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PSF: NY William O. Douglas
RETIRED FOR PRESERVATION
PSF
Box 144
P5F: full Doriglas
THE WHITE HOUSE
WASHINGTON
11-27-37
Memorandum for Mr. McIntyre:
Chairman Douglas dictated the following
memo over the 'phone:
"Mr. Jerome N. Frank, of New York City,
is agreeable to an appointment on the
Commission. I am very enthusiastic to
have Frank. Frank would like to know
that if there is available at some future
time an appropriate Federal Judgeship
that he would be given consideration, as he
is interested in permanency of tenure in the
Federal Government, as he has to leave a
very good law practice and does not want to
return to it if he comes down.
"John Haines, of C.E. Barney & Co., Member
of the New York Stock Exchange, is a very
good prospect. I am planning to have a
conference with Haines, if agreeable, in
the very near future, to size him up further.
"At the present time I feel that Frank and
Haines would be an excellent combination and
I will report the results of my conference
with Haines in a few days."
W.O.
PSF: Douglas
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
OF THE CHAIRMAN
February 5, 1938.
The President
The White House
My dear Mr. President:
In view of your interest in a recent compilation pre-
pared by Goodbody & Company, purporting to set forth certain
values for public utility securities, I have had our Public
Utilities Division investigate and analyze the results of this
study.
The "Goodbody Study" represents an attempt to measure
the assets and earning power underlying holding company securi-
ties. The physical assets of the subsidiary operating companies
which form the base of the whole security structure have been
revalued on the basis of figures derived from averaging the
detailed property accounts of 120 public utility operating com-
panies. Earnings were then computed on the assumption of a
6% rate of return on the property values 80 calculated. The
calculated values and earnings based thereon were substituted
for book values and actual earnings of each individual company
in arriving at Goodbody's computed values and earnings applicable
to the securities of the holding companies listed in the study.
The calculated asset figures were derived from an
averaging process of the detailed property accounts of one hun-
dred and twenty public utility operating companies examined.
To clarify just how the averaging process was developed,
I have obtained from the files of the Public Utilities Division
a copy, which I am inclosing, of the Goodbody Market Letter and
indicated in red penoil the portion which shows, by specific
illustration, how the method was employed.
The method is admittedly only for test purposes and
does not profess to develop "original oost" or "prudent invest-
ment valuations" for any given company. The application of
average computations to specific cases has the usual weakness
that is inherent in any averaging process. For that reason, I
believe that the "Goodbody Study" does not necessarily indicate
the extent of "write-ups" or "water" present in the various
holding-company systems. It would however indicate the companies
2
where inflated values probably exist and thus serve as a rough,
though not accurate, measure of their extent. In other words
it does not necessarily give a reliable measure of such inflation.
The study was designed primarily to warn investors in
a general way of the companies whose earnings in the future might
be less than in the past. I believe it is of value in distinguish-
ing the better holding companies from the poorer ones from the
point of view of investors who are contemplating putting their
money into holding company securities.
The following appears to be the way in which they may be
classified on the basis of the "Goodbody Study."
Making the best showing:
North American Company
Columbia Gas & Electric Company
American Gas & Electric Co. (Electric Bond & Share System)
United Gas Improvement Company
Making the next best showing:
Niagara Hudson Power Company
Electric Power & Light Co. (Electric Bond & Share System)
National Power & Light Co. (Electric Bond & Share System)
Engineers Public Service Co. (formerly Stone & Webster
System)
Commonwealth & Southern Corporation
American Water Works & Electric Company, Incorporated
Making a poor showing:
United Gas Corporation (Electric Bond & Share System)
North American Light & Power Co. (North American System)
United Light & Power Company
Central & South West Utilities Co. (Middle West System)
American Power & Light Co. (Electric Bond & Share System)
Standard Gas & Electric Company
I shall be happy to supply any other additional informa-
tion you may desire.
Yours faithfully,
4m 0 wayla
William 0. Douglas,
Inc.
Chairman.
This letter is not to be deemed a
solicitation of orders or a prospectus.
MONTHLY
MARKET LETTER
Utility Valuation Yardsticks
January 17, 1938
GOODBODY & Co.
Members
New York Block Exchange
New York Ourb Exchange
Chicago Board of Trade
New York Cellen Exchange
Chicago Btock Exchange
Detroit Block Exchange
Pittaburgh Stock Exchange
Commodity Exchange, Ins.
New York Come Exchanga,Ina.
New York Produce Exchange
Dallas Cotton Exchange
MARCUS GOODBODY
JOHN L. GOODBODY
A. LAWRENCE PEIRSON
ROBERT GOODBODY
W. W. PHELPS
D. L MOORE
HAROLD P. GOODBODY
FREDERIO H. HAHN
IL VAN BRUNT M.KEEVER
Limited Partners
M.J. GOODBODY
CHARLES A., KOLLSTEDE
D. GOODBODY
ROBERT 000DBODT (2nd)
115 Broadway, New York, N. Y.
Telephone: BArclay 7-0100
Bell Teletype: N.Y. 1-672
Cable Address: "Accurate"
Uptown Office:
60 East 42nd Street
Telephone S. Micray Thill 2-6353
PUBLIC UTIGITIES DIVISION
PMON
Beffalo, RECEIVED a. Cess. Cons.
Genera, N.
Mass.
25
Oleg. N.Y.
Mich
City, Mr
Bradford Pa.
PA
X.J.
Presion RY
OR
Terento, Onl.
DMM
'EM'
DISPOSITION
Information presented berein, while obtained from sources
we believe to be reliable, is not guaranteed.
common stock will be for the next year or the
BUSINESS AND PRICE INDICES
year after, under a political system which is
Closing
constantly-trendwise-trespassing on corpo-
Timesha Annalist
Dow, Jones averages
Busi-
Com-
30
ratè, management's freedom of action, which.
nose
modity
Indus-
ad
40
gradually, but persistently, in its primary aim
Index
Index
trigle
Rails
Bonds
Jan.
17,
1938
80.8
64.9
132,49
31.01
91.45
of seeking more power for the Federal Govern-
Dec. 16, 1937
85.0
85.9
125.75
31.68
93.42
Nov. 17, 1937
93.7
ment, is deadening the hopes and ambitions of
88.9
127.54
32.73
93.19
Oct.
18,
1937
100.2
91.4
125.73
30.55
94.26
the country's brains, which for tax and many
Sept.
15,
1937
106,6
94.7
162.85
41.45
98,41
Are.
16,
1937
111.2
94.8
189.34
53.62
101.26
other reasons scares capital away from ventur-
July
15,
1937
110.1
95.4
179.71
53.82
101.63
June
ing into new projects or from expanding old
16,
1937
107.1
93.2
165.86
53.57
101.18
May
14,
1937
109.0
93.0
169.15
17.76
101.18
plants, which through a policy of an unbalanced
Apr.
16,
1937
107.4
94.1
180.75
60.26
101.47
Mar.
16,
1937
106.9
95.1
189.95
63.06
102.61
budget and É political philosophy that believes
Feb. 15, 1937
102.3
92.5
188.39
57.37
104.23
Jan. 18, 1937
the national income should be distributed widely
105.2
92.7
184.95
$5.86
105.89
1937 High
111.2
95.6
194.40
64.40
105.89
is causing those with capital to prefer safety
1937 Low
84.3
85.0
113.64
28.91
91.54
1936 High
106.8
91,2
184.90
$9.89
106.01
rather than assume the risks of profits, and
1936 Low
89.9
79.6
143.11
40.66
98.92
which broadly, as a result of all its policies, puts
a premium on inferiority and a discount on
January 17, 1938.
superiority?
It is a new year, and the world presents a
If business is to be good or normal in any
ghastly picture of unworkable ideas and policies,
country, somebody must spend money on the
of nature thwarted by the temporary rise to
capital goods industries. In this country, it
power of the masses and of individual men with
appears that something like $3,000,000,000 to
almost unprecedented political powers, greedy
$5,000,000,000 of new money issues is neces-
and itching for more. It is a unique picture for
sary annually to secure fairly good business or
this generation. Consequently, it has a most
better. In the 1920's, it came from private
important bearing on investment and specula-
sources. For the past 43/3 years, it has come
tive advices.
largely from the Government, either directly or
We must appreciate fully the awe. and fear-
indirectly from a forcing process through the
inspiring changes that are occurring not only
consumers' goods industries. Does any intelli-
on our own political, economic, and social front,
gent person suppose that, after 435 years of
but also throughout much of the world. We
shrinking, private capital will now come for-
must expect that it is going to be very difficult
ward confidently? Do not most business men,
to convince those who have lived through the
at least, the so-called monopolists, know that
honeymoon stage and the early marriage era of
they are in somewhat the same position now as
this country that those days can never be re-
the Jews of Germany were several years ago--
called, that an investment program fif for the
scapegoats? Isn't it self-evident that there is a
1920's and all earlier years can no loriger be
world-wide tendency, including this country, to
followed if capital is to be preserved. A policy
centralize and give. more power to Govern-
of buying a cross-section of the market, putting
ments? By giving this power to Governments,
doesn't it mean more control over business
it away, and forgetting about it is as passé as
the horse and buggy.
because growth of power means use of power?
All this dampens business confidence increas-
Now let's see why any long-term investment
ingly. Doesn't it follow then that the burden of
program does not seem at all feasible for the
stimulating business must fall more and more
years just ahead and that only a short range
on Government action? If so, then any invest-
policy, six months or so, is all that seems logic-
ment policy must depend largely on what the
ally possible at best. Basically, It is because we
Government does or does not do. Under such
are shifting from a free economy to a managed
conditions, how can you have a long-term in-
economy - just as some half the world's popu-
vestment program? As a consequence of all
lation has completely shifted to a managed
the above. will not safety supersede appreciation
economy. Can we, or anybody, tell at all accu-
as by far the most important consideration
rately or with reasonable probability what the
Investment-wise? If so, won't most common
earnings of any company or the price of its
stocks sell gradually at lower and lower levels
in relation to earnings-say, eventually, at 5 to
We cannot condone their continuance." This
effect on the earnings of some utility companies
10 times earnings instead of 10 to 25 times?
thought was reiterated in his Press Conference
might be quite adverse where rates were re-
The decline in business over the past four
of January 14th, last. Moreover, it is common
duced so that earnings were equal to only 6%
months has probably been more drastic, per-
knowledge that the Federal Power Commission
on a rate base determined through the use of
centage-wise, than for any comparable period
has espoused such a theory, for immediately
the "prudent investment" theory.
in our history. This fact raises a presumption
following a recent Supreme Court decision in
that business is apt to improve moderately be-
regard to the Pacific Gas & Electric Co., Acting
It is to be noted that even if the "prudent
fore growing worse. Firmness in commodity
Chairman Seavey of the F.P.C. announced
investment" valuation theory should be accepted
that the Commission would use the Prudent
throughout this country, the rate of return al-
and high grade bond prices in the past month
Investment Plan for valuing the property of
lowed on such valuation would probably vary
helps to increase that feeling or hope. Although
as between States or sections. Due to local or
there is little evidence as yet in business figures
292 electrical utilities. We fear the possibility
to substantiate any such opinion, we think some
that the Courts will accept ultimately this
sectional differences, some companies would be
upturn businesswise may occur in this first
valuation method.
allowed somewhat higher or lower returns, de-
Therefore, now that the whole matter of
pending on how much is necessary to attract
quarter, barring unexpected political develop-
ments. At least in sporadic cases, wage scales
valuation is receiving current Federal consid-
capital to the enterprise.
may decline and labor conditions generally
eration, it is important that utility holding com-
Up to the present time, utility stockholders
should show improvement from the employers'
pany stockholders, particularly, should know
have remained almost completely in the dark
viewpoint. Politically the news is likely to be
how vulnerable their respective positions might
as to what this "prudent investment" method
more appetizing, as the Senate may be expected
become. For, even though the actual outcome
might mean to them in dollars and cents when
to assume a reasonably independent attitude in
is clouded, stockholders should realize that the
translated specifically into a possible effect on
legislative matters. Inflation psychology, al-
results of the adoption of "prudent investment"
their own security holdings, especially if these
ready aroused by the President's budget mes-
could reflect themselves in two ways: (1) A
securities were the preferred or common stocks
sage and his comments on a rearmament pro-
possibility that the actual asset value (as finally
of holding companies. But now, probably for the
gram, may readily grow in this first quarter-
allowed) behind each share of stock might vary
first time, there is available to the small and
if not as a result of actual developments, then
considerably from the price which they paid
large investor a rather unique method for test-
from a spreading conviction that Government
for the security; (2) a possibility that a ceiling
ing, under some assumptions as to "prudent
spending must increase fairly soon. Thus,
on earnings, based on a fair rate of return at
investment" and a fair rate of return, asset
businesswise, laborwise, politically and infla-
or below present levels, might be imposed on
values and earning power behind his securities.
tionwise, we think the news or its anticipation
those assets. Certainly, they are justified in
We emphasize that the method is only for test
will supply a sufficient stimulus for a rally in
seeking impartial guidance in this matter.
purposes and does not give us the original cost
stock prices over the next month. However,
Under this "prudent investment" theory, as
or prudent investment valuations for any given
this does not mean any change in our advices
we understand it, the original cost of the var-
company.
to investors.
ious elements of a utility's physical property
Such a method, call it a yardstick if you
(plus the use of reasonable judgment in deter-
UTILITY VALUATION YARDSTICKS
will, has heretofore not been generally used,
mining certain values open to question) is by
possibly for the following reasons: (A) Utility
It has been believed for many years that the
far the major factor in arriving at a proper
executives have generally believed that their
property valuations of some utility companies
rate base upon which to predicate a fair rate
local conditions were "different" enough to
were carried at too high a figure on their books.
of return. Two other important factors usually
In the past few months, the President has advo-
make such a method inapplicable to their sit-
considered are depreciation and working capi-
nation. (B) The enormous amount of work
cated the use of a so-called "prudent invest-
tal. If State Commissions and Courts should
required to develop the method has discouraged
ment" theory in valuing public utility proper-
hold that 6% was a fair rate of returnt the
efforts to attempt it. (C) Only in very recent
ties, and only very recently in his Jackson Day
+ Considering the liberal trend of Court opinion, we
months have there been available for public
address, the Chief Executive, it appears to us,
have allowed in our computations a 6% rate of
further alluded to this theory when he said:
return which may be low temporarily for some
inspection, in the files of the Federal Power
companies. In 1934 the case of Dayton Power &
Commission, reports of operating companies
Thousands of investors have lost money
in buying holding company securities which
Light vs. Ohio Public Utilities Commission (292
with sufficient detail from which to work up
S. 290). Mr. Justice Cardozo held that a return
had blue sky above them instead of tangible
the necessary data. Nevertheless, because we
set at 61/2% was adequate. However, in 1935 in
assets behind them. That evil of utility holding
the case of West Okin Gar Company vs. Public
felt that these objections, while valid within
Utilities Commission of Ohio (294 U. S. 63), the
limits, were not insurmountable and believed
company control will not grow in the days to
come, because this Government has now passed
dissenting opinion of the Supreme Court held that
that the implications of the study would be
a 4.91% return upon reproduction value determined
laws to prevent similar occurrences in the
helpful to investors, we proceeded to set up two
as of March 31st, 1928 was not unreasonable. These
future. but we have not yet corrected the exist-
and other cases that could be cited show there is
yardsticks with which to test asset values and
ing evils that flow from mistakes of the past.
considerable leeway in what the Courts may judge
earning nower of certain companies as shown
to be a fair return.
in the following table.
A
B
C
D
E
7
o
H
I
X
Normal
Total of Individual Accruss to Parent Company as computed for us from the Own-
A 1936 figures were used by LII, for the most part, in developing the results shown here.
enship of Securities and Surplus in its Respective Subsidiary Operating Companies
(Which We Have Analyand), per Share of Parent Company Stock Specified.
B In compiling the figures for this column the following exceptions were made: Where
the adjusted plant account was higher than the present me, the asset equity figure
was based on the present plant account. This issumes improbability of official value
ASSET EQUITY
EARNING EQUITY
tions being sanctioned higher than those based on present book figures.
C Where the present return was less than 6% - the present rate have (as deter-
After allowing 6% return
mined by us) and the adjusted plant account - higher than the present one, then
Determinel by us, as
on our rate base which we
. 6% return was allowed on the present base; where the adjusted plant account
explained is text, after
derived from plant account
was lower than the present one, and 6% on the assumed adjusted rile base showed
applying la various
adjusted by - - explained
allowed. an earning equity higher than the present earnings equity, the higher figure was
dements of plant aver-
in text. by applying to vari-
age unit costs derived
our elementa of plant ever-
D d-deficit.
from analysis of
As deter-
age unit costs obtained from
As deter-
approximately:
mined by
analysis of approximately
E To the case of North American Light & Power Co., our
Latest 12
minet by 13
us from
Reseres are after adjusting for reorganization of Illinois
months
Approx.
from reports
20 Selected
reports of
20 Selected
Power & Light Corp.
Consolidated
Market
of Individual
120 Operating
Low Cost
Individual
120 Operating
Low Cost
Earnings
Price of
Companies
Companies
Companies
Companies
Cominanies
Companies
Name of Company
Issue
per Share
Stock
See Note a
See Note Il
See Note C
See Note C
American Cas & Detrie Co.
is Cum. Pld.
$38.26
110%
$ $58.00
$ 427.00
$331.00
$ 33.30
# 21.70
$ 12.75
Common
2.56
2614
37.00
26.50
18.90
2.18
1.26
0.54
American Power & Light Co.
$6.00 Cum. PIL
6.36
1436
144.50
91.80
51.30
5.87
4.13
2.56
$5.00 Cum. Pfd.
6.36
28
144.50
91.80
51.30
5.87
4.13
2.56
Common
0.54
5%
17.80
d 13.30
137.00
0.25
di 0.78
4 1.70
Americas Water Works & Electric Co.
$6.00 Cum. PM.
22,14
87
246.60
102.50
78.80
23.73
7.14
6.09
Common
1.38
1136
12.50
0.22
1.81
1.51
0.10
0,01
Beston Edison Co.
Com. $100 Par
8.86
122
169.60
169.60
136,30
8.38
8.38
8.38
Central & 5. W. Utilities Ca.
$7.00 Cum. Prior Lies PM
16.27
95-99
205.00
146.83
28.20
15.32
7.12
1.59
$7.00 Cum. PM.
9.06
1014-12
74.20
17.75
496.60
8.17
0.17
di 5.16
Common
0.08
1%
d 2.04
4.28
48.80
0.05
4 0.27
40.48
Columbia Car & Electric Corp.
0% Com. "A" PM
13.96
79
327.00
253.00
220.00
13.52
16.07
12.88
5% Cum. Pid.
13.96
64%
327.00
253.00
220.00
13.12
16.07
12.88
5% Cum. Casy. Pref.
64.29
1856
1,815.00
1,233.00
963.00
60.50
80.10
55.50
Common
0.57
1H
17.10
11.29
8.62
0.55
0,76
0.51
Commonwealth Edison Co.
Com. 125 Par
2.21
26%
29.30
29,30
29.30
1.75
1.63
1.63
Commonwealth & Southern Corp.
PM way 0095
10.62
3736
210.00
140.00
64.80
8.90
9.43
4.12
Common
0.31
14
4.64
1.53
d 1.84
0.13
0.15
4 0,08
Consolidated Edison Co. of N. Y.
$5.00 Cum. PM.
16.90
H
353.00
320.50
259.00
17.77
20.05
16.98
Common
2.17
214
48.10
40.23
30.80
233
2.83
2,19
Detroit Edison Ca.
Com. 1100 Par
8.38
105%
119.60
118.10
91.60
8.39
8.15
6.57
Electric Power & Light Corp.
$7.00 Cam. Pfd.
12.33
38
274.00
230.00
141.60
10.05
15.25
10.52
$6.00 Cum. Pld,
12.33
36
274.00
230.00
141.60
10.06
15.25
10.52
$7.00 Com. M PM.
$2.54
35
1,160.00
954.00
138.00
31.54
79.60
15.80
Common
1.10
11%
29.80
19.91
4.0.13
0.60
1.76
0,70
Engineers Public Service Co.
$5.00 Cum. Come. Pld.
8.80
4836
179.00
170.00
117.00
7.53
5.65
4.47
$5.50 Cum. PM.
8.80
53
179.00
170.00
117.00
7.53
5.65
4,47
$6.00 Cum. PM.
8.80
62
179.00
170.00
117.00
7.53
5.65
4.47
Common
0.76
3
16.92
15.05
3.04
0.48
0.05
4 0.21
National Power & Light Ca.
$6.00 Cum. PM
31.86
14
160.00
254.20
160.50
25.00
10.00
6.26
13.30
8.10
3.10
0.97
0.21
0.01
Common
1.32
7M
Nisgare-Hudson Power Carp.
5% Cum. let PM.
25.42
73
465.00
460.00
285.50
19.37
28.20
10.48
5% Cum. 2d Ptd.
76.14
66
1,360.00
1,337.00
693.00
53.60
86.50
20.44
Common
0,88
.
13.96
13.72
6.56
0.54
0.90
0.17
North American Co.
0% Cum. Pfd. $50 Par
32.01
11%
196.00
360.00
282.00
27.40
21.96
19.57
Common
2.05
1116
24.35
21.90
16.30
1.74
1.62
1.17
North American Light & Power Ca.
6.54
37
88.65
49.90
47.70
$6.00 Cum. Hd.
8.53
8.35
4.68
See Note E
Common
0.03
IN
d1.83
43.91
4.02
0.14
0.12
40.73
Public Service Carp. of New Jersey
122.00
7.72
5.27
1% Com. Pfd.
15.01
140
182.00
166.50
15.30
7% Cum. Pfd.
15.01
123
182.00
166.50
122.00
15.30
7,72
5.27
5% Cum. Pfd.
15.01
10416
182.00
166.50
122.00
15.30
7,72
5.27
$5.00 PM.
15.01
9716
182.00
166.50
122.00
15.30
7.72
5.27
6.70
2.67
0.45
4 0.26
Common
2.60
33
24.00
19.75
Southern California Edison Ca.
Common
2.26
24
29.00
29.00
20.70
2.17
2.07
1.67
Standard Gas & Electric Ca.
8.86
22%
297.00
168.50
28,00
8.55
3.86
4 6.11
$7.00 Com. Pr. Pr. PM.
$6.00 Con. Pr. Pr. PM.
8.86
21%
297.00
168.50
28.00
8.55
3.86
di 6.11
4 58.80
4 6.57
4 7.97
$4.00 Cum. Pid.
1.28
9%
109.50
29.42
1.09
Commin
40.95
4%
14.30
4 13.80
4 44.30
di 1.02
if 3.70
If 4,19
United Gas Corp.
24.67
"
396.00
334.00
317.00
24,29
22.25
21.85
$7.00 Cum. in Pid.
Common
0.22
«
0.56
di 3.17
4 4.26
0.20
0.08
0.06
United Gas Imp. Ca.
39.50
105
436.00
412.00
294.00
37.85
25.07
20.10
$5.00 Cum. PM.
Common
LM
10N
11.08
10.31
6.47
1.08
0.66
0.51
United Light & Power Ca
8.34
25%
167.00
110.00
34.20
7.51
3.00
0.83
$6.00 Cum. PIL
336
6.68
4 3.14
4 16.25
Common
0.41
0.26
4 0.52
0.89
But, the relationship of subsidiary operating
by the corresponding number of units of each
companies to holding companies must be under-
company. Suppose it had been found that the
stood first. As a rule, the holding company does
total miles of a certain size of transmission line
not generate or sell any electric power of its
for all 120 companies was 100,000 miles and the
own, it is merely a directory company-a "hold-
corresponding aggregate book value of these
ing company". The bulk of its assets usually
transmission lines was $500,000,000. Then the
consist of securities of its subsidiary operating
average unit value would have been $5,000 per
companies. Thus, it is evident that the value of
mile. Applying this to Company A, having
the parent company securities depends mainly
100 miles of this size of transmission line on
upon an appraisal analysis of a portfolio,
the books at $550,000, we would obtain as our
item by item, of subsidiary company securities
appraisal value, 100 X $5,000 = $500,000, in-
(representing for the most part the parent's
stead of the $550,000 as shown. Similarly the
ownership of practically all the assets it pos-
other types of equipment belonging to Company
sesses). The results of this, in more technical
A would be appraised, after which all the sun-
language, are referred to as the "total of indi-
dry appraisals would be totaled to obtain our
vidual accruals to the parent company from its
final yardstick value for this company. Thus
ownership of securities and surplus in its re-
each operating company had its various kinds
spective subsidiary operating companies." And
of property appraised at values which we found
moreover it is obvious that the value of these
generally prevailed in the industry.
securities making up the holding company port-
The first yardstick was derived from a study
folio depends upon the value of the most impor-
of about 120 operating companies (equivalent
tant assets of the subsidiary companies. There-
to approximately two-thirds of the electric
fore an analysis of these most important assets
power industry), while the second yardstick
was necessary.
was derived from a study of about 20 selected
These consist of their plant and property
operating companies (including one from each
accounts (usually 75% to 85% of their total
holding company system studied) whose equip-
assets). Thus, the values found for these assets,
ment appeared to be lowest in cost. While
when translated, first, into what is behind the
neither of the two valuations we arrived at
securities of subsidiary operating companies in
should be considered a prudent investment
respect to the proportion owned by the parent
valuation for any given company, our lowest
company, and then, further translated into what
figures may be taken as a rough guide as to
is behind each share of parent company stock
the worst that probably could be expected if
shown in the tabulation, is referred to as the
the prudent investment method should be
"asset equity" accruing to the individual se-
applied.
curity shown. In simpler words, we use the
The important columns in the table for
term "asset equity" to mean the value of the
serious consideration are, first of all, Column F
assets (such as generators, transmission lines,
and Column G under "Asset Equity". Column
net working capital, etc.) which we found in
F shows what effect a comparatively mild
back of, or belonging to, each share of the stock
adjustment to the book value of fixed property
shown in the tabulation. Similarly, the term
(or plant) of subsidiary operating companies
"earning equity" means the earning power of
would have on the specified securities of the
these assets which we found in back of each
parent holding company. We arrived at these
such share (according to our assumptions).
adjusted values by applying yardstick, or aver-
In developing our yardstick valuation method
age unit, values derived from the group of 120
we took each type of equipment (such as miles
companies.
of transmission lines) and totaled it for our
Column G on the other hand, shows what
group of 120 companies, and divided this total
effect a more radical revaluation of the book
by the aggregate investment of those companies
value of fixed property or plant of subsidiary
in this particular item. Thus, we arrived at
operating companies would have on these same
average unit values. In the case of transmission
parent company securities. Again we arrived
lines, the average unit value was expressed in
at these adjusted values by applying our sec-
dollars per mile of line (according to size).
ond set of yardstick or average unit values
We then went back and multiplied these values
derived from the group of 20 selected "low
cost" companies. Once more we should warn our
rived from our first method of valuation, which
should be in gold shares, and the balance
readers that this is in no way to be construed
we used in getting Column F. Column K
should, be in cash or in very carefully
as representing "prudent investment", for it is
shows $2.56 as the earnings equity figure we
selected good grade bonds, if yield is essen-
obvious that this method bears no relation to
found for the preferred stock. This was de-
tia) or insisted upon.
what would be called for in an examination of
veloped from our assumption of a 6% return
However, if this program of elíminating
original costs and "prudent investment" result-
on a rate base derived from our more drastic
all common stocks except gold shares has
ing therefrom for any particular company. But
test method of valuation (which we used in
not yet been completed, we would defer
it is our judgment that the application of the
getting Column G).
further liquidation until a rally, which we
"prudent investment" theory would result in
The principal purpose of this study was to
expect will occur over the next month.
asset equity figures per share for any company
attempt to show which properties might be sub-
TABLE 1
within the range established by Column E
ject to rate reductions and how much share
(which we developed for comparative purposes
HIGH GRADE DOMESTIC CORPORATION
earnings might be reduced under our assump-
BONDS
to reflect, in so far as we were able, the present
tions, because of too high earnings, as tested
1936
book values of the operating companies we
by what might be considered a fair return on
Approx.
Yield
Interest
Jan. 14ch
Call About Cover-
studied) and Column G-with the distinct
our valuations. We do not say that the val-
Close
Price %
age
possibility that the figures would fall within the
uations given by us in Columns F and G
A.T.&T.deb.354s, '61 or 66.101
10736 3.20
a5.53
Column F-Column G range.
A., T. & S. Fe gen. 4s,
N.C.
3.65
c2.04
or that the maximum earnings allowable on
Ches. & O. ref, 31/25, "96 95
100sf
3.65
c4.63
The next columns in the table for serious
these valuations in either Columns I or K,
Colum. Ry.Pr.&Lt.1st4s,'65.10
10756
3.65
a3.59
consideration are Column I and K, under
using a 6% rate of return as fair, are, in either
Consol. Edison deb.
10234
2.75
a3.05
"Earning Equity". Here we have shown what
case, just what the Commissions or Courts will
Genl.Mtrs.Acc't.deb. 3s,'46.103
103
2.65
b2.86
the maximum earnings could be for holding
Narrag. EL 1st 31/28, 66 103
10734
3.30
a3.21
allow. But we do say that this study should
Penn. R.R. gen. 4% '84
N.C.
4.25
c1.33
company preferred and common stocks, if a 6%
give warning in a general way of the com-
Phila. EL Ist ref. 33/24, '67.106
107%
3.20
a3.89
return were all that would be allowed on a rate
panies whose earnings in the future may be
Shell Un. Oil deb.3}/1s, "51.100
1023/2
3.50
c10.29
base similar to that which we have used as
Sth's Cal. Ed. ref. 3341, 60.105
107%
3.50
a2.73
less than in the past two years.
described. In other words, if we assume that
Stand.Oil of N.J.deb.3s,'61.101
103
2,95
<15.00
Perhaps you may be interested to know that
Texas Corp. deb. '51 106
103
3.05
c15.00
a 6% return were all that State Commissions
this study has required the entire attention of
Un. Pac. deb. 31/25, 71
94
103'41
3.90
c2.19
or Courts would allow, then in Column I can
several members of our statistical staff for
12 months roding September 30, 1937.
12 months ending August 31, 1937.
be found our interpretation of the results of
some months. Consequently, you will appre-
Estimated 1937 interest coverage.
this assumption when applied to a rate base
Legal in New York State. 1 Unlisted.
ciate that there are at great many details in-
derived from the valuations we developed for
volved which we could not give in this com-
TABLE 2
use in Column F. Likewise, Column K repre-
munication. Furthermore, in a compilation of
GOOD GRADE BONDS
sents the results of this assumption when
this size and complexity, you can appreciate
Public Utilities
applied to the valuation which we developed
that errors of arithmetic may have crept into
Am. G. & E. deb. 5s, 2028 107
106
4.65
v2.04
for use in arriving at Column G.
our work despite our best efforts to the con-
Columbia Gas deb. 5s, "61 95
104
5.35
p2.13
Fed. L. & Tr. Ist 5a, "42 100
102
5.00
62.13
This then is what this study should mean to
trary. However, we feel that any such errors
III. Pw. & Lt. 1st 90
105
5.90
h1.36
you. Take the preferred stock of American
should not substantially vitiate the specific con-
J'my
104
4.30
pl.94
Power & Light. In Column E is found $144.50
clusions reached by you.
N.Y. St. El. & G.1st 41/28,'80 97
1021/2
4.65
pl.42
which is our computation of the total of the
Of course you will appreciate that there are
No. Ind. P. Ser.1st455a,70 94
104
4.85
c1.85
Ohio Edison 1st 3948, 72 98
110
3.85
g2.48
parent company's asset equities (applicable to
other important factors to be considered in
Ohio Pub. Serv. 1st 4s,'62.100
107%
4.00
p2.40
this security) in the subsidiaries We analyzed.
appraising the utility situation besides the valu-
Penn. Pr.&Lt. 1st 43/2a, "81
105
4.25
g2.29
This figure should be compared with the corre-
ation question, such as trend of Government
Saguenay Pw.Ist'A'4)s,66.101
105
4.20
c1.80
sponding figure in Column F, namely $91.80,
competition, taxes, wages, growth potentiali-
Industrials
Allied Stores deb. 455a, "50.. 91
100
5.50
a4.75
which is our computation of parent company's
ties, adequacy of depreciation charges, etc.
Armour & Co. 1st 4s, 55. 93
1023/sf
4.60
e5.27
asset equities under our first method of revalua-
Our own judgment on utility preferred and
H. F. Goodrich 1st 454,56.98
105
4.40
q3.35
tion based on our analysis of some 120 com-
common shares is evidenced by the fact that
G'dy'r T.&R.Ist&coll.5a,
102
4.65
k4.11
panies. In Column G is found $51.30 which
for months, we have not included any shares
Int. Agr. 1st & Coll. 5s, '42.100
103
5.00
b4.06
McCrory Stores deb.5a,'51.100
105
5.00
e10.60
we computed from applying our more drastic
from this group in our monthly letter tables
Mead Corp. 1st 6s, '45
$
104
6.05
j3.20
valuation test method (based on our analysis
of stocks.
Rep. Steel Gen'l 45/23, "56.. 87
104'41
5.65
13.61
of some 20 "low cost" companies). Skipping
U.S. Rub. 1st&Ref. 5a. '47.105
105
4,45
m4.57
over to Column 1, we see that American Power
OUR INVESTMENT POLICY
Wheel'g Steel 1st 41/25, "66
10255sf 5.05
r4.14
Yngston. Sh&T. 1st 4a, 61
102%sf 4.00
s4.02
& Light could earn as a maximum, under our
For the average long term individual in-
Railroads
assumptions, only $4.13 on its preferred stocks,
vestor (meaning not over six months), we
Atl. Coast Line 73
N.C.
6.60
c1.49
if we allowed a 6% return on a rate base de-
suggest that 25% of total investment funds
Can'd's Pac. perpet? deb.4s.. 88
N.C. w4.54
c1.39
1936
Approx.
Yield
TABLE 4
Earned
Interest
Approx.
Divi-
Yield
Year
Jan. 14th
Call
About
Cover-
MISCELLANEOUS BONDS
Jan. 14th
dend
About
Ended
Close
Price
*
age
(1) Convertible Bonds
Close
Rate
e
12-31-36
C.C.C.&St.L. 70 105'47 6.70
c1.15
(For price appreciation over long term)
+U. S. Smelt. ($50)
65
3.50
5.38
11.66
Gr. Nor. gen. 41/21, 76
90
N.C.
5.10
cl.61
Louisiana & Ark. 1st 5a, '69 71
1936
Allied Stores
51
5.00
9.80
a14.49
103
7.30
cl.46
Approx,
Yield
Interest
g20th Century
Fox
Film
31
1.50
4.84
7.68
L&N'shvl 80
4.75
c1.77
Jan. 14th
About
Cover-
Deere & Co.
Pere Marq'tte lst 456a, "80., 75
($20)
24
1.40
105
6.20
cl.55
Close
5.80
%
age
p7.48
105
6.35
uAllis Chalmers conv.deb. 4s, '52 105
3.81
mButler Bros.
21
1.50
7.14
So. Pac. O. L. 1st 4½ 77. 74
c1.04
y
-
hConsol. Oil conv. deb. 31/25, "51
Year ended Jan. 11, 1937.
- Year ending Jan. 31, estimated.
99
3.54
j10.40
b Year ended November 30, 1936.
I Year ending June 10, 1937.
kNat. Dairy deb. W.W. 34, "51 100
3.75
j5.45
0 Convertible into common at $27.50 per share up to July 1,
€ Entimated 1937 interest coverage.
e Fiscal year ending October 11, 1937.
cN. Y. Cent. CODY, sec. 3/41, '52 83
3.92
1.15
1939,
12 months reding November 30, 1937.
gPenn. R.R. conv. deb. 334s, 'S2 88
3.69
j1.33
. Each sh. conv. into I sh. common. f Includes $1.00 extra.
. Convertible into common on the basia of 1% shares of
12 months mding June 30, 1937.
mPhelps Dodge, c'v. deb. 106
3.30
6.18 times lat 36 works 1937,
a
common for each share of proferred.
8.14 times 1st half 1937.
The above represent Current Yields
h Year ended Oct. 11, 1937.
I Each share come. into I share common.
= 4,42 times 1st half 1937.
(2) Speculative Bonds
12 months ending Sept. 10, 1937,
Year ended Aug. 31, 1937.
(Defaulted issues for the long pull)
* Each share CODY. into 2.22 shares common.
4.71 times lat half 1937.
5.20 times Ist , months 1937.
Chi., Milw., St. P. Gen'l 4s, '89 35f
a
in Each share conv. inso two shares of common stock through
6.05 times las 9 months 1937,
Chi. & N. West'n 1st ref. 5s, 2037 12f
Dec. 1, 1938: thereafter and through Dec. 1, 1940 into IN
a
3.56 times lat 9. months 1937.
shares of common for each share of preferred.
Chi, Rock Island Gen. 4s, 88 19f
a
.
12 months coding October 11, 1937.
a Year ended Sept. 30, 1937.
Current yield.
Den, Rio Gr'de ref. imp. 5a, 78. 9f
a
.
e Year ended June 20, 1937.
K.C. Ft. Scott & Memp.ref.4s,". 35 271
a
. Year ended Oct, 31, 1936.
TABLE 3
Admitted - trading on N. Y. Carb.
Mo. Pae. 1st & ref. 5s, 77-81 23f
ar
.
1 Non-callable.
SECOND GRADE AND SPECULATIVE
Mobile & O. Mont.Div. 1st 5s, 47 20f
-
N. 0. T. & M. 1st 51/28, '54
36£
TABLE 6
INTEREST PAYING BONDS
ar
*j1.18
1936
Seaboard Air Line ref. 4s, '59 8f
a
DIVERSIFIED LIST OF LONG-TERM
Approx.
Yield
Interest
In process of reorganization. a Interest in default.
COMMON STOCK INVESTMENTS
Jan. 14th
About
Cover-
€ 30, Convertible 1947, into common stock e $60 per share to April
Close
*
Flat.
age
(Consideration being both Yield and Appreciation)
Bklyn-M. Tr. Coll. Tr. 41/25, '66 61
8.00
p1.68
E Convertible into common stock e 850 per share to April
L 1952.
Certaint'd Prod. deb. 53/2s, 48
$100 to $50-Group I.
63
11.35
a
h Convertible into common stock a $25 per share to 1941,
Childs Co. deb. 5s, '43
13.75
j1.68
increasing prices thereafter.
Liggett & Myers B
$100
a4.00
4.00
$7.25
65
Cities Service deb. 5a, "50
59
11.30
h1.27
I Estimated 1937 interest coverage.
*Aluminum Co. of Amer
82
-
-
8.65
Colo, Fuel & Iron inc.mtg. 5s, 70 60f
la Carries warrants for purchase of 10 shares of common
"Aluminum Ltd.
71
2.51
m
=
e $25 per share,
Colo. & South'n gen. 4½, "80
- Convertible into common e $50 per share. 1937 earnings
Amer. Tobacco B
71
5.00
7.04
3.71
44
10.40
s1.37
Con. Coal Mtg.cum. income 5s,60 54f
estimated $4. per share.
*Newmont Mining
68
a3.00
4.41
3.80
T
F
Cont'l Gas & El. deb. 5a, "58
a 10 months ming October 11, 1937.
Amerada
66
2.00
3.03
2.52
80
6.80
cl.63
1 No funded debt in 1936, Earnings would have covered
Elec. Pwr. & Lt. deb. 5a, 2030
Beth. Steel
64
65.00
71
7.05
present fixed charges over 16 times.
7.81
2.09
c1.47
Fed. Lt. & Tr. deb. 6s, '54
84
7.70
52.13
T Paid earliest defaulted coupos August 10, 1937,
Corn Products
64
3.00
4.69
3.86
Gen'l Water Works 1st 5a, "43
e Convertible into common stock @ 175 per share through
United Fruit
64
a3.00
4.69
77
4.88
11.10
c1.51
B. F. Goodrich deb. 6a, '45
97
Sept. 1, 1939, increasing prices thereafter. 1937 earnings
Cons. Can Ltd. 62
af1.00
1.61
6.55
u3.35
estimated $4.25 per share.
g2.37
III. Pwr.&l.ight deb. 51/2a, '57
No funded debt 12/31/26. Earnings last year would have
eNoranda Mines Ltd.
60
bf3.25
5.41
4.14
83
7.15
b1.36
Intern't'l Tel&Tel. deb. n
covered present fixed charges about 4 times.
*Colts Patent Fire Arms
57
b1.62
2.84
h4.13
=
ks2.00
Nati Pwr. & L. deb. 5a, 2030,
75
Underwood Elliott
57
a3.75
6.57
5.06
6.70
q1.46
TABLE $
New England G. & E. deb. 5a, '50 57
Dome Mines
56
b4.50
8.04
11.45
4.26
t1.19
N.Y. Central ref. imp. 456s,2013 61
DIVERSIFIED LIST SECOND GRADE DIVI-
*Lake Shore Mines
52
7.40
af4.00
7.69
s1.15
c4.15
N.Y., Chi., St.L., ref. 53/58, 74 69
8.15
s1.38
DEND PAYING PREFERRED STOCKS
$50
to
II.
S'eastern P&L deb. 6s, 2025
95
6.30
q1.38
International Nickel
50
a2.00
4.00
2.40
So. Pacific deb.4% '68, W or "81 63
Stocks Listed in Order of Prices
7.30
s1.04
Procter & Gamble
50
Earned
a2.00
4.00
c4.08
So. Ry. dev. & gen'l 6½, "$6
61
11.75
s1.07
Approx,
Divi-
Yield
Year
Standard Oil of N. J
50
a1.00
2.00
3.73
Walworth Co. 1st 4s, 1955
Earned charges fully os cash basis 1936 and 1.77 g2.46 times
65
7.75
Jan. 14th
dend
About
Ended
General Amer. Trans
44
63.50
7.95
2.92
Close
Rate
%
12-31-36
fUniversal Leaf Tob.
Penick & Ford
44
b1.50
3.41
3.52
1st 9 months of 1937. b 12 months ending June 20, 1937.
142
8.00
5.63
$o26.17
4 12 months ending October 11, 1937. f Flat.
+P. Lorillard Co.
133
McIntyre Pore'p'n Mines
42
2.00
4.76
j4.46
7.00
E Tax 9 months 1937 earned charges 5.71 times.
5.26
35.90
Texas Corp.
42
a2.00
t5o. Porto Rico Sugar
4.76
4.10
h 1.26 times lat , months 1937,
129
8.00
6.20
n50.75
tAm. Sugar Refin.
Kennecott Copper
41
a2.00
4.88
2.36
Earned charges lat 9 months 1937 1.87 times,
110
7.00
6.36
9.67
**Ohio Oil
**Gulf Oil
40
al.00
2.50
2.90
. tiosa, Excluding Postal Telegraph and Spanish subsidiary opera-
109
6.00
5.50
14.38
1J. I. Case (7%)
F. W. Woolworth
40
2.40
6.00
3.36
- Covered fixed Interest 9.63 times in fiscal year ming
107
7.00
6.54
30.28
kAncher Cap
*Heyden Chemical
38
2.00
5.26
3.56
June 30, 1937. Earned 17.54% on this issue. Paid 5%
105
6.50
6.14
14.78
Anaconda
35
interest April 1937.
Armour Del. (gtd.)
61.75
5.00
1.83
100
7.00
7.00
h22.00
. 1952 @ 19 yield 9.65% to maturity. Sa 1955 @ e
Pure Oil
Continental Oil
32
a1.00
3.12
2.05
98
6.00
yield 9.15% to maturity, 436a due June 1, 1939 @ 90
6.12
21.30
Colgate Palmolive Peet
Standard Oil of Calif.
32
a1.00
3.12
1.79
En current yield of 1.00%.
95
6.00
6.32
16.10
P Fiscal year ming June 10, 1917.
teHershey Chocolate
Continental Insurance
31
a1.60
5.16
k1.72
93
f5.00
5.38
14.69
e 12 months ending November 30, 1937.
Skelly Oil
Fidelity-Phenix Ins.
31
a1.60
5.16
k1.76
93
6.00
r Paid 1% 1936, 5% 1937. Arrears +%. Earned 4.2% on
6.45
73.16
**Gen. Tire & Rubber
*International Pet. Ltd
30
af1.50
5.00
c1.81
Issue 1936. 1937 estimate Indicates full 1% by fair margin.
88
6.00
6.82
546.12
* Estimated 1937 interest coverage.
cTide Water Associated
Phelps Dodge
29
b1.60
5.51
m1.65
. 12 months ending September 30, 1937.
Oil (456%)
84
*Hudson Bay Mining &
4.50
5.36
. 4.71 times lat half 1937.
16.32
iWesson O. & Sn'drift
Smelting Co., Ltd.
27
bf1.75
6,48
1.34
74
4.00
5.41
j11.53
Central Aguirre Assoc. 26
a2.00
7.69
m3.42
$25 to $00-Group III.
TABLE 8
Earned
Earned
Approx.
Divi-
Yield
Year
Approx
Divi-
Yield
Year
STOCKS FOR LONG TERM HOLDING
Jan 14th
dend
About Ended
Jan. 14th
dend
About
Ended
Close
Rate
% 12-31-36
Close
Rate
/
12-31-36
(With Emphasis on Appreciation Possibilities)
hHard R'k Gold Mines Ltd. 1.21
Interchemical Corp.
24
2.00
8.33
3.02
hBankfield Cons Mines Ltd. 65
Seaboard Oil
24
1.00
4.17
2.00
Stocks Listed in Order of Prices
eBrit. Am. Oil Ltd.
21
af1.00
4.76
1.41
Not including extras.
Earned
Payable lie Canadian funds.
Burroughs Add. Mach.
19
ab1.00
5.26
1.39
Approx.
Divi-
Yield
Year
Year ended June 30, 1937.
Imperial Oil Ltd.
19
af .50
2.63
95
Jan. 14th
desd
About
Ended
Year ended Mar. 31. 1937.
Sperry Corp.
19
b1.20
6.31
1.32
Close
Rate
%
12-31-36
Year ended Aug. 31, 1937.
Curtiss Wright "A"
18
50
2.78
.88
*Aluminum Ltd.
71
2.51
PAid last year.
Listed Teronto Mining Exchange.
National Cash Register.
17
a1.00
5.88
1.76
Newmont Mining
68
a3.00
4.41
3.80
Admitted to trading on N. Y. Curb.
Shell Union Oil
17
b1.00
5.88
1.36
Amerada
65
2.00
3.03
2.52
Barnsdall Oil
16
1.00
6.25
1.01
Beth. Steel
64
b5.00
7.81
2.09
Information presented herein, while obtained from sources
Campbell,Wyant&Cannon
15
a1.00
6.67
3.04
Colts Patent Fire Arms
62
b1.62
2.61
c4.13
believe to be reliable, is not guaranteed.
Clueit, Peabody
15
1.00
6.67
1.84
Intern'l Nickel
50
a2.00
4.00
2.40
Socony-Vacuum
15
b.80
5.33
1.38
Stand. Oil of N. J.
50
a1.00
2.00
3.73
Ohio Oil
14
61.00
7.14
70
Gen'l Amer. Trans
44
53.50
7.95
2.92
Pure Oil
13
b 25
1.92
1.63
Kennecott Copper
41
a2.00
4.88
2.36
Eagle-Picher Lead
12
b 40
3.33
24
*Gulf Oil
40
1.00
2.50
2.90
January 17, 1938
Colgate Palmolive Peet.
11
50
4.04
1.27
Anaconda
35
b1.75
5.00
1.83
Wright Hargreaves
8
a 40
5.00
72
Fairbanks-Morse
31
al.00
3.22
3.81
The following securities were added to or
Teck-Hughts
5 at 40
8.00
.46
Phelphs Dodge
29
b1.60
5.51
g1.65
eliminated from our current monthly market
. Not including extras.
b Paid last year.
U. S. Rubber
28
3.31
tables:
e Year poded June 30, 1937.
e Listed on Toronte Stock Exchange
United Aircraft Corp
25
b1.00
4.00
,76
TABLE 1
I Payable in Canadian funda.
Seaboard Oil
24
1.00
4.17
2.00
Additions
Eliminations
« After depletion and adjusted to 5 for I split up.
Western Par. 1st, 3s, '46
20
(
e
Shell Union Oil deb.
5 Year ended Jan. 1, 1937.
Year ended Aug. 11, 1937.
Foster Wheeler
19
41.87
il Year ended Mar. 31, 1937.
31/28, "51
Chicago & E. III. 5s, 'SI
17
f
la Net Invostment income.
e
TABLE 2
= Year ended July 11, 1936.
Barnsdall Oil
16
1.00
6.25
1.01
Alter depletion,
Socony Vacuum
15
b .80
5.33
1.38
Public Utilities
Listed N. Y. Carb. Admitted to trading on N. Y. Carb.
Bell Aircraft
14
.07
Jersey Central Pr. & Lt. Ark. Pr. & Lt. 1st ref.
Wabash 41/28, 78
14
£
e
Ist 43/2% '61
5s, *56
TABLE 7
Chi, Mil. S.P. & P. 5s, 75
13
e
New York State El, &
East. Gas & Fuel 1st &
COMMON STOCKS YIELDING APPROXI-
Pure Oil
13
b 25
1.92
1.63
Gas 1st 45/28, "80
Coll. 4s, "56
MATELY 5% or BETTER
St.L.-S.Fr. 43/28, 78 Ctfs.
13
E
e
Ohio Public Service 1st
Tidewater Pr. Ist 5a, 79
(Appreciation Secondary)
N.Y., N.H. & H. 4s, '57. 12
f
e
4a, '62
Paramount Pictures
12
1.18
Stocks Listed in Order of Prices
Lockheed Aircraft
10
.15
Penn. Pr. & Lt. 1st 43/2a, '81
Amer. Tobacco B
71
5.00
7.04
3.71
Seaboard Airline 6s, '45 10
e
Industrials
Corn Products
64
3.00
4.69
3.86
Chi, Rock L & P. 4a, 34.
9
e
United Fruit
64
a4.00
6.25
4.88
B. F. Goodrich 1st 434s, "56 B. F. Goodrich deb. 6s, '45
Mo. Pae. 4s, 75
8
e
Sterling Products
58
a4.20
7,24
5.05
Denver & Rio Gr. Ss, '$5.,
7
f
e
TABLE 3
Dome Mines
56
a4.50
8.04
4.26
Int'l Tel. & Tel.
7
63
Lake Shore Mines
52
ab6.00
11.54
14.15
Chi. & N.W. cv. 4)(s, "49
6
B. F. Goodrich deb. 6s, '45 Erie ref. Ss, '67 or 75
e
Loew's Inc.
51
a7.50
14.70
h8.47
Mo. Pac. Ser. A 51/24, '49
6
€
Reynolds Tob. B
45
3.00
6.67
2.93
TABLE 4
Mil., St.P.&P.5x.2000
5
e
Mclntyre Preup. Mines
42
2.00
4.76
14.46
Int'l Gt.North's adj.6s,"52
5
e
Speculative Bonds
F. W. Woolworth
40
2,40
6.00
3.36
5
I
e
Central of Georgia Con-
Chesapeake & Ohio
37
ag5.80
15.67
5.72
7.88
Not including extras. b Paid last year.
sol. 5a, '45
Bristol-Myers
33
a2.60
3.31
€ Year ended Jan. 1, 1937, di Deficit, . Is receivership.
General Foods
33
2.00
6.06
2.71
Interest in delandt.
Internat'l Pet. Ltd.
30
ab2.50
8.33
f1.81
.f
After depletion.
TABLE 6
Listed N. Y. Curb.
Admitted to trading on N. Y. Curb.
2.00
6.90
Sperry Corp. (The)
United Air Lines Trans.
Amer. Sugar Refining
29
2.67
So. Porto Rico Sugar
27
a3.05
11.29
Corp.
e2.87
TABLE 9
Swift International
26
a2.50
9.62
3.13
Cent. Aguirre Asso,
26
a3.38
13.23
STOCKS FOR MODERATE TERM HOLDING
TABLE 8
c3.95
Sutherland Paper
21
a1.80
8.57
2.54
Dome Mines
55
g4.50
8.04
4,26
Newmont Mining Corp.
Boeing
Airplane
Co.
Imperial Oil Ltd.
19
ab1.25
6.57
95
Lake Shore Mines
52
ab4.00
7.69
e4.15
North American Avia-
Borden
19
1.60
8.42
1.80
McIntyre Porc'p'n Mines
42
2.00
4,76
e4.46
tion, Inc.
National Dairy
15
1.20
8.00
2.01
Alaska Juneau
12
a .60
5.00
1.52
Ohio Oil Co. (The)
a Including extras paid last year.
Wright Hargreaves
8
a .40
5.00
1.72
b Payable in Canadian funds.
TABLE 9
4 Year ended July 11, 1937.
. Year ended Sept. 30, 1937,
hl.it.LongLac GoldM's.I. 5.40
bg .40
7.40
.30
If Year ended June 30, 1937.
hPamour 3.90
,03
......
Alaska Juneau
. Stock dividend of $2.00 paid last year in new 1% nos-
hMcLeod-Cockshutt G.M. 1.40
comulative preference stock.
> Year ended Aug. 31, 1957. E Year ended Mar. 31, 1937.
hKirkl'd Lake G.M.Co.Ltd. 1.35
bg
.09
6.66
.06
Reasons for eliminations or additions furnished to
Admitted to trading on N. Y. Curb.
hBeattie Gold Mines Ltd. 1.28 bg .05
3.90
11
clients on request.
W.O.
PSF: Douglas
Hyde Park, N. Y.
Donglas
February 21, 1938.
Memorandum for Hon. W. 0. Douglas:
Thanks for yours of February
18th. I will take it up as soon as
I get back to Washington. I will call
you on Thursday or Friday.
F. D. R.
4
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
THE CHAIRMAN
February 18, 1938
The Honorable Marvin H. McIntyre
The Nelson House
Poughkeepsie, New York
My dear Mao:
I wonder if you would be 80 kind as to hand
on to the President the enclosed memorandum. It is a
matter of some importance to us which I had intended
to take up with the President before he left, but the
pressure of other work prevented.
With warmest regards and best wishes, I am
Yours faithfully,
3)
William 0. Douglas
Chairman
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
OF THE CHAIRMAN
February 18, 1938
MEMORANDUM
TO: The President
FROM: Chairman William 0. Douglas
RE:
Federal Licensing Act for Corporations
We feel here at the Commission that it would be desirable
to have a Federal licensing or incorporation act for corporations.
Our idea is that such Act should be applicable to all
corporations engaged in interstate commerce whose securities are
so widely held and whose assets are sufficiently large as to
make them subjects of national concern.
It would also be our idea to require such corporations to
file with the government at regular intervals, periodical reports
on their financial condition and to keep such information current.
In that connection it is also our feeling that the government should
be empowered to establish accounting standards applicable to such
corporations.
The reasons why we feel such a simple statute would be
desirable are the following:
The Securities Act of 1933 and the Securities Exchange Act
of 1954 are directed, in large measure, towards securing the public
- 2 -
dissemination of financial information concerning corporations
whose securities are bought and sold by the investing public.
Marked progress towards this end has been made under the Securi-
ties Exchange Act with respect to securities listed on national
securities exchanges. Adequate information regarding the great
mass of securities publicly held but traded only on the over-
the-counter markets is at present largely lacking. Such infor-
mation is required only of companies which voluntarily subject
themselves to the requirements of the Securities Act by offering
new securities to the public. Even information thus made
available is required to be kept current only in the case of a
limited class of large corporations which have registered an
issue of securities under the Securities Act since August 25, 1936.
This disparity between the treatment accorded to listed
and that accorded to unlisted securities works an unjust dis-
crimination against the national securities exchanges and against
the issuers of listed securities. It also deprives the investor
in the over-the-counter markets of a much needed protection. It
has been conservatively estimated that financial and other pertinent
information with respect to some 57,000 security issues traded in
the over-the-counter markets is not now required to be filed with
this Commission. Furthermore, the inability of this Commission to
secure adequate information regarding securities traded only over-
the counter greatly hampers the Commission in its task of ensuring
- 3 -
to the investing public a free and fair over-the-counter market.
A corporation licensing law of the character I have mentioned
would serve to correct the inequity presently existing between the
exchange and the over-the-counter markets. It would also go far
towards restoring greater investor confidence in the capital
markets -- a matter of major concern, in my view. Furthermore, it
would provide a repository of information useful as a basis for
determining the precise extent to which the business and financial
practices of large corporations are proper subjects of further
Federal regulation.
As you know, Senator O'Mahoney has sponsored for sometime
8. bill for Federal incorporation. Our interest is at present
restricted to the few phases which I have mentioned above. What
else might be included in such a bill we do not purport to say.
But would it be agreeable to you if the Commission or myself
officially sponsorS such & measure, limited as above?
weerles
un
PSF:W. O,Douglas
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
OFFICE OF THE CHAIRMAN
file
November 14, 1938
Memorandum to: The President
The White House
From: William O. Douglas
Ed Eicher, who is back from the wars in Iowa, has just
talked with me. His personal plans are in such shape that he
could, if it still meets with your approval, start work at the
Securities and Exchange Commission immediately.
When I last discussed with you the prospect of his appoint-
ment to this Commission to fill the vacancy caused by the resigna-
tion of John Hanes, it was, as I recall, contemplated that he come
on to this Commission the first part of January. But in view of
the fact that he is now free from all pressing commitments, and
that we could use him right away, I wanted to bring the matter to
your attention in case you felt that his appointment at this time
would be wholly appropriate.
Uu 0 wongles
PSF: Wm. O. Douglas
Daing Dauglar
yen
Memo to Senator O'Mahoney
From the President
May 17th 1939
In re-0'Mahoney's plans on taking of testimony on the
Insurance phase of THEC
Memo to Leon Henderson attached-May 19, 1939
Also attached memo to the President--April 12, 1939
From Williem 0. Douglas
Re-Insurance Investigation
See: THEC folder-Drawer 2-1939 for the above correspondence
and other correspondence relating to the Temporary
Nat'l Economic Committee.
PSF, W.D. Douglos
your
Hyde Park, N. T.,
June 27, 1939.
Dear Bill:-
The thought behind the ball game
between the Nine Young Hen and the Cabinet 10
an excellent one, even though you eliminate
General Watson, Admiral MoIntire and Colonel
Early.
I come back with & counter proposal,
however. The Cabinet insists that the Chief
Justice pitch and Mr. Justice McReynolds catch.
Our battery will be The Secretary of State,
Pitcher, and The Secretary of the Interior,
who is away, these are our oldest members -
Catcher. Except for the Secretary of the Navy,
and, incidentally, it gives some advantage to
the Supreme Court because an experienced
battery counts and yours will be about ten
years older than ours.
We also suggest that no substitutes
be put in -- and we suggest further that the
Umpires be the President and the Speaker of the
House. This seems fair. Finally, we insist
that your "Nine" waive in advance any judicial
authority over unpires' decisions, and that in
publicity after the game no minority opinions
will be filed,
So far 80 good!
AB ever yours,
Honorable William O. Douglas,
Supreme Court of the United States,
Washington, D. 0.
Supreme Court of the United
Mashington, B.C.
CHAMBERS OF
June
JUN 24 JUN 24 THE WHITE HOUSE
JUSTICE WILLIAM O. DOUGLAS
RECEIVED 39
My dear Mr. President:
I have just received the original of a
cartoon drawn by Herbert Block and published a
month or 80 ago. It is entitled "The Nine Young
Men". It shows the members of this Court in a
huddle in the corridors of the Supreme Court
Building. One of the more spirited, whose iden-
tity is not disclosed, is saying, "Let's phone
the cabinet members and see if we can get up a
ball game."
I did not want to take this matter up
officially without first sounding you out informally
on the proposition.
Of course, all "ringers" should be ex-
cluded. I refer especially to General Watson,
Admiral McIntyre and Steve Early.
Yours faithfully,
hm 0 hearyla
the Presed dent
PSF: W.O. Doughs
THE WHITE HOUSE
N
WASHINGTON
Confidential
November 21, 1939.
Private
MEMORANDUM FOR
MR. JUSTICE FRANKFURTER:
I em secretly disturbed to find that
one BO young as Mr. Justice William 0. Douglas
has so soon taken advantage of the old subterfuge
of quoting from obiter diota of his colleagues
and law school professors, expressed through
letters, editorials in the New Republic and
1937 speeches by a recent Horverd Law School don.
Because of your seniority, I suggest
that you hold a seminar for Bill, asking him
to apply the vivid rules of life in place of
the musty rules of law and get him to answer
in language which even the President can under-
stand the simple query "Do Baptists play poker?"
In the utmost confidence, in view of
your recent assertion to no that you are about
to take a freshman course in that ancient and
honorable game, you will perhaps be good enough,
again in the utmost confidence, to tell no
whether we can muster five votes for the game
as the Court is now constituted. I am deeply
interested because, as you know, there 1s a
vacancy in your honorable body.
F.D.R.
Supreme Court of the Mitted States
Wnshington,B.O.
CHAMBERS OF
JUSTICE WILLIAM O. DOUGLAS
November 15, 1939.
My dear Mr. President:
I have your letter of November 11, in which you ask
for an advisory opinion on the question "Do Baptists play
poker?". I have made a hurried search of the subject of
advisory opinions and have come across a very respectable
authority which would seem to permit it in a very limited
class of cases. The authority on which I rely is Mr. Justice
Frankfurter, who, while professor of law at Harvard University,
published a casebook on Federal Jurisdiction and Procedure,
where I find, on page 72, the following:
S. Res. 103, 75th Cong., 1st Sess.
81 Cong. Rec. 3597 (1937).
Resolved, That the Supreme Court of the United
States is requested to adopt such amendments to
its rules and procedure as to enable the Congress
of the United States, on a majority vote of both
Houses of the Congress, to request and receive
from the Supreme Court of the United States advisory
opinions as to the constitutionality of legislation
pending before, and being considered by, the
1
Congress of the United States.
1 This resolution was introduced by Senator
Schwellenbach on March 29, 1937, following the
publication of a letter from Mr. Chief Justice
Hughes to Senator Wheeler who used the letter
in his opposition to President Roosevelt's pro-
posed legislation with reference to federal
judges who reach the age of 70 years. A part
of the letter was as follows (Hear. on 8. 1392,
&
Sess. Comm. on the Jud., 75th Cong., 1st Sess.,
(1937) 488, 491),
"My dear Senator Wheeler: In response to
your inquiries, I have the honor to present the
following statement with respect to the work of
the Supreme Court:
......
I understand that it has been suggested that
with more justices the Court could hear cases in
divisions. It is believed that such a plan would
be impracticable. A large proportion of the cases
we hear are important and a decision by a part
of the Court would be unsatisfactory.
I may also call attention to the provision of
article III, section 1, of the Constitution that
the judicial power of the United States shall be
vested 'in one Supreme Court' and in such inferior
courts as the Congress may from time to time ordain
and establish. The Constitution does not appear
to authorize two or more Supreme Courts or two or
more parts of a supreme court functioning in effect
as separate courts.
An editorial in the New Republic characterized
the quoted portion of the letter as "an advisory
opinion run riot, ... the final step in the
usurpation of judicial power--a statement in
advance to Congress of the kind of laws which the
Court intends to condemn. In giving this advance
notice, the Chief Justice violates every precedent
of his own tribunal against the giving of advisory
opinions." (April 7, 1937, at P. 254.) See the
remarks of Senator Minton, March 31, 1937, 81
Cong. Rec. 3763; and the letter from Solicitor
General Reed to Senator Ashurst, post, P. 624.
Compare the opinion given by Mr. Justice
Johnson, with the approval of other members of
the Court, to President Monroe, 1 Warren, The
Supreme Court in United States History (2d ed.
1928) 595-596. "This, of course, was extra-
official, but it is safe to say that nothing of
the sort could happen today." --Hughes, The Supreme
Court of the United States (1928) 31.
Thus spoke Professor Frankfurter in 1937.
In reliance on that eminent authority, research will
be at once started on the question which you propound. The
results of that research will be forwarded to you with as much
dispatch as possible, together with further observations on
other phases of your letter of November 11.
Yours faithfully,
un 0 wangles
The President,
The White House.
Supreme Court of the Huitted States
Washington,B.C.
CHAMBERS OF
THE Nov WHITE 10 RECEIVED 11 56 HOUSE 56 AM *39
JUSTICE WILLIAM O. DOUGLAS
November 10, 1939.
My dear Mr. President:
In answering your letter of September 28, 1939,
80 soon, I am probably violating some judicial precedents.
For the period of gestation for judicial pronouncements is
at least a couple of months.
I have reservations as to your proposal to make
the contest football rather than baseball. My reservations
arise because of the awful prospects which that calls up in
the mind. Take, for example, that salty, triple-threat back-
field of yours. Even within the rules of the game, the destruo-
tion to the morale and physical well-being of our team, of which
it would be capable, is quite appalling. Offsetting your back-
field, of course, is the "right" side of your line which would
probably be calling for time out rather continuously and would
rather settle the contest in the locker room than on the field.
But the "left" side of your line would more than make up for
that by covering each side of center equally well.
So viewing it objectively, I have great fear of the
consequences to our team -- not that it will be "licked" but
that it will be obliterated. In sum, I fear that the contest
would settle more than the issue of judicial supremacy.
You suggest that you can give us some additional men
of ability. You mention one possibility. What the merits of
the charges against him may be I do not profess to know. But
his reputation at present in the eyes of the public leaves
something to be desired. Hence, I am not sure that he should
now be "tapped". After all, it took baseball some little time
to live down the alleged goings-on of the old White Sox.
The President,
The White House.
-2-
Your intimation that you and I share the receipts
goes far towards swinging the balance the other way. That
appeals to me not because of any personal advantage involved
but because of the sheer pleasure in seeing one or two of your
linesmen sweating for once for somebody else. But even that
passing satisfaction does not still the humanitarian impulse
to keep our team from getting out of its own class.
So I wonder if it might not be better to test the
skill at poker. You can furnish the deck, thus ruling out all
marked cards - which have not been unknown. And with some
feeling I can say (and General Watson may be willing to confirm
it) that with me by your side you are pretty certain to win.
Yet in saying that I do not want to leave the impression that
no one on this side tops me in that ancient, wily game. We
do have a few fancy dealers and some who always seem to get the
wild cards.
Yours faithfully,
lew O Wangle
Supreme Court of the Muited States
Wushington.,P.
CHAMBERS OF
JUSTICE WILLIAM O. DOUGLAS
September 19, 1939.
The President,
The White House.
My dear Mr. President:
My neglect in answering your letter of June 27
has been due to my absence from the city; not to any waning
interest in the proposed ball game between the Nine Young Men
and the Cabinet.
I like your counter proposal. Certainly it has
some phases to which no possible objection by any fair-minded
person could be made. By reason of their temperaments and
experience, the President and the Speaker of the House are
eminently qualified to be the umpires.
The Cabinet's insistence that this "Nine" waive
any judicial authority over umpires' decision is also wholly
agreeable to me. But I fear that the point cannot be won with-
out a tussle. As you are well aware, the issue of judicial
supremacy has a long history. To be sure, there is nothing
in the Constitution about it. But it came to pass anyway.
Some, like Frank Hogan, are fearful lest we get back to the
Constitution and away from what has been said about the
Constitution. But that is another good reason for pressing
your point. In sum, I am for the proposal, tussle or no
tussle.
The Cabinet's insistence that in publicity after
the game no minority opinions be filed will be attacked as a
curtailment of freedom of speech. But, as I read your proposition,
there will be no cloture during the game. Hence, your suggestion
is wholly agreeable to me, though it will also be denounced as a
body blow to judicial supremacy.
-2-
That disposes of the minor phases of your
counter proposal. The major one remains; viz., who will
constitute the battery for this Nine? Your tribute to the
skill of our proposed battery doubtless is based not only
on our proposed catcher's ability to stop anything, but also
on our proposed pitcher's great change in pace -- slow balls,
fast balls, curves, spit balls, etc. That was a tribute
genuinely deserved. Furthermore, as you have said, the
proposed battery does have a rich experience.
But I would be derelict in my responsibilities
if I did not mention one item which you referred to so
casually as to lead me to think that I should call it to your
attention for further consideration. That is the question of
the age of our battery. Age brings experience; it also brings
physical frailty. Pitching and catching are quite strenuous.
We have no substitutes or replacements. Suppose one -- or
even both -- of our battery gave out completely!! You could,
of course, replace them. Yet some of the "Yes, but" group
will say, "Why take the chance? If, instead, younger men
constituted the battery, that risk would be avoided. By using
your candidates for pitcher and catcher in the outfield, they
could be preserved for many, many years!!"
That will be the argument against your proposal.
And I thought I ought to call it to your attention now, lest,
having started with a nice, friendly ball game, we be charged
with concecting (or we unwittingly end up with) 8. court plan.
Yours faithfully,
lun 0 hearylas
fill onal
November 11, 1939
Dear Bill:
As a fellow manager of two athletic
associations and as my partner in splitting the
gate receipts, I begin to wonder whether your
Nine old Men still have that dreadful inferiority
complex which settled upon them during the athletic
season of 1937.
Here is my club rarin' to go -- ready
last spring to stage the World Baseball Series
between the Administrative Oligarchy and the
Judicial Hierachy. At the very end of the base-
ball season when I had started my team throwing
passes and kioking goals, your aggregation is
still haggling over the game.
Now the same sort of thing develops
again. My football team 1s closing an undefeated,
untied season and I have started them into strict
training for ice hockey. The ground 1s getting too
hard for football anyway because neither your team
nor mine can stand the frost.
Ice hockey is different. The enclosed
rinks are nicely heated and the artificial ice is
soft -- and anyway, I have trained my team 80 that
when they fall down, they skid and don't bump. Can
you say as much for your Nine old Men?
That idea of reducing the contest to
poker would be all right in view of the enormous
salaries drawn down by your people. At least you
could afford to lose.
But, I ask you, do Baptists play poker?
As ever yours,
Mr. Justice William O. Douglas,
Washington, D. C.
fdr/tmb
September 20, 1939.
Dear Bill:-
I deeply regret that your team of the
Nine Young Men has seen fit to wait until the
baseball Beason is over before appearing to face
my Cabinet. Last week my Cabinet team, having
won the Federal pennant for the 1939 baseball
season, put on football uniforms and, with the
assistance of the three new Administrators,
awaits all comers. If the Supreme Court is
ready to take on the Gridiron Game, I suggest
that its nine members be supplemented by former
Senior Judge Manton and any other Circuit Court
Judge of similar ability.
In view of the fact that modern foot-
ball had not been invented at the time your
team was in college, you may prefer a game of
soccer with the Cabinet team. Every member of
my team 10 a soccer!
As over yours,
Honorable William 0. Douglas,
Supreme Court of the United States,
Washington, D. c.
W.O. Frigh Eary Folder OFFICE
UNITED STATES
DEPARTMENT OF THE INTERIOR
OF PETROLEUM COORDINATOR
Belle
FOR NATIONAL DEFENSE
WASHINGTON
May 19, 1942.
My dear Mr. President:
Here is a report that has just reached my desk on "The
Transportation of Petroleum to Eastern United States", that has
been prepared by the Transportation Division of the Office of
Petroleum Coordinator. It has some more or less pretty maps that
may intrigue you.
Sincerely yours,
Petroleum Coordinator for War.
The President,
The White House.
Enc.
Filed Library
friend
Special Bill
Supreme Court of the United JOH 12
THE PSF: w.o. Douglas 5-42 Folder
Mashington, D.C.
08
CHAMBERS OF
AM
HOUSE
JUSTICE WILLIAM O. DOUGLAS
Jian
1942
my dear her. Instruct
& talked with Jimmie
Byrnes about the watter we
deceased east Sunday Jimmi
promised to think t over. and as
9 told more on the telephone
before 9 left, 9 think Jummie
has some slants on the problem
which you should have directly
from him.
your basic idea
has went. But my present
it 9 probably should resign
feeling is Rot if 9 ties its
Junie was walined to Rot
from the Count. 9 think that
new So was the C.J. with
whom 9 discussed the watter
quite finally The thought
undertaking m my part to
was that 7 the work was
non out difficulties between
to he effective, The one who
department heads and others
ded it should he able to
who have authority and who
work finally with some
in many instances have a
authority and respecibility
real bostility would not from
as you him, 9 think
to he helpful and wight
only lumiss of D day. Since
the was effort is the first and
injure the Count
But Fuil think to
last December 9 have often
matter was some more while
thought that 7 should enter
9 finish my my augan and
the away or the many. Eagt
to next two weeks. apcounse
Cobfornia assegnments during
for such a major was more,
7 thought 9 should stay on 9
twant to be helpful. my
the Count for the maxim 9
fave you. But unless
present new haveng is hat
resign from the Count and
if your tentature suggestion
take - administrative post
was to work out, it should
9 am maluted to the
be done through sprific
new that my real
designation of say the
~ fair wen on a fermanent
basis with defents authority
and responsibility Ken they
department heads anyet to
unight be able to do what
do in their over 90 To or were
1 to time without any
interession 91 that freend
really clicked. 9 theretr you
would jet defunte relef. and
at is very, very important
that you fet at
as wer -
Bill