September 5, 2010

Saturday, September 5, 1931: Dow 132.62 -0.52 (0.4%)

Assorted historical stuff:

Editorial: News that the $800M 20-year Treasury bond offering at 3% has already been oversubscribed is unsurprising, but will again be hailed by proponents of a huge Federal “prosperity loan” of several billion dollars as evidence investors stand ready to finance such a project. This would be a mistake; the demand for US govt. bonds reflects an abundance of capital seeking unquestioned safety; this status would be lost if the Treasury borrowed unmeasured sums to invest in prosperity “schemes.” Other departments of the bond market give ample evidence of the market's reaction to any perceived risk.

Editorial praising common sense of the New Hampshire Att'y. Gen. Davis in not classifying “grape block” as illegal under the state's Prohibition law (which predates the Federal one) even after the recent “grotesque Federal raid in NY.” [Note: grape block was apparently a solid brick of dried grapes, in some cases sold complete with a pack of yeast and a stern warning to keep the yeast away after dissolving the brick in water, lest the mixture turn into wine. This was not a small-scale business - according to the link, California grape growers increased their acreage about 700% in the first 5 years of Prohibition.] Davis found that he couldn't classify a substance containing no alcohol as intoxicating - while it does become intoxicating after some time when mixed with other ingredients, the same could be said for grains, apples, grapes, etc., whose sale is not therefore forbidden by law. “A little leaven of New Hampshire logic might have a salutary effect in the Dept. of Justice in Washington.”

Interesting letter from a reader. Calls T. Woodlock “the nation's foremost German 'reliever'” and argues against permanent cancellation of reparations, while accepting temporary suspension for economic emergency. Contrasts way the 4 main participants in the World War handled their war debts. the US and Britain maintained value of their currency, and are highly taxed to pay war debts. France “took a more rational view” and allowed the franc to depreciate, eliminating most of her war debt; it is now doing relatively best of the world's nations. Germany, by contrast, entirely eliminated her war debts outside of reparations (through hyperinflation), and took in several billion dollars of good money to boot from people who bought marks on the way down. Is it fitting now to “saddle our people and industries with Germany's share of the war cost,” putting her industries on a “much better footing than our own?” Under normal conditions, Germany would easily be able to afford reparations; permanent relief would make her “financially able to rebuild her huge war machine for the next war.” Woodlock in response argues that it's precisely keeping “the German people indefinitely in a condition of economic vassalage or psychological servitude” that invites “an explosion that will wreck not only Europe but also the civilized world.”

General strike in Barcelona reportedly has weakened position of the Republican govt.

Premiers of Australian states decide on compulsory conversion (to lower rate) of $51.5 in bonds whose holders had refused to voluntarily convert. A total of $2.435B has been voluntarily converted.

Egyptian Premier Sidky Pasha says Egypt faces appalling economic crisis which will worsen unless world cotton-producing countries work out common policy.

British coalition govt. now consists of 30 Conservatives, 12 Liberals, and 8 Laborites after appointment of 31 ministers outside cabinet.

Farm Board agrees on sale to China of 15M bushels of surplus wheat; will be on credit, and to be used exclusively for famine relief. China and Mexico at odds over anti-Chinese movement in Mexican states of Sonora and Sinaloa.

British attain speed of 405 mph in trials for the Schneider Cup air race scheduled for Sept. 12; France and Italy withdraw.

Market commentary:

Market wrap: Stocks opened with further moderate selling, again concentrating on the rails; NY Central fell to a new post-1921 low, and leading industrials were unsettled by a new bear market low in Steel. However, on the threshold of a three-day trading holiday over Labor Day, trading became increasingly dull as the session went on; some short-covering became apparent from traders evening up before the holiday, and the market showed some recovery from the morning lows, though the rally failed to pick up momentum. Some selling broke out in the final hour in public utilities including IT&T and Amer. & Foreign Power, but didn't spread to the industrials. Bond trading more active; prices irregular, with alternating declines and rallies in many issues. US govts. notably steady. High grade industrial bonds have gone against the general trend, showing rallying tendencies in recent days. Wheat, corn and cotton up moderately.

Reports are again circulating of substantial selling of US stocks from abroad; “some of the important financial interests in England” are reportedly bearish.

August was the smallest month in NYSE volume since May 1926; at that time there were 60% fewer shares and 20% fewer issues listed. The Dow averages showed an unusual divergence; the industrials gained 4.02 to 139.41, while the rails fell 5.26 to 68.18.

Several important dividend meeting are upcoming, including Western Union, New Haven RR, NY Central, IT&T, and Westinghouse. Western Union fell sharply Friday on reports their dividend might be cut. Dividend uncertainties are negatively affecting the market, but “the most depressing influence undoubtedly has been the failure of seasonal acceleration of business ... to put in an appearance.” Stocks showed resistance to bad news in July and August, “clinging to the hope that the autumn would bring an upturn ... Hence, considerable disappointed selling broke out when September set in without any visible signs of trade improvement.”

Economic news and individual company reports:

German stock exchange moved toward normality Friday, on its second day after reopening; trading was quieter and buying orders were as large as selling, allowing almost all selling orders to be executed. Exchange is likely to allow several quotes per day on each stock soon. Signing of agreement on extension of short-term credits to Germany delayed yet again; German bankers insist central banks agree to 6-month extension; "despite endless exchange of cables," no compromise found. German business failures in August were heavy, with total liabilities doubling from August 1930. Most foreign currencies declined against the dollar, while Swiss francs continued to advance.

Bradstreet's weekly reports some optimism based on seasonal upturn in some lines and hopes for improvement in others. Retail buying stimulated by back-to-school buying and start of fall styles; prices notably lower. Closeout sales of summer goods continue in many places, with goods drastically marked down. Women's and children's clothing, along with hats and shoes, are finding demand; household hardware and electric appliances increasing; fall clothing for men appears quiet.

Net operating income of class 1 rails in the first 7 months was $295.1M, an annual rate of return of 2.1% on property investment. Total was down 35.9% from 1930. 35 class 1 rails operated at a loss, while only the International Great Northern had higher income than in 1930, benefitting from East Texas oil activity.

New bond offerings remained very low this week, at $7.5M vs. $8.2M last week and $67.2M in 1930. All offerings this week were of municipal bonds. Rumors of flotation of large issues in the near future have died away.

East Texas oil area to reopen today, under supervision of State Militia. Output of field under the order estimated at 400,000 barrels/day. Oklahoma Gov. Murray expressed disappointment, saying "That will never do. They are losing their fight after they had it won." More advances in gasoline and crude oil prices took place in various US locations, mostly in the East.

Ford cut August vacation short by one week to resume manufacture of Model A; move necessitated by abnormally low inventories in spite of subnormal business.

Company reports since July 1: 196 companies reported higher earnings vs. 1930 and 608 lower; 745 dividends unchanged, 17 increased, 133 cut.

Companies reporting decent earnings: Electric Power & Light, Household Finance Corp., Tobacco Products Corp.


Cloudy With Showers - Rather saucy-sounding comedy set at women's college; a "young male instructor ... is daringly challenged for his views on women and sex" by an adventurous, yet logical pupil. Strangely, the play changes midstream from "saucy comedy, gaily intellectualized" to a "farcical mystery melodrama" when a murder is commited next door to the "strictly dishonorable" room in a roadside speakeasy where the pair have taken refuge from a storm. Happy ending ensues as the murderer is captured and the pair falls in love. "Can be highly recommended ... to people who are sure they will not be shocked when Miss Critchlow yanks off her dress in the speakeasy, very much in the manner in which a young woman once upon a time would have stamped her foot."

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