July 20, 2009

Monday, July 21, 1930: Dow 236.65 -3.92 (1.6%)

Assorted historical stuff:

[Note: Emphasis added to highlight the more-than-a-little-spooky part.] Governor R.A. Young of Fed. Reserve Bd. warns banks to be careful about the increasing amount of loans against securities. About the crash last fall, says: “there is food for serious thought in the fact that, under our excellent banking system ... we nevertheless came to the brink of a collapse, had to resort to heroic action to prevent a panic, and were not able to avoid ... severe liquidation and what appears to be a business depression. Is this unavoidable? Is it necessary for this country to go through periods of reckless exuberance, accompanied by enormous credit expansion and fantastic levels of money rates that profoundly disturb the financial structure not only here but all over the world?” The cost of these episodes is paid in unemployment and worldwide depression. Reminds banks that security loans are safe only if a liquid market exists for the security; large scale sales can cause a drop in value, “and there is no telling when such a drop may terminate and what catastrophe may follow ...” Calls on banks not to assume Fed will always be able to help them, since its resources are “not inexhaustible.”

Letter to the Editor: Burden of war debts is crushing. "The day of isolated peoples is gone ... in an economic system one nation cannot punish another nation by destroying its purchasing power; it cripples itself. It is becoming daily more clear that the vast structure of war debts is unsound, ill-advised, damaging ... if we can have a debt holiday and tell the world to use its money in buying, then there will come an era of good-feeling that will make war unthinkable for a hundred years."

China builds world's biggest, best equipped mint at Shanghai; completes “one more of the steps necessary to bring order out of China's monetary chaos.”

Persistent rumors that Great Britain will buy all or part of Greenland from Denmark; desired for air route to Canada.

Dr. Lee DeForest, vacuum tube inventor, to move organization to Hollywood to work on equipment for movies and television, for which he predicts great future.

Soviet military and aviation forces planned to increase to 17 million men by Oct. 1933.

Empire State building going up on site of old Waldorf-Astoria. Currently 3000 men working, 7000 anticipated at peak. About four stories being added per week. To use more than 75 miles of waterpipe and 2,000,000 feet of wiring.

Market commentary:

Market encountered first significant correction in 10 days; anticipated on technical grounds since it had retraced almost 50% of the June break. US steel advanced to new rally high early, then turned down. Other major shares took their cue and likewise declined. Volume and extent of declines mostly moderate. Utilities lower. Substantial short interest still seen.

Hornblower & Weeks issue special letter with theme "Buy sound, standard American stocks now." Predict seasonal recovery and higher stock prices this year, say that stocks can't continually decline in the face of cheap money, commodities, and abundant labor. "Investors will not leave money on deposit for any length of time at 1.5% interest when sound dividend paying stocks can be purchased to net from 5% to 6%."

McNeel's Financial Service predicts boom due to "a program of expansion, invention, scientific development, and the arising of new industries and new modes which promise to make the next 10 years in American industry and finance far greater than anything that has ever been accomplished ... in the life of the nation." This would simply repeat the history of all previous US depressions and panics, after which country has rapidly progressed to new heights.

Current conditions seem quite similar to postwar deflation in 1920-2. From peak in June 1920, business gradually declined until October, and sharply until April 1921. "At the bottom of the movement, pessimists were talking of the worldwide character of the depression, of the tremendous surplus of commodities, widespread unemployment, and even of the baneful influence of the tariff." Shortly afterward "a solid recovery set in, leading to nine years of unprecedented prosperity."

"Eventually a stock will reach its intrinsic worth without manipulation. But manipulation generally helps it along."

Economic news and individual company reports:

June exports $299M vs. $393M in 1929; imports $250M vs. $353M in 1929. First half exports $2.080B vs. $2.623B; imports $1.736B vs $2.286B.

Highway construction and maintenance 1930 expenditures estimated at $1.750B, up over $250M from 1929.

48 Of 52 major rails have decline in freight loadings for 4 weeks to June 28.

11.750B small cigarettes produced in June, up 910M over 1929. Other cigarette/cigar categories lower.

Eastman Kodak has 50th anniversary this year; stock sells for 20 times earnings, yields 3.7%. GE selling about 35 times earnings.

By popular demand - another great market rhyme!

"Sitting in the broker's office, Wondering what in heck to do;
Watching, waiting, hoping, fearing, Praying all my dreams come true. ...
NPT is still a dairy; old VA has just gone by;
BMT is slowly mending; Radio is flying high.
Will I? Won't I? Hurry, Hurry; Down she wavers; up she goes.
'Buy,' I shout with great decision; Comes the answer - 'Market closed.'"

+ The Boring Stuff:

Editorial: Senator Caraway's lobby investigating committee has announced it won't be issuing its report on prohibition until after the Congressional election. This indicates they realize the public is getting tired of this committee's extra-legal behavior and “endless browbeating.” Senate committees generally seem to think they can mold public opinion by “persistently emitting loud and terrifying noises.” It's time they got back to the “real business of legislators.”

Letter to the editor: Suggests government production and distribution of alcoholic beverages at slightly below cost to undercut bootlegging.

Soil erosion has damaged 13M of 16M acres of cultivated farmland in Oklahoma. 1.7M acres abandoned in past four years.

AT&T has over 500,000 registered stock holders; probably over a million holders of stocks, bonds, and associated companies; between 450-500 thousand workers; spending $2M/day on improvements and new construction.

Wheat up sharply; cotton up. Bond market more active than usual for Saturday session, prices mostly firm.

Current conditions of abnormally low money rates have always led to renewed prosperity even in much worse previous depressions (1884, 1894, 1904). "Without patience and belief in the United States the millions now possessed by the Rockefellers, Mellons, Morgans, Bakers and scores of other multimillionaires would not have been made. Ask any of them, and if they care to talk they will tell you that they did not dump what they held when stocks were being sacrificed."

Industry and financial markets more optimistic over past week. Steel production up from July 4 lull; car inventories low; credit remains very easy.

Farm Board anticipated not to buy further wheat, cotton, etc.; intends not to try further price support unless temporary emergency exists with a particular commodity.

Youngstown steel output at 60% this week, unchanged from previous week.

Auto companies probably will need to raise production soon; inventories are low, production has been running behind sales, and difference should be larger in July due to production holidays.

Illinois employment in June down 10.9% from 1929, payrolls 18.4% lower. All industries down but paper and printing. Employment index lowest since 1921 depression.

Procter & Gamble net for year ended June 30 estimated $3/share vs. $2.97 previous year.

Campbell, Wyant & Cannon Foundry first-half net $1.68/share vs. $3.05 in 1929.

Bayuk Cigars first half net was $1.79/share vs. $4.09/share in 1929.

American Chain (chains ranging from jewelry to ship anchor) first-half net $3.29/share vs. $2.63 in 1929.

Johns-Mansville Q2 net $1.16/share vs. $0.81 in Q1 and $2.40 in Q2 1929.

Scott Paper first half net $2.64/share vs. $2.29 in 1929.

1 comment:

  1. "Hoover signs London Naval Treaty; now awaiting ratification by Britain and Japan. Under conditions of treaty US will reach naval parity with Britain by 1936; Japan naval building will almost stop."

    That sure was a winner...