July 8, 2009

Wednesday, July 9, 1930: Dow 219.08 +0.75 (0.3%)

Assorted historical stuff:

[A brief note: The next item is one of my favorites. A common observation by people who like the blog is that lots of it could have been written today. Well, here's a review in the 1930 Journal ... of an 1830 book ... about events in 1720 ... and it still could have been written today!]

Washington Irving's book “The Great Mississipi Bubble” republished by Random House. "The story was written about a hundred years ago and the actual event occurred more than two hundred years ago, but the narrative ... will interest many who witnessed the recent debacle of stock prices." A couple of quotes from the book: The boom - "Every now and then the world is visited by one of those delusive seasons when the 'credit system,' as it is called, expands to full luxuriance; the broad way to certain and sudden wealth lies plain and open ... "; The bust - "a panic succeeds, and the whole superstructure built upon credit and reared by speculation crumbles to the ground, leaving scarce a wreck behind."

Public opinion now appears less keen on antitrust enforcement. Government used to get very upset about "Gary dinners" where steel industry met to allegedly fix prices, but steel industry survived depressions better then - no drastic price or wage cuts were necessary. Cooperation may be necessary to ensure prosperity.

After four years of relative labor peace, coal miners and mine operators are at odds on a new labor agreement. Main issue is maintaining employment as amount of coal sold shrinks. Mine workers union leader [John L.] Lewis says "he believes in cooperation, but not as a one-way street."

Iceland engineering program plans to heat entire city of Reykjavík using hot water from underground volcanic springs.

Pennsylvania Rail. begins experimental car transport service. Passenger must buy three tickets on which to check the car, plus an excess baggage charge of $45.

Pan American Airways carries 29,805 passengers in the year ended July 1; no accidents reported.

Market commentary:

Day's market action suggests bad news has been discounted. Expected slump in steel output was reported, and bears launched repeated drives on major stocks in the morning. However, volume dried up on declines. Stocks turned up in afternoon on higher volume, helped by stronger commodities and rise in rail freight rates.

Treasury Secretary Mellon is putting his money where his mouth is - his companies have announced new construction plans involving nine figure expenditures. Gulf oil alone is spending over $50M for new pipelines and refineries.

Professional bears seen continuing their activities; some observers recommend waiting for the market "to indicate its next important move."

R.H. Bean, exec. secretary American Acceptance Council, criticizes earlier complacency, but now optimistic: "The worst of the storm is undoubtedly behind us, and the casualty list is amazingly small for such a violent disturbance in industry and finance."

Some observers believe stocks are currently good long term buys although an absolute bottom may not have been reached. Cite a signal that has been very reliable for the past 30 years - stock yields going higher than rates on commercial paper. All 8 cases of this signal for the past 30 years have been good buy points, though in 5 of the cases of market declined a little more (average 7%). Average advance from the buy signal was 42%.

Editorial - British manifesto calling for a tariff wall around the Empire is a wakeup call, since half US exports go to countries within it.Time for President to use flexible provision of tariff to fix problems before British and European unhappiness leads to concrete action.

Economic news and individual company reports:

US freight loadings for week ended June 28 were 936, 848 cars, up 15,989 over previous week but down 159,721 from 1929.

New York leads all states with merchandise exports of $955M for 1929.

Building plans filed in New York for June totaled $34.8M down 6% from 1929.

American Cigar expects 1930 earnings lower due to heavy promotional effort to establish the new Cremo cigar as one of the leading 5-cent brands.

Great stock market-related rhyme:

“In stocks of wood no longer should one bear incarceration, but hand and foot are many put 'in stocks' for long duration.

At each 'new low' as the markets go locked up in stocks securely - for a long time yet some folks will sweat bound hand and foot most surely. - Gordon Price”

+ The Boring Stuff:

Wheat corn, and cotton down in morning trading but rallied sharply, closing with good gains. Other commodities steady to slightly lower. Investment bonds higher, advance to record prices for the year. Foreign currency steady at high levels.

Drop in brokers loans from last October's peak of $6.8B to current $3.2B is more remarkable considering over $10B of new securities have been listed on the New York Stock Exchange in the past 10 months.

Drop in brokers loans may be overstating liquidation since loans by banks based on securities have been rising. Over the past month, total loans on securities have only gone down by $462M, compared to brokers' loans reported decline of $803M. May still be seen as indication that stocks are passing from weak to strong hands assuming that stock buyers who use bank credit are more conservative than brokers' margin customers.

Auto industry is now essential to many others including steel, oil, rubber etc. Current output has fallen off but still is better than past years except for the record 1929. Should rapidly recover when the current depression is over.

Steel ingot production down to 48% of capacity from 64% previous week, due to curtailment over July 4 holiday.

Machine tool market demand reported "almost negligible".

Consol. Gas & Elec. of Baltimore earnings for year ended May 31 were $6.22/share vs. $5.83/share in 1929. American Water Works & Electric earnings per year ended May 31 $3.84/share vs. $3.92 in 1929.

Vacuum Oil reports sales and earnings for first four months of year at record level. California Union Oil first half sales $44.5M, up $1.5M from 1929; net income $1.20/share vs. $1.72 in 1929.

Burroughs Adding Machine first half sales about 10% below 1929, earnings expected somewhat below 1929. Underwood first half net about $3.50/share vs. $4.57 in 1929. NCR first half earnings about $1.19/share vs. $2.77 in 1929.

Woolworth June sales $20.7M, down 12.2% from 1929; 6 month sales $131.3M, down 3.3%. Kress June sales $5.2M, up 6.9% over 1929; 6M sales $30.3M, up 5.4%. J.C. Penney June sales $15.8M, down 7.4% from 1929; 6M sales $86.5M, up 4.1%.

General Mills expects earnings for year ended May 31 better than the $4.57/share in previous year. Milling industry has been able to use grain exchanges to hedge against fluctuations in grain prices.

Canada Dry reports June sales higher than 1929.

Melville Shoe reports first-half sales up 1.5% over 1929.

Borg-Warner (car components) operating income for first quarter $1.7M vs. $2.2M in 1929.


  1. Bubbles: "As all the world economies writhe in financial pain from the cleansing of the largest bubble in financial history, the same question is being asked — how could this happen? Of course the usual answers are trotted out — human greed, animal spirits, criminal fraud, or capitalism itself. Modern financial history has been a series of booms and busts that seem to blend together making one almost indistinguishable from the next. The booms seduce even the most conservative into taking what in retrospect appear to be outlandish risks speculating on investment vehicles they know nothing about." Blowing Bubbles, by Doug French -4/6/09 Author of Early Speculative Bubbles

    WSJ this week:

    Antitrust: EU Opens an Antitrust Probe Of Servier, Generic Drug Makers

    Telecoms Face Antitrust Threat:
    Wireless Market, Generic Drugs Reviewed as Justice Department Steps Up Enforcement

    Tariff threats: Leaders Seek to Finish Trade Deal by 2010

    China Again Objects to Tariffs on Nations Not Capping Emissions

  2. Washington Irving's story, "The Great Mississippi Bubble" is available online as a short story in "The Crayon Papers," and can be downloaded in several e-reader formats. Read it online at THE GREAT MISSISSIPPI BUBBLE.

    Downloads: MAnybooks.net

    Project Gutenberg

    Enjoy one our greatest authors!

  3. Thanks, Eldon - very interesting stuff!

    It's great to see you can read the Irving story online - I'll put that in the editorial this week. The Doug French article looks good.

    The Austrian Economics stuff in general I think is also interesting - one of my favorite bloggers is Mish (see the blogroll on the right), who is a strong Austrian Economics proponent. I haven't yet had a chance to fully investigate A.E., but my impression is there are some very valid ideas there, although sometimes the arguments seem too categorical (but I guess you can say that about most schools of economics). I also must admit that Mish has nailed the past two years better than practically anyone!

  4. Mish takes a more pragmatic approach than the "strict" Austrians on Mises.org, but shares a lot of their ideas, from what I have read of his stuff.

    But from a theory perspective, Von Mises, Hayek, Rothbard, and the current writers at The
    Mises Institute, including Bob Murphy, Tom Woods, Doug French, Robert Higgs, and Frank Shostak give extremely elegant explanations of current economic events that make far more sense than anything you can read in the mainstream. I do not always agree with some of the more radical ideology, such as abolishing patent and intellectual rights, but the fundamental precepts of Austrian Economics have survived the test of time far better than any other modern school. I highly recommend them.

  5. American Cigar expects 1930 earnings lower due to heavy promotional effort to establish the new Cremo cigar as one of the leading 5-cent brands.

    I was reading that the company's stock price dropped $130 to $4 in a day. I can't find out why though.