August 18, 2009

Tuesday, August 19, 1930: Dow 227.79 -0.23 (0.1%)

Assorted historical stuff:

First billion barrels of crude oil took 40 years to produce; second took 8, third 5, fourth 3.5 [current rate is about 80M/day, or a billion barrels every 12 days].

Creation of “railway czar” position “similar to those of the moving picture industry and baseball” suggested as a way of stabilizing railroad freight rates.

C. Kai-Ngau, Bank of China GM, says China trade situation damaged by chaos, overproduction of silver. “In 1929, China actually imported from abroad food-stuffs to extent of over $200M Chinese currency. For China, known throughout its history as an agricultural country, it really is absurd ... This is a life and death problem for our people.” Recommends adoption of gold standard.

New Curtiss plane expected to develop 800hp, fly at 250-300 mph, tested at Roosevelt Field [Long Island, also used by Lindbergh for 1927 transatlantic flight].

New York State Economic Council states $10M is wasted annually in government in New York State.”

Roxy, theater manager in NY City, “every week saturates his movie house with with an elegant odor which is 'in keeping with the picture.'”

New generation of the Barrymore acting family takes to the stage; Lionel, Ethel, and John are the eighth; now Ethel's daughter, also named Ethel, is to play the part of Seraphine, daughter of title character Scarlet Sister Mary, to be played by the senior Ethel.

Market commentary:

Bears more cautious starting the week, content to “play for small technical reactions” but not following up aggressively. 1-3 point declines early in majors including US Steel, American Can, AT&T, but pressure lifted about noon; good recoveries in leading stocks and general market firmer. Majors ended at day highs, some bullish demonstrations in individual stocks including United Aircraft. Oils, utilities, and rails quiet; banks and trusts weak. Bond market dull; rails strong, preferreds weaker, govts. steady.

Seasoned common stocks” are now selling to yield about 1.5% above commercial paper rate (3%). In 33 year history of the Dow Jones averages, stocks without exception have been profitable long-term investments when average yield was 1% or more above the commercial paper rate.

R. Babson (economist, made good bearish call in fall 1929) calls drought damage overestimated, says Midwest farm and general business situation will improve markedly in final quarter. Also notes commodity production has declined about 30% vs. 10% decline in consumption; predicts shortages soon, restarting of production to supply demand. Doesn't yet recommend buying stocks, but feels “time is approaching when buying opportunities may appear.”

Still little public buying seen in stock market; activity mostly professional. Large and increasing short position, which should eventually be a buying factor.

Option market said more active, puts (bets on stock prices to decline) more difficult to buy than calls.

Harvey Firestone, Pres. Firestone Tire & Rubber, states America is on eve of greater prosperity than past 10 years. Expresses belief in Ford's statement there will soon be work for everybody. Says company has met depression by cutting overhead and lowering prices; plant now running night and day, 6 days a week.

Economic news and individual company reports:

Weather favorable over much of country, providing some relief of drought conditions.

Fed. Reserve member banks report “all other” (commercial) loans up $9M to $8.481B in week ended Aug. 13; loans on securities down $58M to $8.376M.

S.W. Straus report of building permits issued for July in 589 leading cities and towns finds volume of planned construction was $187.6M vs. $184.7M in June; reverse of usual seasonal decline, but down 36% from 1929.

Labor Dept. reports retail food prices down 2.5% in month ended July 15, and 9% in year.

Coca Cola seen taking advantage of low sugar prices by buying a year's supply in advance. Has enjoyed increased sales every year since 1922.

R.J. Reynolds selling about 49, earned $3.22/share in 1929, expected to earn more in 1930, yield 6.1% based on $3 annual div.

Several cigar stocks selling at yields over 9%, including General Cigar (9.3%), Congress Cigar (16%), Consolidated Cigar (13.8%).

Companies reporting decent earnings: Drug Inc., General American Tank Car, Fox Film, Fifth Avenue Bus Corp, International Salt.

Nostalgia department:

“It wasn't so many years ago when: Automobilists wore linen dusters ... No one had appendicitis ... Milk was delivered in tin cans ... There were livery stables everywhere ... Girls sometimes wore cotton stockings and high-laced boots (you were not supposed to know it) ... People generally kept their tonsils ... It seemed necessary to control hatpins by legislation ... Everybody in the audience was scared when the express train came rushing head-on in the motion picture.”

+ The Boring Stuff:

Editorial: Now that drought emergency has largely lifted, we can approach issue of relief in a calmer way. Outside of an extreme emergency calling for charity, for which the Red Cross is best suited, the role of government in direct relief should be limited; “the initiative for help must come from the local communities themselves.” The banking system can help by providing credit to tide the affected people over; the Federal Intermediate Credit Bank system helps to do this for agriculture, and local banks should cooperate by reducing rates; this would put “relief measures on a business basis.”

Western Union moving to new offices at 60 Hudson St skyscraper. Currently handles about 85% of US telegraph business, has 1.896M miles of wire, 30,707 nautical miles of ocean cable, and 25,061 offices.

Commodities break sharply. Cotton down sharply to new season lows under 11 cents. Grain prices down sharply on more favorable weather, concern over competition between nations holding grain surpluses. Silver market firmer over past few weeks, price now over 36 cents/ounce.

Bears have been citing some stocks selling at high price-earnings ratios and low yields; however, these stocks have historically sold at high valuations, and “almost invariably have justified” this by later growth in earnings power.

Harvard Economic Society says business declined further in first half of July but then steadied; concerned about decline in construction, which recovery depends on significantly, but sees increase in future months due to easy credit; sees drought moderating but maybe not delaying recovery if crop damage not too bad.

Swiss trade down in first half; imports 1.287B francs, down 21M; exports 924M, down 90M. Production of Swiss watches down 30%.

German trade improved in July vs. June; imports and exports both higher, surplus of 41M marks.

Youngstown district steel operations to remain unchanged this week at 56.5% of capacity.

July freight cars ordered were 1,306 vs. 794 in June and 242 in July 1929; orders for 7 months were 31,749 vs. 59,371.

US aircraft and parts manufactured in 1929 was $61.973M vs. $21.162M in 1927.

New construction contracts in NY metropolitan area for week ended Aug. 16 were $3.103M/day vs. $2.649M in July and $2.803M in 1929.

NY State receipts from all sources in first 7 months were $255.9M; expenditures were $261.6M.

US shoe production in June was down 4.295M pairs, or 15.2%, from 1929; first half was down 14.118M pairs, or 8.2%.

Fairchild Analytical Bureau reports textile prices down 48% from peak in July 1928.

US Steel wages in 1929 amounted to 39.34 cents/dollar of revenue vs. 41.68 cents in 1928; net earnings were 18.51 cents/dollar vs. 11.50 cents in 1928.

IRT subway division revenues from advertising for 11 months ended May 31 were $1.776M, up 15.9% from 1929.

Fox Film first half net $2.84/share vs. $2.03 in 1929; Pres. H. Clarke says company doesn't anticipate any dividend cut. Stock down sharply early on rumors of bad movie attendance July and August, but decline was checked by earnings report.

Walter P. Chrysler says company improving competitive position in depression though sales and earnings down. First half sales were 65% of 1929 level vs. 57% for industry excluding Ford. First half profit $0.77/share vs. $4.06 in 1929. Management policy seen aimed at gaining share at expense of profits, also keeping strong balance sheet by cutting expenses and keeping inventory low. This should give company stronger position when depression ends.

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