September 27, 2009

Saturday, September 27, 1930: Dow 213.27 -4.48 (2.1%)

Assorted historical stuff:

Following a spectacular political victory, Louisiana Gov. Huey Long is pushing a huge public works program through the legislature [Long ran in the Democratic Senatorial primary as an unofficial referendum on his program after the legislature blocked it, promising to resign if he lost.]

Andrew Carnegie on charity: “Those who have surplus wealth give millions every year that do more evil than good, and really retard the progress of the people; for most of the forms in vogue for benefiting mankind only tend to spread among the poor a spirit of dependence upon alms when what is essential for progress is that they should be inspired to depend upon their own exertions. As I know them there are few millionaires, ... who are clear of the sin of making beggars.”

R. Lamont, Commerce Sec., says citizens now have a responsibility: “The most important single thing that can be done now is for each one of us to continue normal, reasonable buying.” Everyone should buy their normal needs, “put aside a small percentage for savings, and buy [as] much of the additional articles which contribute to general comfort and enjoyment as can be properly afforded”; this will lead to improved business.

NY State Republicans switch from dry to wet, nominate C. Tuttle, US Attorney for NY, as candidate for Governor on platform demanding repeal of Prohibition.

Market commentary:

Market wrap: With the Dow opening about at the August support level of 217, bears renewed “hammering” attacks, sensing they could cause extensive liquidation if this level was penetrated. Pressure was applied first to motor shares on expected bad earnings. Majors including US Steel and American Can remained steady in the morning but broke sharply in the afternoon. Heavy selling spread through the list. Volume so heavy in final hour that new high-speed ticker fell a few minutes behind. Some rebound near the close. Bond market active and strong; US govts. up sharply, foreign govts. generally steady; corp. bonds strong, particularly high grade, Dow 40 corp. bond average at new yearly high of 97.66; convertibles irregular.

Rumors of banking support for market continue, though so far they apparently have remained on the sidelines and let bears have their way.

Some increase in public liquidation seen this week, with reports of “stocks being taken out of strong boxes.”

Conservative observers continue on sidelines, now don't even advise buying on declines; believe stocks “can be replaced later on at somewhat lower levels.”

Conditions seen ripe for rally; strength in bonds and preferred stocks and low rates indicates plentiful money seeking investment; many stocks show increase in shareholders and reduction in floating supply; short interest has been growing. These conditions historically have led to rising stocks.

Banks seen in strongest shape since Fed. Reserve system began functioning in 1917; extending near-record level of credit, and borrowing lowest amount from Fed. Reserve since 1917 (currently about $1B vs. $1.4B a year ago). Reasons for low Fed borrowings include low level of currency in circulation, low credit demand, both due to depression. US gold holdings have been increasing due to favorable trade balance. Some observers are, however, warning that banks are placing too many assets in securities and security loans; these total $14.666B, up $1.6B in past year, while commercial loans are at $8.462B, down $928M.

While total banking credit including loans and investments hasn't declined much off the peak, there has been a large decline in credit extended by an “invisible banking system”; brokers loans extended by “others” (not banks) are down $2.5B in past year, and this credit reached business indirectly.

At the close, the Dow was within 1.43 points of the yearly low. There were 3 stocks at new yearly highs and 153 new lows.

Economic news and individual company reports:

Bradstreet's and Dun's weekly reviews see some confusion and cross-currents, but overall continued moderate improvement in fall trade.

Corporate balance sheets are sound: 75 leading corps. as of June 30 report cash down 2.5% vs. 1929, inventories down 10.6%, working capital up slightly.

Dominick & Dominick report food manufacturers have been quite resistant to depression; 17 companies had first-half profits up 3.5%, compared to decline of 24.4% in 275 industrials. Production and preparation of food is largest industry in the US, with $22B in annual sales, 50,000 plants, and 450,000 retail outlets.

Second half net for 6 large car cos. estimated at $43M, down 60% vs. 1929; some car cos. now losing money. However, observers gratified industry could adjust from record conditions to lowest sales in 10 years while staying profitable overall. Total stock market value of the 6 companies down about 50% in past year.

July net for 95 utilities excluding telephone and telegraph were $70.6M vs. $83M in June and $71M in July 1929. First 7 months were $559.1M vs. $578.5M.

Ford Motor cuts workweek to 3 days from 4 days to maintain current workforce.


Once in a Lifetime, a comedy by Moss Hart and George S. Kaufman; scathing satire of Hollywood, set in film production studio run by Herman Glogauer with liveried attendants, illuminated placards announcing which room he's in, and large shipments of writers from New York.

Historical Joke:

“'Did you read about those folks who were paralyzed from drinking Jamaica?' inquired Colonel Bozeman of the storekeeper recently. 'Yes. Terrible, wasn't it?' 'Terrible, indeed,' replied the Colonel. 'I suppose,' he added wearily, 'that I'll have to reform and go to drinking vanilla'.”

+ The Boring Stuff:

CBOT board says will take “vigorous measures” to counter “bear raids and manipulation of prices” in wheat market; will look out for “unduly large short selling as distinguished from hedging”, sees foreign government selling of futures as “seriously objectionable.”

Editorial: Use of railroads for short distance passenger transportation has been declining steadily for 10 years. About 40% of that business has gone to cars and buses; with the exception of commuter and Pullman service, passenger rail now operates at heavy losses. Rails should experiment by cutting passenger rates to try to increase traffic, and thereby test once and for all whether there's still a viable business there.

Harbor experts in Turkey predict the famed Golden Horn (Constantinople Harbor) will cease to exist within 20 years due to refuse and lack of dredging.

New York City 1931 budget estimated at $630M - $635M, vs. previous record of $567.8M in 1930; basic tax rate may rise from 2.53% to 2.74%.

European stock markets generally lower, German bonds particularly weak, following publicity given Hitler's remarks on Thursday. Fascist threat is not regarded seriously in best informed circles, but there is increasing disappointment in Berlin over delay in formation of the government, with some talk of “semi-dictatorship.”

Banks seem reluctant to commit to long-term loans or investments; long-term rates have gone down at a moderate pace compared to short-term.

Money market (short term rates) extraordinarily easy; call money went begging at 1% and federal funds sold at a fraction of 1%. This surprised bankers who had expected at least a seasonal firming in rates; so far seasonal increase in demand for credit and currency has not appeared, though bankers now expect it by mid-Oct.

R. Ballard, Pres. So. Cal. Edison, says business in Southern California has turned corner; electric output, real estate, and industry all improving.

Breakdown of Newsprint Institute of Canada expected to lead to intensified competition in newsprint industry, followed by consolidation of weaker units.

Japan's silk interests now seen ready to allow drastic price decline to be more competitive with (synthetic) rayon. Standard rayon is $.95 a pound, but the finer grades competitive with silk are $2.15 - $3.00/pound; raw silk has declined to a new low of $2.30.

J. Stone, Farm Board member, says statement about long-term trend in wheat prices being downward was misunderstood; meant to say that trend would be down from the five year average price, not from current level which is generally considered to be scraping bottom. J. Bennet, third-generation head of Bennett trading firm on CBOT, says long-term wheat outlook uncertain due to return of Russia as major exporter. Russia is also starting to grow cotton.

Commodities weak. Wheat dropped sharply in final half-hour to new season low, other grains also off sharply. Cotton market continued gradual decline, hitting another season low. Copper prices unchanged at 10 1/4 - 10 1/2 cents. Tin futures trade at new low.

Corn production by 11 countries in 1930 was 2.444B bushels, down 24.2% from 1929.

First 44 rails report Aug. earnings $44.828M, down 27.4% from 1929.

Tire sales in first 7 months were 36.657M, down 24% from 1929 and 15.6% from 1928, worse than expected. While it was apparent car sales would be down this year, replacement sales were lower than expected and will be down for the second year in a row; attributed to better tire quality and road conditions. Tire industry may be due for consolidation considering large number of companies and difficult conditions.

US exports of footwear in Aug. were 329,916 pairs vs. 295,415 in July and 356,649 in Aug. 1929.

International Nickel of Canada controls 90% of world's known nickel deposits and produced 92% of nickel consumed in 1929.

Winnipeg Grain Exchange offers $1,000 to identify sender of fake telegram seeking to upset US grain markets.

Companies reporting decent earnings: Bulova Watch.

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