June 5, 2010

Friday, June 5, 1931: Dow 134.73 +4.36 (3.3%)

Assorted historical stuff:

[Note: Hmm ... isn't this the third or fourth iteration of this story?] "Thanks to the prompt measures taken by central and private bankers to defend Austrian exchange [currency] and to extend credits to the Austrian Creditanstalt, there is every chance now that Europe will weather successfully the storm which was produced by what has been described in responsible banking quarters as the biggest bank failure in history. There was serious danger at one time of financial panic throughout Central Europe." Large sums were placed at the disposal of the Austrian central bank, and the schilling has been kept stable. To date, the Creditanstalt has lost $60M in deposits, but it never closed its doors. It's likely the bank's entire capital, of which large blocks are held in the US and England, will be lost, and it will be reorganized on a smaller scale to operate within Austria. "There is no evidence of any irregularity ... but the institution had been over-expanded." There is an outstanding question of about $100M in loans from foreign creditors to Creditanstalt; they may be asked to extend them or accept Austrian treasury bonds instead.

Editorial: The midweek rally has "set the financial community to asking itself eagerly whether 'the turn' has arrived." The sometimes dubious reasoning used is less important than the apparent change in state of mind. A year ago it was often said that "the depression is chiefly psychological"; while this was certainly wrong then, it's become truer now. Of particular note, business men now seem to be changing their opinion, "which had amounted of late almost to conviction, that the present depression is wholly unlike any of its predecessors in origin and nature, and must therefore follow some unpredictable course to an unimaginable outcome." To quote from a recent remarkable advertisement, "Periodically, the country suffers from business depressions, during which the public abandons all hope of future growth. History shows, however, that the public has always been mistaken in such cases ... At the present time, talk is heard of adverse factors never before present, but this is the normal psychology of acute depressions." While recovery may be "slow and halting," it will again be accomplished through "vitality and ingenuity."

Washington report: Both supporters and opponents believe NY Gov. Roosevelt is in his best position yet for 1932, a little over a year before the Dem. national convention. He “seems so far out in front as to be almost alone,” and opponents have been unable to unite on an alternative; he's also helped by the increasing prominence of the economy over Prohibition as the main political issue. It used to be political tradition that the candidate far out front long before the convention was handicapped, becoming a target for the opposition; however, Alfred E. Smith “knocked the tradition into a cocked hat” in 1928 and Roosevelt appears set to repeat the feat. Gov. Pinchot's speech attacking the utilities failed to arouse much Washington interest; his views have been known for some time, and it's been generally thought he would try to use them to gain the 1932 Republican nomination. Gov. Roosevelt's speech on govt. initiatives to meet the depression drew more interest, particularly as a contrast with Pres. Hoover's speech condemning legislative panaceas.

"The summer of 1930 will long be remembered as the season of prolonged heat and excessive drought throughout the greater part of the US." Boston suffered the warmest June in a 58-year record; record high temperatures were recorded in many places, including 106 one day in Memphis, Tenn.; highest US temperature of 122 was as usual recorded in Greenland Ranch, Death Valley, Calif., though it didn't match the all-time US record of 134 recorded there a few years ago.

Over 1,400 representatives of Western German industry urged Chancellor Breuning to rule nation as dictator, forming a directorate of the most competent men. Dr. Schacht repeated plea for suspending reparations, pointing to breakdown of national economy and industry.

Editorial by T. Woodlock: Urge for government control of business comes from jealousy aroused by fact that “in every domain of human activity we find a few individuals standing out at the top, manifestly superior to the great mass of the community.” This arouses particular pain in the case of business since the successful gain “the things that men most desire, wealth and power, both not merely visible but flaunted before the public eye.” Naturally, the strongest advocacy comes from those “furthest removed from the business struggle”; it's only the fact that most of the US remains gainfully employed that prevents general acceptance of govt. control, since from personal experience they observe that businesses “penalize incompetence, whereas they observe no such operation in politics, rather, indeed, the reverse”; in spite of the current depression, “they seem to have the impression that even the frying-pan is preferable to the fire.”

W. Green, AFL pres., suggests Pres. Hoover call conference of all groups concerned in order to stabilize employment and wages before huge funds are necessary for relief. Advocates six hour day with no cut in wages.

Pan American Airways has started regular air express service to 17 countries, soon to be enlarged to 32; service reduces time for merchandise shipments to 1/3 - 1/2 of that required by the fastest steamships, enabling US shippers to get their goods into markets faster than any European competitor.

Charles Lindbergh is planning to fly across the Pacific and tour Japan and China with his wife; however, will do so by easy stages avoiding a long over-water flight to avoid exposing Mrs. Lindbergh to danger.

The Northernmost power plant in the world is at Porjus, Lapland [region of Northern Scandinavia] - well North of the Arctic Circle, it's a 78,000 hp hydro plant.

Francis Pearse, London physician used the same car to make professional calls for 30 years; when the time finally came to discard it, he had it buried in the cemetery with all the usual honors. [Note: one of the most amazing items I've seen yet. Imagine ... a doctor making house calls!]

William Childs opened third in his new chain of restaurants, “Old London” at 130 W 42 St (following “Old Algiers” on 102nd St and the Old Mill Inn in NJ). The premises, formerly occupied by Chase Nat'l Bank, have been refitted with a $1M Gothic interior and decorated “in the English manner”; the large bank vault downstairs is to be converted to a private dining room.

Market commentary:

Market wrap: Stock action was encouraging as rally followed through for a second day. Stocks opened irregularly, and a group of prominent bear operators skeptical of the previous day's rally as a technical recoil resumed pressure on Steel and other leaders, forcing some setbacks. However, strong support appeared on these declines and the rally resumed in late morning. Major rail shares moved sharply higher; buying broadened across the list, producing spirited rallies in almost every section; leading industrials worked steadily higher; Woolworth led advance in merchandising shares; trading favorites including Auburn, J.I. Case and Worthington Pump ran up sharply. Bonds moderately active, prices higher across the list; US govts. firm; foreign mostly higher; corp. highest-grade up slightly while strong rallies took place in lower-grade, with rally in rails "most sensational ever recorded." Commodities very strong; all grains up sharply, with wheat rising about 2 cents on reports of Canadian crop damage and strength in the stock market; cotton up very sharply on continued short covering. Copper rose to 8 1/4 cents; foreign buying heavy as price was reduced to parity with domestic; however, outlook seen weak due to high inventories and likely lower consumption.

Conservative observers began recommending buying at the end of the first hour, "when it was evident that the market was moving ahead in good shape." After the close, they advised protecting purchases with stop loss orders somewhat above the Monday lows.

Brokers reported buying by the public was substantially larger. Some of the sharp advances in various stocks attributed to short covering by the public who "had been playing the short side day by day" and "scampered to take in their commitments."

Copper shares were higher in spite of record low price for the red metal. Mack Truck and National Cash Register reported improved earnings in April and May have more than offset Q1 losses, putting the companies in the black for the year. American Can rose following positive statements by H. Phelps, pres.

Asst. Commerce Sec. J. Klein estimates new Canadian tariff affects $25M annually of US exports, or only about 4% of total value.

"Persistent selling in the past few weeks baffled many in Wall Street." However, many are now watching for signs of stabilization and establishment of base for subsequent recovery; first sign of this would normally appear in bonds and rail shares.

A currently popular long-term view on Wall Street calls for a further rally into Q2 earnings reports, which may be followed by another reaction leading to a double bottom in August. "Discrimination is urged in making selection when a rally appears imminent."

[Note: Hopeful signs Dept.] Stock market observers, on detailed examination, found encouraging indications of at least a temporary turning point. Recent day-by-day movements were highly similar to the start of the good-sized rally that followed the decline from Sept. 10 - Dec. 17 last year. Additionally, belief the selling movement had reached a climax on Wednesday was bolstered by relatively high volume seen earlier in the week. Total of 9M shares in the first 3 days, considering low state of brokers' loans, was seen as "large enough to suggest that liquidation had proceeded in sufficient volume to constitute temporary completion of the cleaning out process." Extent of the recent decline suggested "a rally of several weeks was in the making if the market proceeded along normal lines." Most remarkably, the rally followed 27 days after the NY Fed cut its rate to 1 1/2%, exactly as the bear market began 27 days after the NY Fed raised to 6%.

Editorial: The impact of Canada's most recent tariff increase is likely to become the subject of heated debate. However, the direct effect of this particular action is less important than the question of whether "the US ... set in motion worldwide tariff wall building that will delay the general recovery." As PM Bennett said, "Can Canada, in a protected world, be other than a protected country?" While other countries may have raised tariffs regardless of US action, we do know that many protested the Hawley-Smoot tariff and then quickly followed its example. "If the US set the example for making this a 'protected world,' it should take steps for conferences and agreements to lower the walls and unshackle trade."

D. Friday, economist, predicts “boiling” bull market in bonds by Sept., to run 18 months; says Treasury likely to issue bonds at 2 1/2%.

L. Pierson, Irving Trust chair., praises declaration of Nat'l Foreign Trade convention singling out rise in commodity prices as most essential factor for recovery.

H. Phelps, American Can pres., says “I believe we have passed the bottom of the business depression.” Sees business stimulus “as soon as manufacturers stop selling their products at prices below the cost of production.” Company orders somewhat behind last year but expects satisfactory year. Statements drew particular interest on Wall Street due to the company's well-known conservatism.

Economic news and individual company reports:

Leading NYSE brokers followed banks [see yesterday] in reducing margin requirements from 25% to 20%. Although expected, move was seen as positive; "in view of the drastically liquidated position of the stock market, there was nothing surprising in the stand ... that borrowings could now be assumed on smaller collateral requirements than would have been conservative when stock prices were substantially higher." Several important brokers also allowed margin for all listed shares selling above $5 (previously shares selling below $10 had to be bought outright); this was expected to increase public buying of low-priced issues.

Books were closed on $800M new issue of long-term 3 1/8% Treasury bonds; total subscriptions over $6B in spite of record low rate for long-term issue.

Fourteenth suit filed by East Texas oil operators against production curtailment. Almost all major oil purchasers have withdrawn posted buying prices in East Texas; oil is reportedly selling as low as 15 cents/barrel. Wholesale gasoline in the Chicago market continued decline to 2 1/2 - 3 cents/gallon vs. 2 5/8 - 3 1/8 previously; outlook seen weak. Independent Oklahoma oil operators ask support of Gov. Roosevelt for tariff protection after drastic purchasing price cut.

Van Dusen Harrington report on Northwestern crop conditions shows spring crops 7-10 days behind normal progress; high winds and earlier lack of moisture have taken toll, but few areas have damage that can't be remedied by continued rain and seasonal temperature. Rain badly needed in Western North Dakota and Eastern Montana.

Money in circulation June 3 was up $39M to $4.673B, total Reserve Bank credit outstanding up $52M to $938M. Member banks in NY City report brokers' loans down $35M to $1.539B; loans on securities to non-brokers down $27M to $1.751B.

Foreign currency drifted generally lower; marks made a new low for the year. Weakness in marks has forced Reichsbank to sell foreign exchange in the past few days. Brazilian milreis strong on "rumors regarding the possible solution of Brazil's economic problems," particularly that a payment moratorium might be avoided. Foreign stock markets were generally higher on rally in NY and apparent solution of Creditanstalt affair.

Farm Board chair. Stone denies rumors the Board stopped supporting wheat because it ran out of funds.

Prospects for international silver conference seen "definitely ended" by letter of Pres. Hoover to Sen. Smoot saying important nations were opposed to a conference at this time; this was seen as official confirmation Britain would not agree to any conference.

The Bond Buyer reports new municipal financing in May was $167.2M vs. $107.4M in Apr. and $142.4M in May 1930; first 5 months $727.4M vs. $589.4M.

Representative Trust Shares, a fixed investment trust [similar to ETF], has a comparatively small "loading charge" (premium paid over actual cost of underlying securities) of only 5 1/2% compared to 9%-14% for many other trusts of this kind.

May sales vs. 1930: [Note: sales declines partly due to one less business day in May 1931 and to Memorial Day falling on Saturday.] Woolworth $21.117M, down 4.7%; S.S. Kresge $12.123M, down 5.1%; W.T. Grant $6.606M, up 7.3%.

GM has shown noteworthy ability to maintain profit margin in face of declining sales by cutting expenses. Gross profits from operations (after all expenses but before depreciation and taxes) were 21.8% of sales in Q1 1931 vs. 22.7% in 1930 and 21.6% in 1929, in spite of sales declines of 24% each year.

G. Eastman, Eastman Kodak chair., says sales so far in 1931 not up to banner years of 1929 and 1930 but about at 1928 level; anticipates maintaining dividend.

Companies reporting decent earnings: Pacific Tel. & Tel.


[Note: Wish I had a time machine Dept.] The Band Wagon - Revue starring Fred and Adele Astaire, Frank Morgan, Helen Broderick, and Tilly Losch. A triumph, combining wit and clean intelligence with unstinting production, including a "double revolving stage"; "effect is brilliant without ostentation ... wise, gay, glittering. Fred and Adele Astaire are the finest dancing couple - comedian and comedienne - of all time, and their 'Sweet Music' and 'Hoops' dances are masterpieces." Tilly Losch is outstanding, and the lighter numbers with Morgan and Broderick are entertaining and at times deliciously pointed. "The most handsome and amiable of shows."


A Free Soul - starring Norma Shearer and Lionel Barrymore, at the Astor. "Highly melodramatic story of racketeering, free love, and a gangster's downfall" is uplifted by Barrymore's performance as "brilliant but dissolute lawyer." [Note: it's a good thing they didn't overuse that theme in later movies ...] Clark Gable again plays a racketeer, this time a relatively subdued one confining his activities to gambling.

Economist joke:

[Note: a nice variation on the current joke about an economist not picking up a $20 bill because the market is efficient.] Commodore Vanderbilt was once walking up Fifth Avenue when a friend called his attention to an important-looking individual on the other side of the street and said "Commodore, that is a remarkable man - he is one of the most astute economists in this country." Vanderbilt replied disgustedly: "Economist be d---ed, that man would bust a $14.00 pair of breaches to pick up a cent." (Story told in the context of a letter castigating Congress for "crass stupidity" in uniformly maintaining its "pound of flesh attitude" toward Germany).

June 4, 2010

Thursday, June 4, 1931: Dow 130.37 +8.67 (7.1%)

Assorted historical stuff:

[Note: We're all Citizen Kane-sians now.] William Randolph Hearst, in radio speech, says prompt spending of $5B by govt. would restore prosperity; advocates borrowing of this sum, saying additional taxes at this time would retard prosperity.

German Chancellor Breuning gave Pres. Von Hindenburg draft for a new emergency decree imposing drastic spending cuts. An address to be delivered by the President on Saturday will summarize the decree and also make "a significant pronouncement that the government would not impose decrees involving heavy new sacrifices by the people unless it was determined as soon as possible to undertake steps to alleviate the reparations burden. Austerity program to aim for closing budget gap by 1.4B marks ($333.5M) through tax increases of 718M, spending cuts of 303M, cutting unemployment insurance by 309M, and cutting railway wages by 84M. Times report from Berlin says Germany will take formal steps for revision of reparations within six weeks. Foreign banking circles see the Anglo-German conference at Chequers having far-reaching effects. German officials have long recognized need for revision of reparations but refrained from asking for it due to fear of damaging German credit abroad; point has apparently been reached where govt. believes it can no longer wait. Many economists believe that if reparations burden can be relieved Germany's position would be greatly strengthened; since Germany is a noteworthy sore spot in the depression, this should significantly help the worldwide picture.

Broad new Canadian tariff “has dramatized the tariff controversy more than any other development since passage of the Hawley-Smoot act a year ago.” Many other countries have raised tariffs since, but this revision “at a time when foreign trade is at its lowest level in years has brought the issue home with new force.” US officials continued silence on the subject. Canadian tariff seen leaving way open for negotiation of reciprocal reduction of rates with US.

Editorial: Gov. Pinchot's latest blast at the utilities makes one think of them as a "gigantic blacksnake" swallowing helpless little birds. The speech omits "a strong political odor of 1932" but is somewhat lacking in evidence; in particular, the Governor's claim that Federal regulation is necessary because states are powerless to tame the utility beast is doubtful due to recent Supreme Court decision allowing state regulation of gas transported across state lines. Call to extend Federal control over still more state and local affairs is dubious.

Reports of executives returning from European trips: E. Weir, Nat'l Steel chair., says depression in Europe is of same degree and from same causes as in US, but sees less pessimism abroad, particularly in France and England. "The people of the countries I visited are certainly well fed and clothed and there were no more evidences of distress, either in cities, towns or rural districts than appear in these sections of our own countries." R. Stanley, Int'l Nickel pres., says Germany somewhat more pessimistic than a year ago due to failure of business to maintain improvement shown earlier in the year; France just beginning to feel effects of the depression; situation in England shows no definite trend.

The Montour mine of the Pittsburgh Coal Co., one of the largest in western Pennsylvania, saw 600 striking miners accompanied by about 50 women establish picket lines. Police stood guard along the highways, and there was no disorder. About 100 men entered the mine to go to work while 20 joined the strikers. National miners union organizers claim 7,000 of a normal working force of 30,000 are on strike in this district.

Letter to the editor countering yesterday's letter arguing that repeal of Prohibition would stimulate business. While repeal "might cause a temporary flurry,” it would hurt business of “ice cream, soft drink, candy, and possibly semi-luxury manufacturers." [Note: but would probably stimulate 2AM payphone usage ...]

Kansas City Livestock Exchange protests "hot weather tip" by Federal Public Health Service urging citizens to eat less meat.

The Staten Island ferries in NY City carry three musicians each, usually a violinist, cellist and pianist, to entertain New Yorkers in transit; a hat is passed for "stray nickels and dimes." The right to operate this franchise is awarded by auction; for 1931-32 the winning bid was $20,950. The bootblack concession is even more pricey, going for $29,975 for one year.

The Carlsberg fund of Denmark, established by the founder of the famous breweries in Copenhagen, is considering establishing an international prize for art along the lines of the Nobel prizes.

Point counterpoint department:

Ruth Lois Bell, 16 year old native of Greenville, Miss., wins gold medal in economics essay contest of the Hibernia Bank & Trust of New Orleans. Writing on the depression, she predicts society will learn the need for poise: "Individuals will show their poise and self possession by living calmly, refusing to spread propaganda, buying as usual, cutting expenses, if it is necessary, only on luxuries, and allowing to remain in the bank the money upon which the bank depends for existence. ... By each individual exercising poise and self-control, the community may better do so. Panics and runs will thus be avoided. When each community conducts itself as if nothing were wrong, the feeling will spread throughout the nation and soon nothing will be wrong. Poise will have prevented disaster ... A drowning man, as long as he keeps his head and remains perfectly still, can be supported by a broomstick; but let him become frightened, scream and struggle, and he will drown. So it is with the nation. Almost drowning in a sea of depression and misery, let it but clutch firmly and quietly at the broomstick of poise, and it will be saved ..."

Charles W. Flint, chancellor of Syracuse U., is somewhat less sanguine in his baccalaureate address, ironically delivered in Archbold Gymnasium [named after a Standard Oil trustee]: "If Sovietism in the next 25 years evolves a better system ... it will conquer the world without firing a single shot. If our system survives, it will not be by an exhibition of smug superciliousness but by demonstration of real superiority. We are not proud just at the moment of the way our own system happens to function. In the richest nation in the world, with no scarcity of goods, millions have lacked the necessities of life, not through any fault of their own, but through the freezing of the channels and means of distribution. There seems to be general agreement that something is fundamentally wrong. ... The old laws and theories seem to have broken down. The economic gods no longer answer our cries. ... No longer merely from the demagogue or the Socialist ... comes the summons to recognize social responsibility and even social control of industry and commerce."

Market commentary:

Market wrap: "Wall Street heaved a sigh of relief yesterday" as the most sustained rally in many weeks broke out. Leading shares opened strongly; some unsettlement cropped up at the end of the first hour in individual issues including Anaconda, Radio, and J.I. Case, but major rails and industrials showed strong resistance and led the whole market in a renewed upswing toward noon. Rails set a rapid pace on the upturn, and the rally picked up momentum as the session progressed; short covering was heavy; market closed strongly, reaching day's highs in the final dealings. Bonds showed general improvement as liquidation subsided; US govts. firm; foreign steady to firm; corp. highest-grade steady to firm while lower-grade rails rallied. Commodities mixed; wheat down sharply to new lows in all months with May selling at 56 3/4 cents, lowest price for wheat since 1895; other grains steadier; cotton up sharply on last-hour short covering. Copper sold domestically at record low of 8 cents/pound; buying small. Zinc down to post-1890's low of 3.20 cents.

Conservative observers who have been discussing a possible technical recovery for several days are inclined to wait for the market to "show ability to hold the rally." If a sharp reaction doesn't develop in today's session, they advise clients to pick up leading shares on theory the recovery will continue and allow profit-taking.

Positive factors included a technically oversold position, govt. decision not to continue fighting the Vacuum - Standard Oil of NY merger, reduction of margin requirements from 25% to 20% by leading Wall Street banks, and a positive surprise in the May 23 rail freight report showing an increase of 7,339 cars. Traders were encouraged by the sudden reappearance after several weeks of a number of "confident bull tips on various individual stocks" including Johns-Manville. Vacuum Oil rose 11 1/8 to 34 1/2 as Justice Dept. decision to stop fighting merger with Standard Oil of NY was apparently unexpected by traders. Other oils were up strongly. Terms of the merger are likely to be modified due to change in stock market values. Liquidation in National Dairy and Drug Inc. attributed to special factors rather than poor business.

Recent liquidation has been heavy from both domestic and foreign sources. Part was forced selling by marginal accounts, but the bulk is attributed "to the fright which seized investors who had the stocks paid for and in strong boxes"; brokers report delivering many certificates in individual names.

Letter to the editor from a shipper warning that rail freight rates on basic raw materials is already close to or more than the commodity value; says rate increases should be confined to higher class freight.

Editorial: Justice Dept. decision not to continue fighting Vacuum - Standard Oil of NY merger on antitrust grounds is encouraging to those hoping for "gradual stabilization ... of industry." It suggests officials "are disposed to put contemporary realities above ... legal technicalities born of conditions which no longer exist. ... Today the mere suggestion of a possible 'restraint of trade' ... in oil and its products sounds almost grotesque."

Market students studying previous major bear movements have concluded they lasted an average of 22 months and each consisted of three distinct movements. This is encouraging since the current bear market is in its 22nd month, and has also shown pattern of three distinct downtrends (fall 1929, Dec. 1930, and now).

In spite of the sharp rally there were only 4 new yearly highs and 197 new lows.

Economic news and individual company reports:

Leading banks reduced margin requirements from 25% to 20%; action regarded as significant since 25% requirement has been effective for a number of years; seen as indicating recent decline "has carried quoted values of most stocks to a level justifying a liberal attitude in the matter of bank loans."

Steel production for week ended Monday was about 41% vs. 43% prev. week, 44% two weeks ago, 71% in 1930, and 95% in 1929. Decline in steel seen following seasonal pattern; conservative circles expect it to decline at least to 35% and then to show a "moderate normal" increase in fall, though not reaching level of previous years. Decline is expected to slow in coming weeks. Weekly steel reviews again had little constructive news other than slowness of the decline in output and steady demand and outlook from some sources including construction. However, other important sources of demand are "not doing quite as well," notably automotive. Caution by steel buyers attributed to gloom caused by Wall Street decline. Producers are reportedly more determined to maintain prices, though current price situation is mixed.

Difficulties caused by Austrian banking situation have led to “violent dislocation” in European currencies; marks have weakened while Swiss francs and Dutch guilders have been particularly strong; the dollar has gone to a discount against a number of currencies; sterling is above par vs. the dollar at a new yearly high although futures remain bearish. The Swiss central bank may cut rate to 1 1/2%, matching NY, to avoid importing more gold.

Bank of Spain reportedly studying mobilization of gold reserves; currency quieter after govt. measures but early return to currency stabilization doubtful; “apart from occasional strikes, the country is quiet.”

Cuban cabinet agrees to cut budget from $70M to less than $60M.

Dow Jones estimates US output of cars and trucks in May was 335,112, vs. earlier forecast of 351,000; Ford showed unexpected decline of 22,908 while Chevrolet showed unexpected increase of 4,852. Forecast for June is 289,000.

BLS reports wholesale price index of 550 commodities declined from 74.5 in March to 73.3 in April (1926=100). Retail food prices in 51 US cities declined about 2% in the month ending April 15 and 18% in the year ending Apr. 15.

Farm Board announced wheat stabilization activities ended; this was sooner than expected since it came prior to end of current crop season; Board said it had only committed to support until new crop started moving. Russia announced spring wheat seedings to May 25 were 49M acres vs. 45M in 1930.

US electric output for week ended May 30 was 1,565 GWHr, down 3.8% from 1930, vs. a 4.4% decline prev. week and 3.3% two weeks ago.

New Canadian tariff bill appears to embargo import of Russian goods through provision barring goods of any country not signatory to the Versailles treaty. This would technically bar US goods as well, though authorities said it wouldn't be applied to those. Canadian sellers of US magazines say 90% of magazine stores there will be forced to close due to new Canadian magazine duty of 15 cents/pound.

Argentina denies rumors of exchange controls; says recent request that private bankers cooperate to prevent speculation was aimed at avoiding controls.

Oakland Motor Car production in May was 14,829 vs. 14,188 in Apr. and 11,972 in May 1930; best month since August 1929. Cadillac - La Salle shipments for the first five months of 1931 were 9,572, up 5% from 1930.

City Ice & Fuel stock about 31; earnings in 1930 $4.65/share vs. $4.69 in 1929; annual dividend $3.60.

New book:

Problem of Unemployment, by Paul Douglas and Aaron Director. Attempts to address lack of reliable data relating to the subject by coordinating all information available; suggests methods for alleviating the problem.


The Third Little Show - sketch show with Beatrice Lillie and Ernest Truex, at the Music Box. Not all the sketches have "the advantage of brevity," but show as a whole "has the very great advantage of lightness." Ernest Truex enjoys his best few minutes in "a thoroughly mad prank authored by S. J. Perelman. It is a sketch entitled 'His Wedding Night' in which Mr. Truex is Lord Philbert, a sportsman and gentleman about to renounce the hunt, cricket, golf and night life in favor of matrimony ... estimably ridiculous." Another sketch is "The Traveler," where Mr. Truex, feeling the need for variety, travels to 125th St over the New York Central lines instead of the subway, hiring a Pullman car. Still another is a satire on jungle movies entitled "Africa Shrieks." Miss Lillie received a spontaneous ovation at the opening, progressing from clapping to vocal cheering well into the show; she appeared in 7 or 8 sketches, including 2 "beautifully funny" ones by Noel Coward.


Certain gentlemen "whose interests do not exclude the stock markets" have come up with a new interpretation for those conventional B.C. and A.D. abbreviations used in dates - "Before the Crash," and the eagerly awaited "After the Damage."

Telegram from excited farmer to his sister announcing blessed event: "Twins today. More tomorrow."

'How did Murphy make his money?' 'He was sitting in his old flivver [old, cheap car] one day, wondering where his next meal is coming from, when someone offered him a dollar to move out of the space he was parked in. Before the day was over, he made $6 more the same way.' 'But he couldn't have made his $100,000 that way!' ' Not alone. But he saw the possibilities, and now has 40 men with 40 flivvers working for him.'

June 3, 2010

Wednesday, June 3, 1931: Dow 121.70 -1.07. (.9%)

Assorted historical stuff:

At the US Governors conference in French Lick, Indiana, crusading Gov. Gifford Pinchot of Pennsylvania defied the conference committee's attempt to exclude controversial subjects, and discarded the topic he was assigned of "Timber Needs of the Future" to deliver a blistering attack on four major utility interests that he claimed control about 90% of US electric power generation and work together for the common goal of milking the public. "As the nation deals with electric power, so shall we and our descendents be free men, masters of our own destinies and our own souls, or we shall be the helpless servants of the most widespread, far-reaching and penetrating monopoly ever known." NY Gov. Roosevelt delivered a somewhat moderate [and wonky] sounding four-point plan for US govt. to do what it can to overcome depression, including scientific tariff designed to aid movement of commodities between countries, better system of national taxation, cutting excessive costs of local government, and extension of insurance to cover sickness and unemployment.

Delegation of economists, labor leaders, and unemployment committee officials headed by B. Marsh of the Peoples lobby called at the White House Monday with letter to Pres. Hoover asking for a special session of Congress to relieve unemployment; delegation did not see the President. Pres. Hoover's Emergency Employment Committee reports contracts for public and semi-public construction projects in past 6 months were $1.623B.

Editorial: Expected request by the German govt. for modification of reparations may follow two possible paths. The Young Plan allows for postponement of part of reparations payments; separately, the allies have an option to postpone part of their war debt payments to the US. However, this may not be enough relief for Germany, and relief for allies would be uneven, with France getting the most benefit. It seems highly likely that Germany will ask for more extensive relief, and that the US will be asked to forego all or part of the annual $228M it receives in war debt payments, and even to "reopen the whole account" of reparations and debts. "We may expect, then, that before the month is out the US will be more squarely face to face with Europe than it has been at any time since the Armistice."

Letter to the editor arguing that depression would "end in 30 days" after repeal of Prohibition. Lists benefits, including govt. revenue from excise tax, saving of large spending on enforcement, increased commodity prices and railway traffic, and immediate benefits to "not less than 600 industries."

Editorial by T. Woodlock: Accurate and complete picture of the short interest to be gathered by the NYSE questionnaire, together with the earlier one in fall 1929, should throw much light on the subject of bearish speculation, "concerning which so much heated rhetoric is lavished from time to time." Bears are generally much smaller in number than bulls, and therefore tend to become more prominent than bull operators, even though "the latter marches in the open with a brass band while the former seeks to cloak himself in an atmosphere of dignified silence and cloistered seclusion from the vulgar crowd." Part of this may be due to a desire to avoid revealing "feet of clay." Bear operators can more easily "pyramid" their operations on small capital, and bear markets tend to cover ground more quickly than bull markets, "fear being naturally a stronger motive than hope." This has lead to many meteoric episodes of sudden wealth for bears, but "it is a curious fact that the annals of the Street are lacking in the names of men who have made and kept large fortunes by speculation on the short side."

John Calder, steel construction engineer from the US, appointed supervisor of Soviet steel building trust uniting 90 plants.

US will withhold recognition of Edwin Barclay, newly elected Liberian Pres., pending reforms of "existing slavery and sanitary conditions."

Chemists at Nat'l Research Council in Ottawa invent new process for producing ethylene from natural gas, offering prospect of making some use of over 10,000 tons of natural gas being wasted daily in the province of Alberta.

A recent survey of US tourists who visited Europe during 1930 found the most common reasons given for travel were: "educational interests, Passion Play, pleasure, love of travel, recreation, health, to fulfill a desire for adventure, curiosity, and the sea voyage. One woman mentioned shopping as her incentive." Of the 2,000 respondents, 48% were under 30; 68% said they received more than anticipated, over 25% received what they anticipated, and only 5% were disappointed.

Population of Paris is 4,887,503, an increase of over 32,000 from 1926.

Total of 1.160M vehicles passed through the Holland Tunnel in May, a new monthly record.

Analysis by Columbia University professors of the Untermeyer plan for NY City transit unification approves of it; says plan "points to an early time when the city's rapid transit commitments can be carried at an annual budget charge of less than $20M."

Market commentary:

Market wrap: Stocks were forced to absorb further liquidation, but selling appeared to be "approaching temporary exhaustion." Sell orders accumulated overnight due to "unloading of impaired marginal holdings"; US Steel and several major rails hit new bear market lows. A sizeable rally developed around 11 o'clock but petered out as fresh selling broke out around noon; selling broadened across the list in mid-day and market turned irregular in the last hour. Bonds active, generally lower; US govts. firm; foreign reactionary; corp. highest-grade firm but rest of the list weak led by rails, with many new lows. Commodities mixed; grains somewhat higher in spite of bumper crop estimate; cotton down substantially to new lows, with July at 8.28 cents. Copper remained at 8 1/2 cents; foreign buying better after price lowered to parity with domestic.

Sentiment is slightly improved; more than a few observers are still talking of a possible good technical rally, though they haven't yet advised buying in anticipation. While bulk of the afternoon buying was attributed to short covering, there seemed to be more resistance to selling and some new buying by the public. Some traders have adopted a strategy of selling companies with suspect dividends short as directors' meetings approach; "this maneuver has worked out satisfactorily on more than one occasion" as the number of dividend cuts and omissions has been increasing recently. Some public liquidation seems driven by concern that dividends may need to be cut even if business has hit bottom, since it may stay flat for a prolonged period.

List given of 25 NYSE-listed stocks that have declared regular quarterly dividends since May 1, but are trading to yield 10%-15%, including Briggs & Stratton, General Baking, International Cement, Wesson Oil, White Rock. International Match [Ivar Kreuger-associated] officials say company has shown consistent sales improvement so far in 1931. National Distillers is expected to earn about $2.50/share this year, over double the 1930 figure; co. is benefiting from liberalization of government rules on medicinal whiskey. Westinghouse is reportedly "one of the popular targets with a certain bear group."

NY City traction [mass transit] shares have been resilient as progress is seen on transit unification; differences on price are said close to being settled.

Will R. Hays, Motion Pictures Producers & Distributors of America president [creator of the Hays code that dictated many restrictions observed by the US movie industry from 1930-1968] says "fear has seized the wheels of progress and jammed the brakes"; blames continued depression on lack of financial leadership.

The Administration and some market observers believe large wheat crop will be positive for general business this summer.

J. Bell, General Mills pres., says wage cuts, "all other things being equal ... will make for greater and not less unemployment." A. Roeder, pres. of Colorado Fuel & Iron (largest employer in Colorado) makes strong statement that "no benefit" can come from wage cuts.

Current discussions of stock market and economic conditions tend to stress that the problems now facing us are different from past depressions. However, “similar comment was heard in every depression in the past.” Each crisis brings its own conditions, but they've always been solved “almost without outside aid. ... This will happen again.” Capital is plentiful and cheap; most corporations are in satisfactory financial condition. “Undoubtedly, leaders of American business will show the same aggressiveness at the appropriate time” as in the 1921 depression, “when the foundation for nearly a decade of progress was laid.”

Dow industrial average closed at a new bear market low; there were 2 new yearly highs and 389 new lows.

Bear market is now by far the worst in the 34-year Dow Jones records; the industrial average is down 68% from its peak vs. a 46% decline in the 1921 bear market and a 48% decline in the 1907 bear. In addition, the current downturn that started on Feb. 24 has now seen a decline of 37%, surpassing the severe break from Sept. 10 - Dec. 17, 1930. Some observers now believe the market is "in line for a technical recovery, irrespective of outside economic considerations."

Economic news and individual company reports:

Viennese banking firm of Auspitz Lieben insolvent; liabilities about $5M.

Sir R. Squires, Premier, says Newfoundland not bankrupt and financial condition not as serious as reported.

Spanish govt. demands all Spanish banks turn over proceeds of foreign operations; forbids exports of food and raw materials. Fin. Min. Prieto says decline of peseta checked by govt. to arrest exporters holding foreign currency. Orders banks operating in Spain to give sworn statements of funds or gold held for them in foreign banks within 48 hours. “If any of these are found to be false it is quite probable that some members of the bank boards will be sent to jail. A period for stern measures has begun.” Pesetas rose sharply to $.0948 from $.0783 on Monday. Sterling rose slightly, but futures turned negative on large selling; traders say it's evident a bear position in being built up. Portuguese escudos are to be stabilized July 1 at $.04424, vs. prewar par of $1.07875.

Canadian govt. looks to close deficit largely at expense of US-Canada trade; determined to reduce huge US exports to Canada while inducing US industry to build Canadian plants. Emergency tariffs of last summer seen as successful in promoting this objective; new budget looks go further by raising $95M though higher duties on US products and taxes on US-financed plants in Canada. US govt. says won't protest tariff unless it discriminates against US in particular.

Tennessee House presented with eight articles of impeachment against Gov. Horton, including "moral delinquency" in purchase of a $2,850 piano using state funds. Gov. Horton has been under fire since last fall, when banks controlled by Rogers Caldwell failed, tying up almost $7M in state funds.

Cook County defaulted on bond payments due June 1; area banks refused to advance funds to avoid default but are willing to pay par and interest on the defaulted bonds; this is believed to put them in a stronger position to audit the county's books and secure judgment on the bonds. County situation uncertain as tax reform pending in Illinois legislature may not pass. A law is pending to allow Illinois counties to issue refinancing bonds, which might relieve the situation, though those bonds may not fetch the best prices in current circumstances. Chicago in less immediately precarious situation as they can borrow from some other funds.

Ivar Kreuger arrived for US visit on the steamship Europa, but was reticent on the subject of conditions in Europe and on operations of any of his affiliated companies; said there was no particular significance to his visit at this time.

NYSE member collateral loans as of May 29 were record low of $1.435B vs. $1.651B Apr. 30, $4.748B a year earlier, and high of $8.549B ending Sept. 1929.
US deficit for fiscal year ending June 30 estimated at $900M - $950M, including "sinking fund" of $440M applied to national debt; this will leave national debt about $500M larger after the fiscal year. US income tax returns in fiscal year to May 29 were $1.565B vs. $1.884B a year earlier. Early orders for the $800M new issue of long-term 3 1/8% Treasury bonds to be dated June 15 indicated there would be an enormous oversubscription.

Rail freight loadings for week ended May 16 were 755,071 up 7,339 from prev. week, down 18.7% from 1930 week, and down 28.7% from 1929.

Editorial: Initial estimates are for a total wheat crop of about 893M bushels, one of the largest on record, together with a large carryover from a year ago, although spring wheat is doing worse than average due to drought. However, it's still possible for crops to deteriorate, and reports on the Canadian crop are poor. The wheat market is "bear on one side and bull on the other, with its identity to be finally determined by the weather."

Refineries ran at 69.3% in week ended May 30; stocks of gasoline fell 654,000 barrels to 44.795M. Crude oil production in week was 2.462M barrels/day, up 25,000 from prev. week and down 147,300 from a year ago.

American Machinist reports machine-tool market remained dull, declining slightly in May; "Gloom is widespread, an almost certain token, it is believed in trade circles, that an upturn is about to begin."

Cotton textile trade slower, as expected following sharp decline in raw cotton prices. Inventories reportedly very low.

Little of importance seen developing at International Coffee Congress now in session before the Colombian delegate arrives on June 10. In the meantime, the Salvadoran delegate has proposed creation of an international coffee bank, while one Brazilian delegate advocates a joint coffee and sugar propaganda campaign.

NY City tax collections on personal property and real estate as of May 31 were $199.9M, up $4.2M from 1930.

Justice Dept. won't appeal recent US District Court decision in favor of allowing merger of Vacuum Oil and Standard Oil of NY.

British Woolworth profits in 1930 were over $17M on 434 stores, vs. Woolworth's earnings of about $25.5M on 1,881 stores in the US.

Companies reporting decent earnings: National Standard [industrial wire], Cleveland Railway Co.


Three Loves - German silent film, starring Marlene Dietrich, at the Warner. Made "just prior to her sensational Hollywood debut little more than a year ago"; will do little to enhance "the splendid reputation that the German actress has made as a result of her work in ... Morocco and The Blue Angel" but does offer "frequent shots of the silk clad Dietrich limbs, almost as if the plethora of Hollywood flashes of that character had sprung from German ancestry." Story concerns Stasha, a European charmer holding a certain fascination for men; she gets her lover Dr. Karoff to shoot her husband, but things end badly when, hemmed in by the police and with the "vacillating Stasha already moving toward her third lover, the maddened doctor kills her also."


Wife - Going to the club again, and you know the rent is due next week? Husband - Oh, I'll be back before then.

Usher - We can't stand the wage cut you propose. This work is so wearing to the nerves. Theatre Manager - Wearing to the nerves? All you have to do is stand in the wings and listen to the piece. Usher - Yes, exactly.

June 2, 2010

Tuesday, June 2, 1931: Dow 122.77 -5.69 (4.4%)

Assorted historical stuff:

Fed. Reserve of NY agrees to cooperate with other central banks and the BIS to support the Austrian Nat'l Bank through the purchase of Austrian commercial paper. Action is being taken to insure position of the Austrian central bank in the Creditanstalt crisis. Agreement said similar to those reached with other countries in the past. "Local bankers state that the granting of this credit removes much of the uncertainty which has hung over international markets in the past few days. Runs had developed on banks outside Austria in which Creditanstalt was interested, while the entire Viennese banking situation had caused a severe reaction on the Berlin Boerse which spread to other European stock exchanges. By this move, however, Austrian bankers are assured of sufficient assistance to prevent further possible trouble in that quarter."

Pres. Hoover's Memorial Day speech invokes hardship of the American Revolution; "The American people are going through another Valley Forge at this time". Difficulties are due to worldwide depression caused by greed, crop failure, "malign inheritances of the Great War and a storm of other world forces beyond our control." Effects have fallen heavily upon many not implicated in the causes; "many have lost the savings of a lifetime, many are unemployed, all know the misgivings of doubt and grave concern for the future." However "this, like a score of similar experiences in our history, is a passing trial." Solution will be in "the inventiveness, the resourcefulness, the initiative of every one of us." Hits siren song of legislative panaceas and govt. intervention: "We are still fighting this war of independence. We must not be misled by the claim that the source of all wisdom is in the government. ... the way to the nation's greatness is the path of self-reliance, independence and steadfastness ... Valley Forge met such a challenge ... in times and terms of war. Our test is to meet this challenge in times and terms of peace." Editorial: Pres. Hoover made some good points on the need to preserve individual freedom from “the deadening restraints of government” and to fight “special privileges and greed or domination by any group or class.” However, as he himself pointed out we're facing a world crisis. Therefore, we can't simply fall back on our own convictions and will; “there are other wills, ... other ideals in the world besides our own; without 'a decent respect to the opinions of mankind' the unshaken conviction that ours will prevail is headed for disappointment ... the US of 1778 is not and cannot be the US of 1931.”

C. Teague, Farm Board member, tells Pres. Hoover losses incurred were justified by benefits to farmers; important progress made in cooperative marketing. Submits resignation from Board; accepted by Pres. Hoover; no successor named. Editorial: The just-ended wheat stabilization efforts of the Farm Board left much wreckage behind, including heavy losses of money and of export markets. “There has been the expected eulogy from official sources, but there is no one in the markets to rise up and say as was said of King Duncan that 'after life's fitful fever he sleeps well.'”

Editorial by T. Woodlock listing poor rail trends over the past 20 years. Rails are on pace to earn about $600M in 1931 vs. $1.040B in 1916; payroll is about $732M higher. In 1920-29, cars and buses took about 1/3 of passenger traffic; trucks took over much small freight. However, main problem now is the depression "and we must assume that depression will pass some day. That the railroad industry is not passing into permanent desuetude is as certain as anything can be certain."

Over 2,000 more coal miners join strike in western Pennsylvania fields; demand higher wages and appointment of union man to check weights.

Following "unsatisfactory" attempt to burn surplus coffee in Santos, Brazil that caused objectionable odors, the Nat'l Coffee Defense Council of Brazil announced plans to destroy 40,000 sacks of coffee this week by throwing them in the ocean.

Argentina is looking for a solution for keeping track of roughly 32M cattle with thousands of owners; branding can be troublesome when ownership is changed.

Los Angeles 1931 budget for fiscal year starting July 1 estimated at $47.5M

Packard diesel-engine plane that set world non-refueling endurance [6,600 miles in 84 hours 33 minutes] used only 481 gallons of fuel.

An enterprising young unemployed New Yorker recently got the idea there was money to be made rehabilitating neckties. After starting out cleaning and pressing ties at 12 for $1, he now has so much business he's invested in a delivery car on whose sides are painted "Necktie Ambulance."

A new dining trend has started on the West Coast. A dozen restaurants have opened featuring a large circular bar with seating; in the center is a slowly revolving table with dishes in glass sections. Patrons remove all the items they want, including hot dishes, cooled salads, fruits and cakes, paying a fixed price per meal.

Market commentary:

Market wrap: Reaction in stocks picked up momentum, resulting in further substantial declines across the list, with market showing no ability to rally at any time. Selling orders accumulated over the Memorial Day weekend, resulting in weakness from the open; selling again converged on US Steel, which worked steadily lower into new bear market territory. Also unsettling was the rapid decline in major rails including NY Central, Atchison, and B.&O.; "disgusted liquidation of investment holdings was pouring into the market in a steady stream." Oil shares were also heavily pressured, led by Standard of NJ, following cuts in midcontinent oil buying prices. Decline picked up breadth and momentum as session progressed, volume heavy in the afternoon; the whole market was severely pressured in the final hour. Bonds moderately active; US govts. steady; foreign issues irregular with most European issues weaker while Argentine bonds rallied; domestic corp. bonds reactionary with many new lows. Commodities weak; grains down sharply with corn hitting post-1922 low; cotton down sharply to new post-1915 low. Copper buying quiet at 8 1/2 cents. Silver up 3/8 cent to 26 3/8.

Conservative observers extremely pessimistic, but also point out that a technical rally may begin at any time and therefore advise against going short.

Leading brokers report liquidation by long-term investors again in progress; there was no evidence of "support for the account of important financial or industrial interests"; demand appeared limited to short-covering. Brokers also report "customers are becoming disgusted with the action of the market." Some have made repeated attempts to pick the low point, only to eventually sell at a loss; many had protected accounts with stop-loss orders that were hit during reactions.

NYSE questionnaire "thus far apparently not at all curtailing short selling by outsiders." A number of interests believe a "selling climax" is necessary before the market changes direction; they considered the increase in volume during the afternoon a hopeful sign.

Pressure continued on stocks of some companies whose earnings have been resilient up to now. Major dairies have been pressured on fears of new competition and lower prices. Lambert (toiletries and medicinals) has sold off in spite of reporting Q1 earnings of $2.81/share vs. $2.76 in 1930; with an annual dividend of $8 and stock price of 61 1/2, yield is now over 13%.

Frazier, Jelke & Co. report severe decline in the value of 100 representative common stocks over past 3 months; total market value at end of May was $17.439B, down 14.2% in May, after declining 10.4% in April and 8.4% in March; total decline was $7.361B or 29.7%.

J. Johnston, British investment authority, says believes "in telling America brutal truth" that no permanent improvement will come in world conditions until international war debts are cancelled; suggests direct payment of reparations to the US to make it face reality [official US position is that reparations and war debts are not connected].

Sir J. Salter, dir. of League of Nations economic section, says decline in silver is not major cause of worldwide depression; existing proposals to solve silver problem including restricting govt. sales, loan to China, or bimetallic monetary system would be ineffective; conference that fails might be worse than none at all.

Russell, Miller & Co. attempt to introduce "a little variety into the long drawn out story of depressing news." Sales of the two large mail-order houses have been satisfactory recently. Some of the du Ponts have in the past few days bought large amounts of their own stock and GM. "Generally speaking the corporations dealing in consumer goods are receiving little tokens from time to time that there is a large body of submerged buying demand in this country that will not stay submerged very much longer."

W. Scobey of S.W. Straus & Co. cites 1907 depression to show prosperity can set in “after a period of deepest gloom ... unexpectedly and without warning.”

National City Bank reports irregular contraction in business activity during May, as usual in that month; however, "after allowance is made for seasonal influences it is not clear that the losses for the month have been abnormal."

William L. Cooper of the Commerce Dept. says recent improvements in several lines of trade and industry justify belief that first quarter of 1931 "has marked the turning point in the prolonged decline in business which commenced nearly two years ago." Comprehensive and reliable indexes of current business show a low point reached in Jan., from which each succeeding month has improved slightly, seasonally adjusted; index of factory production is up 11% from Jan. low.

Royal Bank of Canada says new analysis by NY Fed. proves feasibility of controlling general level of prices. Shows that trend of world production has been much more regular than generally believed; “Can it be that had the growth of credit paralleled the increase in volume of production and trade there would have been no substantial changes in the general price level, no major business cycles, no booms, no severe depressions?” This is a startling and important concept, offering hope that “social injustices inherent in all major changes in the general price level” can be avoided. Notes that gold standard countries must depend on central banks of US, France, and Britain for policy, since they control 75% of monetary gold; calls for aggressive policy to expand credit.

Dow industrial average closed at a new bear market low; there were no new yearly highs [!] and 335 new lows [!!].

Economic news and individual company reports:

Western rail executives pass resolution favoring request for general rate increase to yield about 10% more revenue; will confer with Eastern execs at later date. Railroad trainmen's union adopts resolution to provide work for about 11,000 idle trainmen by limiting working hours.

Standard Oil of Indiana reduces buying price for midcontinent crude 30 cents/barrel to 37 cents/barrel for gravity 40 and higher; says move made necessary by cuts in East Texas oil prices. US consumption of gasoline rose 6.4% in Q1 to 3.004B gallons, bucking the trend for most other commodities.

Fisher's wholesale commodity index hit another postwar low of 70.3 vs. 71.0 prev. week and 71.8 two weeks ago.

US gold imports in May were about $75M, heaviest of the year, and bringing total close to $4.8B; influx seen likely to continue and to cause further ease in money.

Fed. Reserve review for May: Recent cuts in bill buying rates haven't caused large increase in bill holdings of Reserve banks, but “access to Fed. Reserve credit has been facilitated somewhat.” Prices of highest-grade bonds rose gradually most of the month, and main European currencies strengthened moderately, apparently due to shift of funds abroad. However, lower-grade bonds showed no improvement and no withdrawal of funds from NY to rest of the US was seen.

US to offer $800M in 3 1/8% bonds running from 15-18 years dated June 15; seen as start of series of offerings to refinance short-term debt.

Dow average of 20 long-term city and state bonds is steadily approaching a 3.50% yield, though many long-term bonds of less highly rated issuers yield well over 4%, including San Francisco, Louisiana, Detroit, etc.

Foreign currency markets featured strength in French francs vs. dollars and sudden rise in Swiss francs.

Canadian report: Index of employment rose 2.5% to 102.2 in April vs. 111.4 a year earlier. Deficit for fiscal year ended March 31 was $75.2M; revenue of $356.2M was lowest in 10 years. Net debt as of March 31 was $2.262B.

Italian Fin. Min. Mosconi says internal bond issue to refinance $209M debt due in Nov. oversubscribed 75%; estimates fiscal year deficit $45M.

Nord Stern, second-largest German insurance co., omits dividend due to large investment losses. Daimler-Benz, largest German automaker, reports loss.

New Spanish currency restrictions reportedly forbid buying foreign securities and currencies; authorization of Exchange Office is needed to buy property abroad or to invest in foreign undertakings. Yugoslavia moves to stabilize dinar at 26.5 milligrams in conjuction with offering of 40-year 7% $40M stabilization loan. Mexican banks import US gold dollars as part of govt. plan to stabilize peso.

Argentine Fin. Min. Uriburu says govt. will continue to promptly service debt, and attempt to restore peso to parity. Peruvian Junta govt. suspends payments on all debt service until Dec. 31 due to lower revenue.

Chile raises duties on over 200 items including textiles and paints. Nicaragua raises import duties 12 1/2% for funds to repair earthquake damage.

World's leading oil producer in 1930 was Royal Dutch-Shell, with 12.0% of world output vs. 11.9% in 1929.

Chevrolet output of cars and trucks in May was 113,852 vs. 106,096 in Apr. and 113,187 in May 1930; this was the largest monthly output since July 1929.

Reo Motor Car Co. is introducing two new Reo Speedwagons.

Prices of California sardines up sharply; demand increasing and inventories low.

Companies reporting decent earnings: Brown Shoe, Holland Furnace.


Der Grosse Tenor - in German, at the Ufa Cosmopolitan. Emil Jannings gives a superb performance, "throwing off at least two decades of greasepaint age" and character roles [including the middle-aged professor ruined by Marlene Dietrich's character in The Blue Angel] to appear naturally as Albert Winkelmann, "high-living golden-voiced" Viennese opera star. Film follows him from heyday in Vienna to failure on South American tour "where he is leered at by a broken-down Russian tenor"; he then returns to his wife and farming life in Germany, where he recovers his voice and makes a triumphant return to Vienna.


"Census Taker - What does your husband do for a living? Housewife - He sells apples. Census Taker - I thought you said he was an evangelist. Housewife - Oh, that's his profession."

"'We are celebrating our maid's jubilee today.' 'Has she been with you 25 years?' 'No, she is the 25th we have had this year.'"

June 1, 2010

Monday, June 1, 1931: Market closed for Memorial Day

No Journal was published Monday, June 1, 1931, following Memorial Day. I'm putting the week in review for last week in today's blog for consistency with other weeks.

Week in review:

Pronounced pessimism saturated speculative sentiment”; all three major market divisions (industrials, rails, and utilities) broke to new bear market lows as measured by the Dow averages. “No visible change took place in the underlying economic situation. Evidently the abandonment of hopes for any business improvement before autumn influenced a stream of belated selling” that then fed upon itself and gained momentum. In connection with the stock decline, there were persistent rumors “of financial troubles abroad. While nervousness over the Viennese banking situation undoubtedly added to the unsettlement in the domestic security markets, it is doubtful if foreign selling at this center surpassed ordinary proportions.”

German marks fell to a new yearly low due to movement of capital out of Germany, particularly to Switzerland. “However, Berlin advices stated that the volume of capital shipments had not been alarming, and that no gold exports are looked for if any improvement is shown in the Austrian banking situation.”

The money market showed no significant changes as the Fed. Reserve paused in its campaign to cut short-term rates.

Bond prices were mostly reactionary during the week; the domestic corporate list suffered acute weakness at times with record lows in many issues and groups. US govts. were slightly lower early in the week but firmed up close to record highs after successful Treasury bill auction Thursday; market is awaiting word on new long-term financing. Municipal bond trading was quieter and some prices declined. Among corp. issues public utilities, highest-grade “legal” rails and NY tractions [mass transit cos.] were relatively strong while lower-grade rails, industrials and oils were weak. The foreign list suffered some sharp fluctations; S American issues fell sharply through the week before rallying in the final session; German issues fell sharply on Austrian banking crisis and rumors of revision in reparations, though bankers said any revision wouldn't affect interest on loans owned by investors.

Steel production “seasonal decline ... resumed a more normal pace following a week or two of slowing down”; automotive demand tapered off somewhat but construction held its own. US Steel pres. Farrell's “electrifying remarks” of last week criticizing price cutting and urging maintenance of wages drew industry support.

Wheat and corn moved down to new season lows at start of the week, and then hovered slightly higher in spite of news of serious drought and dust storms in the Canadian Northwest, and general lack of moisture in the US wheat belt. Cotton continued last week's downtrend, hitting new post-1915 lows; weather turned favorable; private forecasts indicated cuts in acreage of 9%-11% for the upcoming season; NY Cotton Exchange estimated world consumption of US cotton at 11.1M-11.3M bales this season vs. 13.0M in 1929-30.

Some conservatively optimistic statements against the current defeatist attitude were made by financial and industrial leaders including C. Dawes, ambassador to England, Col. L. Ayres of the Cleveland Trust Co., and T. Lamont of J.P. Morgan.

May 31, 2010

The Irregular Blather May 31, 1931

No Journal was published Sunday, May 31, 1931.

A medium-length blather on contemporary matters - an unsolicited recommendation to Steven A. Ballmer, 1 Microsoft Way, Microsoftville, WA.

As I'm sure anyone reading this has already seen by now, last week Apple passed Microsoft to become the top tech company in market cap, and second only to Exxon Mobil among US companies. This has naturally caused a ton of commentary and unsolicited advice to Steve Ballmer, prompted by the spectacular reversal of fortune between Microsoft and Apple since Ballmer took over in Jan. 2000 (in that time, Microsoft's market cap has gone from $556B to $226B, while Apple's went from $15.6B to $234B). So, again naturally, I can't resist adding my unsolicited blather to the pile.

First, an objective assessment of the debacle. As expected, Ballmer put a brave face on matters; in fact, the headline of the article above was “Ballmer Dismisses Microsoft Value Issue.” But is this entirely convincing? A quick Google search reveals that, in fact, the words “Ballmer dismisses” might almost serve as the dreaded Contrary Indicator:
Ballmer dismisses Google Android
Ballmer dismisses Apple's iPhone as hype
And, while Ballmer also argued that it's a long-term game, it must be noted that he's been CEO for over 10 years now, which is at least starting to get into the long term by most definitions.

Second, while I don't want to give stock advice here and implore you to do your own due diligence on buying any stock, in my own personal Constitutionally protected opinion it seems that Microsoft's stock is, if not Stupid Cheap, at least Pretty Darn Cheap. I mean, in the 12 months ended Mar. 31, which included part of a nasty recession, they earned $1.93/share; when you net out the $5 or so in cash and investments per share, the business is trading pretty close to a single digit multiple of earnings, which seems too cheap for a company with their financial strength and competitive position. So, while I would be the last to recommend a measure designed to pump up a stock beyond its appropriate value, it seems that taking some action to bring the stock price into a more reasonable range might benefit both Microsoft's long-suffering shareholders and Ballmer's job security and legacy.

Allow me to suggest such an action, which would almost certainly work but is so simple and non-fiendishly-complex-and-brilliant that it has almost no chance of being taken by a self-respecting tech company. What if Ballmer wrote the following letter to shareholders:

Dear faithful Microsoft owners:

Thanks for your support in this trying time. For the past few days I've been holed up with some of the world's most brilliant financial minds trying to come up with a way to reverse last week's catastrophe. And we have indeed come up with some fiendishly brilliant plans. Some involve tractor beams and sharks with frickin' lasers on their heads; others doing something with our enormous cash pile just sitting there on our balance sheet when any fiendishly brilliant financial mind knows the path to riches is to leverage that balance sheet up out the wazoo. Upon reflection, however, I've reluctantly decided to keep the existing cash pile; as we learned recently, the financial markets can sometimes freeze up and it's best to be ready for any eventuality. However, it occurs to me that the cash pile we now have is more than enough to meet any need that might reasonably arise; therefore, there's no particular point to continuing to pile up still more cash. Therefore, effective immediately and for the foreseeable future, all earnings coming in will be paid out as dividends as soon as we figure the numbers out each quarter. Thanks again for your support, and sorry about that whole Vista thing ...

If this plan had been effective over the past year, it would have paid out the aformentioned $1.93 in earnings in that time, for a yield of 7.5%, and would probably pay considerably more over the next year. While I realize Microsoft is somewhat out of favor, I still don't think there's any way it would stay at that yield for very long ...