June 17, 2009

Wednesday, June 18, 1930: Dow 228.57 -1.48 (0.6%)

Assorted historical stuff:

City of Chicago is now recovering from having no tax revenue for the past two years. This situation arose because the 1927 property tax assessment was invalidated due to political favoritism. It was found that individual property assessments ranged from 1% to over 100% of full value. City politicians “regarded, with reason, the old flexible manner of assessment as a splendid means of collecting votes, etc.” After some delay a reassessment was done, which should allow tax collections to resume. In spite of not having any tax revenue for the past two years Chicago is only carrying about $95 per capita of debt, compared to $245 for New York City.

Story describing the Norwegian whaling ship Kosmos. Ship is 22,000 tons, carries seven steam-powered hunting boats and an airplane to help locate the catch. Capacity of 6-8 whales per day; giant opening with hinged doors at the waterline permits whales to be floated right into the vessel's hold; factory reduces the catch to oil, fertilizer, bonemeal, canned meats, etc., right onboard the ship. Operates in the Ross Sea off the Antarctic - “Because of the growing scarcity of whales, hunters must go farther and farther from shore stations, necessitating long cruises and larger whaling ships.”

A.M. Markwart, VP/Engineering of PG&E, reports that remaining hydropower sites in California are economically unattractive. This is due to remoteness of sites, advances in production of steam generating plants, and cheapness of fuel. Anticipates future development for some time will be exclusively steam. Present system is mostly hydro - peak load supported is 2.04 GWatt, of which 1.34 GW is hydro and 0.7 GW is steam.

As previously announced, President Hoover signed the Smoot-Hawley tariff bill at 12:59 p.m.

Senator Glass introduces a bill amending regulation of banking and the Federal Reserve. Proposes removing the Secretary of the Treasury as a member of the Federal Reserve Board since he is exercising a “disproportionate if not dominant” influence over the Federal Reserve Board.

Tests begin soon on the Curtiss-Bleeckner helicopter now under development in Garden City.

The New York Hide Exchange declares a holiday on Saturday, July 5.

Market commentary:

Market started lower, many margin calls caused by the decline on Monday, attempted a rally in the mid-day, but bad news from U.S. Steel caused a wave of selling in the last half-hour. Volume was high on Monday (5.6M shares) and today. Ticker fell 40 minutes behind early but caught up later as volume petered out. Two stocks make new yearly highs, 330 new lows.

Dow closed below the “level of resistance established at 230.89 December 20 on the secondary reaction which followed the initial rebound from the October-November collapse.” This was considered bearish.

Dow Industrials have broken below the bottoms of last May and December but remain well above panic bottom of November. Railroads have gotten almost down to the November level; Utilities are in between but closer to the Industrials. The rally ending in April was probably overly optimistic, hoping for a revival of business at midyear; buyers then are probably selling in disgust now. If two or three of the averages break down below the November level, this may be a warning that the bear market begun last fall isn't over, “though it might nevertheless be near its end.” Also remember that major swings in the market usually go further than business conditions justify.

Maurice S. Benjamin of Benjamin, Hill, & Co. predicted two months ago that the market would have to undergo a severe pullback before reaching new highs. He then sailed for Europe. Following that correct call, he now says the decline is over and predicts a quick improvement in business, stock prices much higher by fall, and still higher by next spring.

Economists feel the current situation in commodity markets is starting to look like a bottom; a combination of underproduction and easy credit at low rates should work as usual to correct conditions.

Reported earnings comparisons will soon be with the end of 1929 and the first half of 1930, which should be more favorable. Many stocks should even earn more in 1930 than 1929, including tobacco, amusements, and public utilities. Even for those that don't the market has discounted lots of bad news - many companies are off 75% or more from their highs.

Economic news and individual company reports:

US Steel reduced production this week to 72% from 75% last week; industry is at 68% from 71% last week. Steel demand is not down much over the past five years, but industry built too much capacity.

Underwood (typewriters, adding machines) reports earnings for the start of 1930 below 1929 but improving every month since March. Dividend is still well covered.

Deutsche Lufthansa, founded four years ago to combine all the large air transport companies in Germany, is operating a large loss and will require continued subsidies.

Wright Aeronautical gets an order from the US Navy for 272 Cyclone engines, costing approximately $2 million. Engines are 9 cylinder, 575 horsepower.

Daimler-Benz reports better results in 1929 than 1928 but still unable to pay a dividend on the common – need profits to cover depreciation. Daimler is the second-largest German car company behind Opel.

Turkey grants a monopoly on manufacture of matches and lighters to Swedish Match Co. [see Ivar Krueger - the Swedish Match King], in return for a 25 year loan of $10 million at 6 1/2%.


“Her Sweetie – How long will it be until your sister makes her appearance?
Younger Sister – She's upstairs making it now.”

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