Saturday, September 20, 1930: Dow 229.02 -5.16 (2.2%)

Assorted historical stuff:

Editorial: The Berlin Institute for Studying Trade Fluctuations predicts from historical analysis that commodity prices will continue declining until 1940. This may or may not happen. In any case, all other things being equal, a period of commodity deflation benefits most people provided it's not so rapid as to produce serious economic dislocation. However, we now have the serious complication of huge war debts (about $12B) loaned by us to allies when prices were much higher. We should consider adjusting these debts based on commodity prices, since if we do get long-term deflation the current debt level won't be sustainable.

France to spend additional $29M on armed forces this year, increase of 6%; German election seen as factor in $470M defense program.

Workers in Camden take a day off to stage a “back to work parade”; participating were thousands of workers recently added at the R.C.A.-Victor plants here, and at the New York Shipbuilding Co. Attendees included Gov. Larson, Labor Sec. Davis, and Senator Baird.

A restaurant in the Wall St. area has begun attaching lists of current leading stock prices to its menus so brokers keep in touch with the market while eating.

Statue of Venus de Milo in public square of Rev. Billy Sunday's hometown was subject of a shocked protest by a visitor from Chicago who planted poison ivy at the base. Townspeople called the fire department to wash the ivy away; said they couldn't understand why anyone from Chicago should be shocked at anything.

Thomas Edison visits Newark Airport, hints he is working on new approach to developing helicopter.

Market commentary:

Market wrap: Stocks broke badly on heavy volume. Initial selling attributed to rumor that German Fascists planned to overthrow existing regime. Following reports that Berlin was peaceful, another German rumor broke out, this time that the Young plan was threatened. Bears were able to force extensive declines in stocks throughout the list; many stop loss orders triggered; further weakness may also have been caused by declining grain markets. A moderate recovery set in around two o'clock. Domestic bond market firm; US govts. dull and steady; corp. higher, Dow 40-bond avg. at new 1930 high; foreign govts weak, particularly German.

Market sentiment upset; observers advise reducing long positions on upturns and waiting to buy until “the market itself indicates that prices have reached resistance points and can rally in a more impressive manner than in recent weeks.”

K. Hogate, VP Dow, Jones & Co., decries “fetish of a corporation surplus” leading to current accumulation of billions of cash on corporate balance sheets which are “passively at work, but have no velocity.” Questions idea that large surpluses increase safety, suggesting they may instead lead to speculation and sloth. Calls for substantial distributions of “frozen” surplus cash to shareholders as means of helping to restore prosperity. J. Fayne of Hornblower & Weeks hails proposal.

R. Graham, VP Graham-Paige Motor, believes industrial depression has reached its end; belief is based on record savings banks deposits, low commodity inventories, and perception that “mental attitude of the general public is changing ... people are becoming more optimistic and willing to spend money.”

A. Reynolds, Cont'l. Ill. Bank & Trust Chair., criticizes Fed. Reserve easy-money policy as ineffective in reviving business, says it may cause banks to buy bonds that have “not always turned out fortunately” in the past; “it is a serious question as to whether a commercial bank should be a large purchaser of such bonds.”

Economic news and individual company reports:

Bank bond holdings July 31 were a new record at $6.290B; necessity for income has increased buying.

Treasury reports income tax receipts for fiscal year-to-date (July 1 - Sept. 17) were $335.3M vs. $428.5M in 1929.

Bradstreet's and Dun's weekly reviews note continued modest improvement in fall purchasing. Bradstreet's reports slowness in some areas with warm weather.

Manchester cotton market reported improved; anti-boycott campaign started at Calcutta; increased inquiries from India and China.

German marks were stable (attributed to support from the Reichsbank). However, German bonds were down sharply, foreign stock markets were generally weak, the German market dropped to lowest level since 1926, and German capital is reportedly flowing abroad to “Switzerland, Holland, and even France.” Public seems unnerved by the delay in agreement between Social Democrats and conservative parties, but “well-informed circles” increasingly believe the current government will reach an agreement giving it the support of the new Reichstag.

American Chicle (chewing gum) has recovered from near bankruptcy in 1920 to post eight years in a row of increasing profits, with a ninth expected this year.

Movie:

Outward Bound - Leslie Howard makes “auspicious film debut” as drunk passenger in eerie tale of “ocean liner which is the modern equivalent of Charon's boat.”

Joke:

“Bertie was proudly showing his friend his new car. 'Well, what do you think of it?' asked Bertie. 'Humph,' growled his friend. 'I should have thought you would have had something more uncommon.' 'It's dashed uncommon,' retorted Bertie. 'It's paid for.'”

+ The Boring Stuff:

Editorial: Results of the German election combined with misunderstanding of its significance have caused some fear that German political system has “undergone a lasting change that threatens parliamentary rule.” Gain in strength by radical parties was to be expected as a result of discontent and unrest caused by the depression and govt. incompetence, though extent of the gains was surprising. The conservative parties are in a heavy majority; they must take the radical gains as a warning and put aside small politics to form a more harmonious government.

The new high-speed ticker ran behind for the first time, but only for a short time when the market was most active around 11 o'clock.

Some traders discouraged by failure of market to rebound following the expected technical reaction early in the week.

Short interest is reported growing based on indicators including borrowing demand for stocks.

Some bear operators prominent in the Oct.-Nov. collapse were reported in action again, including Bernard E. Smith, John W. Pope, and William E. Danforth. Targets included US Steel, American Can, and J. I. Case.

The recent large decline in US Steel's unfilled orders would have caused havoc 10 years ago when it was the general policy to buy far ahead. It's not as significant now because the steel industry along with many others is operating on a low-inventory “hand to mouth” basis.

“Rubber is selling below cost of production. So are copper, sugar, and other commodities. Things can sell below cost of production part of the time, but not all the time. Selling below cost means that production soon will fall below consumers requirements, which is the real remedy for bringing things back to normal.”

Commodities weak. Grains down substantially but staged late recovery off worst levels. Cotton down moderately. Cocoa touches new record low at 5.30 cents/pound, closing at 5.34. Copper has been reduced to 10 1/2 cents by large producers (lowest in over 30 years), and buying has picked up.

Volume of new bond offerings this week was $80.9M, down from $134.3M last week but up from $39.1M in 1929; level of bond borrowing since June has consistently been higher than in 1929.

G. Milner says Grain Stabilization Corp. will not reduce its 60 million bushel stock of surplus wheat for drought relief; any wheat sold will be replaced.

Life Insurance Sales Research Bureau reports on sales trend for the year. Life insurance sales were up verses 1929 in every month to April; months since May have shown declines, with the August decline sharper at 10.4%.

S.W. Straus reports building permits in 585 cities and towns in Aug. were $160.8M vs. $188.9M in July and $255.1M in Aug. 1929.

Leading tire manufacturers hold conference, reach understanding to cut down on recent excessive discounting that has “agitated the industry.”

Panama Canal tolls for 15 days drop below $1M for first time since 1927; total for Sept. 1-15 was $995,655 by 224 ships.

Mexico attempts to stabilize silver peso by withdrawing 10M silver pesos from circulation and cracking down on illegal exports of gold to US.

Australia total govt. debt is $5.592B, of which $1.945B was owed by Commonwealth and $3.647B by States [total production was about $2.3B].

Company reports since July 1: 241 companies reported higher earnings vs. 1929 and 493 lower; 1155 dividends unchanged, 55 increased, 109 cut.