, on return from Europe, ridicules "naive Hoover discovery" that predictions can bring back prosperity and says "false alarms" of recovery from Washington officials have made us "laughing-stock of the well-informed men of Europe."

W. Gifford, AT&T pres. and director of Pres. Hoover's unemployment relief organization, will meet with officials of charities and public welfare officials to organize a nationwide appeal for relief funds in order to help local organizations build up adequate resources for relief this winter. H. Gibson, Manufacturers Trust chair., elected chairman of committee for relief of NY City unemployment.

Official Italian Fascist bulletin says public works will be started this winter at cost of 900M lire, employing 100,000 workers.

25,000 - 30,000 television sets now in use; television programs are on the air daily. While several cos. are selling television equipment, the largest such as RCA are “secretly experimenting” in order to put out best possible quality sets when large-scale sales begin; this is expected in 1932. The Columbia Broadcasting Co. estimates 11M sets will be in use in the US by 1943.

The largest and most powerful lighthouse in the world, the Lindbergh Beacon, revolves slowly (2 RPM) at the top of a Chicago skyscraper, guiding flyers to the Chicago city airport. The 2B candle power lamp needs to have the "carbons" changed every hour and 20 minutes.

Three of the most important units in the Radio City development will start construction in the fall: the International Music Hall, the world's largest theatre, between 50th and 51st Streets; a movie theatre between 48th and 49th Streets; and a 66-story office building. Contracts will probably be awarded in the next week; construction should be complete by May 1933. American Radiator to supply 20,000 cast-iron radiators for the Radio City development.

"The most prosperous and most extravagant race in the world at the present era of depression is the fur-clad denizen of the Arctic, who is generally pictured as living on blubber and inhabiting an igloo. Eskimos within range of civilization" have gone in for commerce in a big way; the fur trade in particular supplies the more successful with income from $5,000 - $40,000 a year, and they're not shy about spending it. A typical spree after a big fur harvest starts by booking passage on an airplane to a city; purchases there may include a fast motor boat, new hunting and fishing equipment, and "clothes of the white man's mode, for use on ceremonial indoor occasions." Those who haven't already installed a radio will likely buy one, and probably some musical instruments to boot.

Market commentary:

Market wrap: Stocks opened firmly following report of formation of new British govt.; Steel and other leaders showed moderate gains. However, weakness in bond and grain markets appeared to disturb the rally as the morning progressed; early gains were quickly lost and reaction spread across the list; volume appeared to increase on setbacks; American Can drew particular pressure from the bears on rumors of lawsuits; some leading rail stocks sold off on dividend uncertainty. Bond trading featured continued disturbing decline in second-grade rail bonds, with some issues falling very sharply in a thin market. Highest-grade rails rose somewhat, while US govts., public utility and industrial bonds fell slightly. Foreign list featured rally in German and Brazilian issues; British bonds eased after an early rally but are still selling at substantial premiums. Grains also continued disturbing decline, with the entire grain list hitting new season lows; Sept. wheat again broke the all-time CBOT record low, hitting 46 1/8 cents; however, an "oversold condition" developed in corn, which rallied to close higher.

Rails are again meeting resistance as they approach the lows of early June (Monday's close was 67.75 vs. bear market low of 66.85). Market observers are sharply divided over whether the June lows will be broken in the near future; if this does happen, increased selling is expected due to a large number of stop-loss orders just below those levels. Stop-loss orders are more popular "than in some time"; "bear traders have been gunning for them, and their efforts have been successful in certain issues."

Interesting article on Dow theory and its prediction of market movements. Claims that Dow theory successfully predicted that a bear market was underway on Oct. 21, 1929 (the market at that point had declined from its peak of 381 to about 325); also claims no bullish signals in the ensuing 21 months and successful prediction of secondary downward moves, though rules for interpreting signals appear somewhat complex and possibly subjective (ex. “a primary bull market is established when during the course of a bear market a secondary upward swing reacts a little after what would ordinarily be its culmination but does not decline below the old low figure, and subsequently recovers ...”) Elegant description of major bear markets as series of progressively smaller secondary swings, like a pendulum gradually reducing its momentum as the market adjusts to new conditions.

"A tendency to emphasize unfavorable influences appears to be growing," probably due to inability of the market to follow through on rallies in the past week. However, many still insist most stocks are acting satisfactorily "in view of all that has been said and done." Q3 earnings seen as difficult to forecast based on Q2 results; July and August were "hot and difficult months in many lines."

Banking figures have “yet to show that the process of deflation has come to an end or that increased gold holdings and Fed. Reserve credit are being used for anything except to provide currency for hoarding and some credit ... to distressed foreign banks.” Banks in rural districts have shown a declining trend in deposits since mid-1930, which has accelerated in recent weeks.

Treasury Sec. Mellon, at first news conference after return from Europe, “declined to discuss European affairs” but “appeared optimistic over the steps being taken by European countries to restore confidence.”

Some of the brighter minds on the NYSE floor, with little to do these days, have started devising economic remedies; in imitation of the Farm Board's recent cotton proposal, one suggestion is that the motion picture industry cure its depression by plowing under every third theatre.

Economic news and individual company reports:

Ohio Gov. White denies pleas of officials to call special session of Legislature to meet tax problems resulting from closing of 5 Toledo banks; $7.5M of $10.5M in taxes due for first half year remain uncollected. City council has approved $750,000 bond to feed needy but it must be voted on in the Nov. election. C. Stillman, special rep. of Pres. Hoover, has arrived to take charge of relief work. Grocers who have been feeding 4,000 families haven't been paid since Apr. 1. NY Gov. Roosevelt considers $25M plan for unemployment relief, to be paid for through temporary taxes on items including cigarettes and cosmetics. NY City Board of Estimate appropriates $2M for direct relief of jobless, bringing total spending for that purpose to $8.2M. Wisconsin will spend $12.5M - $13.5M for unemployment relief this year, vs. $5M last year. With employment down 20% and individual pay down 40%, increase in relief is only about 2% of loss in wages.

Retail gasoline prices are rising throughout the US and Canada, following the sharp rise in wholesale prices since Aug. 10; the wholesale price in Oklahoma rose from 3 3/4 cents/gallon to about 5 1/2 cents in that time. Many small refiners have had to stop operating due to lack of oil supplies, eliminating the surplus of gasoline previously available to "cut price dealers." Texas Gov. Sterling sent telegram to Standard Oil of NJ relaying charges from independent oil producers that imports of foreign crude oil rose sharply in the past week and warning this would interfere with Texas conservation efforts. W. Teagle, Standard of NJ pres., denied substantial increase in imports. Gov. Sterling denied independent Texas refiners were suffering from his shutdown of oil wells; reiterated that his action in placing East Texas fields under martial law “had nothing to do with the price of crude and its products.” Oklahoma Gov. Murray expects more offers of $1/barrel from major oil buyers, but warns operators won't be allowed to flood the markets when fields reopen. Sinclair Oil pres. E. Sinclair says believes current efforts by Oklahoma and Texas to set $1 price for oil won't hold up due to large amount of oil available from outside US. Oil & Gas Journal estimates crude oil production at 2.279M barrels/day in week ended Aug. 22 vs. 2.490M prev. week and 2.475M in 1930.

Rail freight loadings for week ended Aug. 15 were 742,736, up 7,956 from prev. week, down 19.5% from 1930 week, and down 32.6% from 1929.

Austria is reportedly negotiating with French banks for a loan to replace the 150M schilling loan on which the Bank of England is asking repayment.

China appeals for more liberal terms on Farm Board wheat sale, asking for 10-year credit rather than the 2 1/2 - 4 years offered by the Board at 4 1/2%. General Mills pres. J. Bell protests Board sale of wheat to Brazil and China, saying US jobs should be preserved by grinding the wheat in domestic mills and exporting the flour. Shipping Board keenly disappointed US ships weren't used to transport wheat to Brazil; asks Farm Board to look out for interests of US merchant marine in future commodity exchanges.

Assoc. General Contractors of Amer. estimates US construction spending in the first 7 months was down about 30% from 1930.

June revenue of 103 telephone cos. was $97.5M vs.$99.5M in 1930; operating income $23.6M vs. $22.8M.

Berlin stock market to reopen Sept. 3; trading will be on spot basis only, without futures. German call money is at 8% - 9%; Reichsbank seen unlikely to lower its 10% discount rate this week due to expected "money squeeze" over end of the month.

Contrary to rumors of action on wage cuts, only routine business was transacted at the US Steel monthly directors' meeting.


Pardon Us - MGM film, at the Capitol. First feature-length film by the well-known team of Laurel and Hardy is "fairly entertaining." One memorable sequence lampoons MGM's "tragic prison film, The Big House." However, "merits of the featured comedians consist chiefly in their shrewd use of pantomime ... their use of dialogue is not nearly so effective"; the most hilarious sequence in the film is an entirely silent one in which the comedians, thrown into a crowded prison cell, try to sleep together on a narrow top bunk, eventually collapsing themselves and "their villainous-looking prisonmates" to the floor.


"An elderly widower laid his heart at the feet of a modern girl at a nightclub recently. The poor fellow was trembling with passion, for the girl was as beautiful as Greta Garbo. 'Oh,' he sighed, 'oh, I'd go through anything for you, darling.' The girl gave him a keen look. 'Just how much,' she asked, 'have you got to go through?'"

New Lodger - By the way, I have a few idiosyncrasies. Landlady - That's all right, sir, I'll see that they are carefully dusted.

1 comment:

  1. I prefer the Buffett "reprice my options" joke personally.