August 15, 2009

Saturday, August 16, 1930: Dow 228.55 +7.47 (3.4%)

Assorted historical stuff:

Leading economists say improvement in business will come through cuts in output eventually reducing inventories. However, output cuts do in turn cause further cut in consumption due to reduced purchasing power, and “the vicious circle continues until the point of minimum consumption is reached.” This then causes recovery as production is increased. Low production this year has been “working toward an ultimate cure of the overproduction situation.”

W. Green, AFL Pres., calls selling of goods produced with convict labor “industrial piracy”, says adding to burden of nations 3.7M unemployed.

Farm representatives after meeting with Pres. Hoover say approve of his relief program, will cooperate in every way.

Cotton picking wage reduced to $0.65-$0.75 per 100 pounds from $1.00-$1.25 average of past several years, due to low cotton prices.

F. Lisman, writing in Railway Age, says long-term prospects for rails poor, calls for joint action to tackle difficult problems including competition from trucks and buses, reducing waste, ruinous competition. Calls for “rate czar” to control freight rates.

S. Insull, Pres. Chicago Civic Opera Co., reports 1929 loss of $558,528 due to “constantly increasing cost of producing grand opera.”

Market commentary:

Stocks staged a sensational late rally attributed to “wild covering movement” by over extended shorts. Pessimism over drought affects on business had induced “perhaps the largest” short interest in history. Bears made some further attempts early, particularly against coppers. News of heavy rains in drought areas caused a short covering movement, at first cautious but turning into a rout in late afternoon. “Spectacular uprushes” in stocks under recent pressure including US Steel, J.I. Case, Vanadium; general market rose aggressively. Bond market dull; corp. and preferreds up, foreign govts. mixed, US govt. steady.

Bears also possibly unnerved by recent decline in brokers' loans, and report that Roger W. Babson (economist, made good bearish call in fall 1929) was preparing to issue statement to clients stating that “the time to buy representative stocks had arrived.” Some investment buying by “banking interests” also seen.

Market sentiment “somewhat improved” though conservative observers still cautious; advise against buying until leading stocks break through resistance levels on higher volume; also advise against short-selling, and advise clients to cover all outstanding short positions.

Editorial: Wall Street technical conditions considered much stronger than a year ago. Most obviously, mechanical system broke down under high volumes of market break last fall; new high speed ticker system should better handle high activity. However, fundamentals have also been repaired. Banking system has never been stronger; banks are carrying large excess reserves, and borrowings from Fed are lowest in many years. Brokers' loans are down to 5.49% of total listed market values, down from 9.82% last fall. “Wall Street's facilities have been put in order against the day of revived activity.”

Economic news and individual company reports:

July exports were $269M, lowest since Feb. 1922 and down 33% from 1929; imports were $219M, lowest since Apr. 1922 and down 38% from 1929.

US Bureau of Labor reports employment dropped 2.6% from June to July; employee's earnings down 7.1%. Employment in manufacturing down 4.6% in July and 16.6% in year ended July.

F.W. Dodge report new construction contracts in 37 states east of Rockies Aug. 1-8 were $13.538M/day vs. $14.136M in July and $18.803M in Aug. 1929.

44 life insurance companies report July new insurance was $1.092B vs. $1.094B in 1929; first 7 months was $7.749B vs. $7.634B in 1929.

New Jersey legislature to meet in special session on relief of 32 municipalities over their bond limit.

Companies reporting decent earnings: Hudson & Manhattan Railroad, Duplan Silk, Mexican Seaboard Oil.

White Rock (mineral water and soda) selling about 45, annual dividend $4, earned $4.42/share in 1929 and $2.38/share in first half.

Warner Bros. suffering from slowdown in movie business attributed to wearing off of talkie novelty, heat wave, depression, and bad movies. Dividend omitted.

General Foods says has saved “American housewives” over $10M by cutting prices, recent cuts will save even more. Brands with prices cut include Maxwell House, Log Cabin Syrup, Hellman's Mayonnaise, Swans Down Cake Flour. Don't intend to raise prices due to drought.

British Joke:

“It reminds us of the old wheeze about the American who was explaining to a British visitor the construction of an electric sign his concern was about to place on Broadway, New York. 'It will contain,' he said, '20,000 red lights, 17,000 blue lights, 10,000 white lights, and a central sunburst of orange and purple.' The Englishman was impressed. 'Most extraordinary,' he said. 'But don't you think, old chap, that it will be just a bit conspicuous?'

+ The Boring Stuff:

Editorial: Farm Board should grind up and sell its wheat surplus as feed; this would provide feed needed due to drought at reasonable cost, get rid of the “embarassment” of the surplus, and probably help the wheat market by removing the overhang of a large surplus under one party's control.

Mexican govt. officials deny reports from NY and Washington of new plan to be substituted for recent Lamont-Montes de Oca debt settlement.

Commodities mixed, rally late. Cotton traded down sharply, but rallied in last half hour on short covering influenced by stock advance, closed down moderately. Grains close up after late rally. Copper buying down as further declines expected.

Stocks with large short interest include American Can, US Steel, Warner Bros., Southern Railway, GM, J.I. Case.

J.H. Oliphant & Co.: govt. estimate of crop damage may be too high; would be considered bullish for stocks due to improved farm purchasing power.

Manchester cotton market further depressed by better than expected US crop forecast, continued weak demand abroad. Shippers complaining bitterly over government's failure to control picketing at Bombay and Calcutta, where it's known some goods are wanted.

Mill consumption of cotton in July was 378,835 running bales vs. 405,181 in June and 547,165 in July 1929.

Cotton goods production in July was 27% below 1929; sales were 108.6% of production.

World wheat surplus (carrover) on July 1 was 447M bushels, down 100M from 1929.

Railroad Commission orders Texas oil production restricted to 750,000 barrels/day vs. current 830,000.

Newly formed nitrate cartel agrees on measures including “marked cutting of production, stabilization of prices, promotion of consumption, and regulation of distribution.” US manufacturers unable to join due to antitrust laws.

Dept. of Agriculture estimates fruit crop 18% over short 1929 crop, but 10% below 10 year average. Most fruit grown outside drought areas.

Major J. Clark, Jr. named to hold public hearings investigating whether food dealers are conspiring to profiteer from the drought.

Class 1 railroad total employees as of mid-June were 1.564M vs. 1.601M in mid-May, largest decrease since start of current depression.

July production of newsprint in US and Canada was at 71.8% of capacity vs. 75.2% in June and 81.9% in July 1929.

Standard Oil NJ reported to have offered Spain $100M loan in exchange for oil monopoly; Spanish officials deny knowledge.

Sears, Roebuck sales for 4 weeks ended Aug. 13 were $25.344M, down 8.7% from 1929, but improved from 14.9% decline previous 4 weeks. Decline in year to Aug. 13 was 5.4%. Number of stores almost same as 1929.

Northern Pacific Railway considered stronger than indicated by financial statements; some important fully or partly owned companies only appear on balance sheet as securities owned, often carried at very low prices; income statement only reflects dividends received.

New Ford Motor plant in Buffalo to have capacity of 400 cars and trucks/day vs. 225 for current plant; to employ 2,500 workers.

1 comment:

  1. F. Lisman, writing in Railway Age, says long-term prospects for rails poor, calls for joint action to tackle difficult problems including competition from trucks and buses, reducing waste, ruinous competition. Calls for “rate czar” to control freight rates.

    He seriously called for a "rate czar"? Talk about strangely familiar department! I thought that was a recent buzzword.