August 22, 2009

Saturday, August 23, 1930: Dow 232.63 +1.36 (0.6%)

Assorted historical stuff:

New book Why You Win or Lose, by F. Kelly, columnist, speculator, and “amateur psychologist.” Practical approach to psychology of stock market. An important principle is to be contrary (do opposite of what most are). Says most common mistake is vanity, leading to taking small profits and large losses. Next is greed; next is “will to believe.” Also believes it necessary for traders to be illogical, since everyone else is usually being logical. Finally, recommends being cautious.

Editorial: A bright spot in the depression is California, now in a strong financial situation by a number of measures. Bank deposits and life insurance are up; commercial and agricultural real estate is more active; securities issued are almost back up to first half 1929 level; department store sales are down, but Wells Fargo points out they're doing better than rest of the US. All in all, California “is carving out for itself a future prosperity that must in time rival that of the eastern seaboard.”

Attorney General charges price of bread in New York controlled by racketeer ring with enormous profits.

First transatlantic pay load flight by heavier-than-air craft to carry cargo of souvenir postcards and bank correspondence from New York to Paris via Bermuda and Azores in Oct.; specially designed Bellanca seaplane with Wright motor being constructed.

Fokke-Wulfe Co. of Germany constructing “fool-proof” plane able to fly and land itself.

Market commentary:

Bulls encouraged by $27M reduction in brokers' loans in spite of rising market (considered good technical indication of stocks passing to strong hands), and by resistance of major shares to some weak spots (including coppers, rails, Goodyear, Warner). Bears had some initial success in spreading declines to market leaders, but effective support came in and buying spread in afternoon; most leaders closed up. US Steel, GM, Radio, Vanadium, American Tobacco advanced strongly. Utilities strong. Investment grade bonds stronger, Dow 40-bond average at new 1930 high of 96.73; govts. steady; convertibles weaker.

Some desperation observed in bear camp: “The bulls in their most excited moments did not bring forth such absurd ideas as some of the bears are talking about.”

Market considered technically strong; bears unable to prompt widespread liquidation as in past breaks due to low margin positions, short interest still large.

Pres. Hoover, after conference with Treasury Sec. Mellon, refutes earlier report that 1% income tax cut won't be continued; while there have been some indications of reduced revenue and increased spending early in fiscal year, there's no ground for making a firm prediction yet, and help should come from a number of areas including trade rebound (temporarily depressed due to imports in advance of tariff), and expense cuts. Mellon also says hopes tax cut can be maintained.

Moody's reports “prosperity index” for July at 86.77; this level has in recent times always meant “thorough liquidation or deflation,” and all recent recoveries have started from this level. “We are, therefore, inclined to regard the present level of business activity as the approximate level from which recovery will begin.”

Conservative observers still advise staying out of market until “next important move has been demonstrated by the action of leading stocks.” Also counsel against taking short positions due to range-bound market.

Savings banks deposits have been increasing in the depression (reverse of usual seasonal pattern) due to consumers cutting spending and saving more; also some investors have transferred balances from brokers to get higher interest. This does increase the potential call on the banks' resources that may happen on short notice.

Economic news and individual company reports:

July income tax (personal and corp.) receipts were $29.699M, down $5.037M from 1929. Tobacco tax receipts $42.982M, up $2.782M. All Internal Revenue collections were $86.055M, down $3.765M.

Bradstreet's and Dun's reviews both report some improved sentiment, and slightly better manufacturing activity and buying of fall goods.

Initial weekly bank reports have not yet shown the usual seasonal increased demand for currency or commercial credit.

Movie companies reach antitrust settlement with govt. agreeing to end practice of denying films to independent exhibitors.

Companies reporting decent earnings: Kansas City Power & Light, Tide Water Assoc. Oil (sales down but cut expenses more), Pig'n Whistle (restaurants).

American Tobacco reports July sales of Lucky Strikes up 583M over 1929, best gain so far this year.

Tongue twister:

“If a Hottentot tot taught a Hottentot tot to talk ere the tot could totter, ought the Hottentot tot be taught to say aught, or naught, or what ought to be taught her?”

+ The Boring Stuff:

Editorial: Chief Justice Hughes says country's greatest current need is “improvement in the administration of justice.” This is now threatened by organized corruption. Recent scandals involving judges in New York have made Gov. Roosevelt instruct the Appellate Division to investigate further. This is a serious matter; “if our institutions are to be kept safe from the debauchment of organized and capitalized crime there must be purity and competence in official action.” The problem is partly caused by political influence; the solution to this must be practical, not academic; Justice Hughes calls for members of the bar to work toward this goal, but the public should be also included in the effort.

Republican leaders expect former Pres. Coolidge to make one of the major speeches for party's fall campaign.

Farm Board member C. Williams urges cotton growers not to sell at current prices unless they have to, says “it would be a moral crime for a creditor unnecessarily to force sale at present price levels.”

Tax Commissioner M. Graves proposes corporations should be given federal tax credits to offset local taxes, eliminating interstate competition for industry. Says corporate taxes in general are too high, would be better to use personal income and wealth as the two primary tax bases.

German Ministry of Posts approves new buildings and improvements totalling $50M, expected to provide work for 125,000.

Editorial: Pres. Hoover is considering tightening the bankruptcy code to better protect creditors. He should consider closing a loose end in present legal procedure allowing any small stockholder to bring receivership proceedings on grounds of “poor management.”

I. Nelson, holder of 300 shares of common stock, files suit to force Warner Bros. into receivership.

Commodities mixed; grains mostly slightly higher; cotton almost unchanged; cocoa down to new record low of 7 cents/pound; raw sugar down to new record low of 1.08 cents/pound; coffee down to post-1921 low of 5.45 cents/pound.

Some disappointment that expected August improvement in freight loadings hasn't yet materialized.

Trade has been declining drastically (to 1922 levels in July), while trade surplus has slightly increased. However, Commerce Dept. sees a hopeful sign in larger proportion of exported finished goods; in Q2 these were $532.6M, down 18% from 1929 but a smaller decline than any other category. While markets for agricultural goods are basically limited by population growth, potential markets for finished goods are seen much larger as foreign purchasing power grows.

Treasury may not reduce national debt as much as past year, but law does require about $400M in current year to be dedicated to “sinking fund” for this purpose.

Money markets seem to be anticipating some near-term business revival; more difficult to obtain 6 month loans at recent 3% rate.

BLS reports July building permits in 288 cities were $164.1M, up 2.4% from June.

BLS reports retail food prices July 15 were down 2.5% vs. June 15 and 9% since July 15, 1929.

Fresh vegetable exports in year ended June 30 were $12.045M, up 8% from previous year.

Japan exports to US in first half were $108.9M vs. $185.3M in 1929.

Canadian Premier Bennett reportedly will propose emergency tariff revision to assist some depressed industries next month; believed that administration wants to cut back Canadian spending in US from $900M level in 1929 to $400M within 18 months by placing high tariffs on goods producible in Canada.

Canadian bond sales in year to Aug. 16 were $446.4M vs. $386.2M in 1929 and $302.6M in 1928.

Venezuela crude oil production in July was 374,970 barrels/day vs. 378,708 in June and 348,170 in July 1929.

Guatemala grants Swedish Match 30-year monopoly on all matches in exchange for 7% $2.5M loan.

Retail radio equipment sales in Q2 were $87M vs $92M in 1929.


  1. Just a nitpick. Was the income tax cut a 1 percent cut or a cut of 1 percentage point? My guess is the latter.

  2. Bill - You are correct, it was a cut of 1 percentage point on both corporate and personal income taxes (for example the corporate rate went from 12% to 11%).