September 18, 2009

Thursday, September 18, 1930: Dow 237.74 +0.52 (0.2%)

Assorted historical stuff:

German political situation seen much improved; good prospects that current Bruening cabinet can arrive at coalition with Social Democrats. If this doesn't happen Pres. von Hindenburg would have to either ask National Socialists to form cabinet or dissolve Reichstag again; both of these would be undesirable to the Social Democrats. German bonds and foreign exchange have recovered to last week's levels.

NJ State Federation of Labor urges US govt. to declare embargo on all Russian products to keep US wages and living standard best in the world.

Wild gorillas are becoming so rare that a sanctuary has been declared in southwest Uganda.

New plane being tested by British for Schneider cup races reportedly attains speed of 400 mph.

Largest garage in the world recently opened in Boston to provide parking for people shopping in the city. Building is 8 floors high, with room for 2,000 cars; ingenious lighting system on each floor tells what stalls are available; clubroom is provided for chauffeurs.

New Waldorf-Astoria hotel to have phone switchboard with 2,535 lines, 84 operators, and 24 supervisors.

Downtown Athletic Club opens Tues.; world's tallest clubhouse, 531 feet and 35 stories; includes swimming pool, members' hotel, 18 floors of recreation rooms.

Market commentary:

Bears received no encouragement from market action. Rallying tendency that developed late Tuesday continued; bears maintained their efforts, but volume again dried up on recessions, this time to the lowest levels of the year. Business optimism was fueled by US Steel and Western Electric news. Major shares including US Steel, GE, Westinghouse reached best levels in late afternoon. Retail shares and utilities strong. Bond market active, higher; Dow 40-bond avg at new 1930 high.

Arthur Lehman of Lehman Brothers: “improvement in business is slow but is nevertheless gaining; recent trends indicate no lines of business are getting worse, while a few are getting better.”

L. Miller, Pres. Willys-Overland, sees signs of improvement in auto industry including lower inventories, higher mileage driven. These signs suggests “that the automobile industry may again become the leader in the revival of industry and and provide a powerful stimulus to the entire business world.”

One large broker's opinion: “Several eminent economists hold the view that the worst of the business situation has already been reached.” The business picture will be irregular for a while before improvement becomes unquestionable. During this stage, while security prices are still reasonable, “prudent accumulation” can progress, though investors “must be prepared to exercise a good deal of patience.”

No one can say whether the market and business have turned or not, but everyone seems convinced that many good stocks are selling below intrinsic value, and can be bought with assurance of profit later on.”

A certain NYSE-listed stock has become a trading favorite; price fluctuations are wide, and volume very high (several times the entire amount of stock outstanding has been turned over in a few days). Strangely, in spite of company officers waiting an hour, not a single stockholder showed up at the recent annual meeting.

Economic news and individual company reports:

Canada announces 200 emergency tariff changes affecting Britain, US, other foreign countries; “key industries” protected include textiles, iron and steel, agricultural products and tools, auto engines, electrical appliances, etc.

BLS reports wholesale prices unchanged in Aug. vs. July; first time in a year prices didn't decline. Price index was 84.0 vs. 97.7 in Aug. 1929.

US Steel ingot production in week ended Sept. 15 at 65% vs. 63% in Labor Day week and 88% in 1929. Production industrywide was 58% vs. 56%.

Iron Age reports some evidence of “breaking away from hand-to-mouth buying,” forward buying of steel and iron; attributed to belief prices have hit bottom.

Western Electric Pres. E. Bloom says company, has bought enough copper for remainder of 1930; estimated at 100M pounds. Seen as important indication price may have bottomed since company is probably world's largest user of copper.

GM August sales by dealers 86,426 cars vs. 80,147 in July and 151,722 in 1929. First eight months 824,402 vs. 1,146,552.

Companies reporting decent earnings: Coca-Cola, Spalding (sporting goods, including football, basketball), Wesson Oil.


Mulligan was proud of his new American citizenship, but some of his friends boasted they were better Americans because they were native born. He replied: “The devil take the lot of you! I'm a better American than any of you! At least I had my pants on and ten dollars in my pocket when I got here!”

+ The Boring Stuff:

Editorial: Mayor Reeder of Miami proposes a constitutional amendment allowing the state of Florida to assume municipal debts, issuing $600M in bonds to do so. The Florida Bondholders Adjustment Committee declares this impossible and says debtors must compromise based on ability of cities to pay. Committee says Florida will face catastrophe if this isn't done, and implies much of the debt was created because of high pressure by outsiders who then left Florida holding the bag. They also imply that “certain financial interests” deliberately caused collapse of the boom. These arguments are unconvincing; the boom collapsed of its own weight, and in spite of Florida having more of its share of catastrophes, municipalities still have a large degree of responsibility to investors.

Editorial: Problem of agricultural depression has led to some misconceptions. The idea that “gambling in futures” is to blame is thankfully not heard much anymore. Now however a popular idea is to make railroads provide relief to farmers by lowering freight rates. This may temporarily leave farmers with more money, but because agricultural products are in a buyers market now, the saving is quickly passed on to the buyer. While the average politician may think that it's desirable to take money from the railways no matter where it goes, there's not much point in doing this for farm relief.

British and US govts. reportedly to recognize new Uriburu govt. in Argentina; new govt. likely to form financial commission composed mostly of Americans to survey Argentina's currency and fiscal problems.

New Spanish program to stabilize currency unsuccessful; peseta continues decline.

Technical analysis: recent Dow movements have strengthened parallel with 1921 market. Recovery from August lows in 1921 peaked on Sept. 10, exact date that 1930 August rally encountered resistance. There followed a slow decline to Oct. 17, then an uptrend to Dec. 15. However, the Aug. 1930 break wasn't as severe as in 1921, so Dow theory students believe current Sept. setback is likely to be a more minor interruption of a gradual uptrend into Dec. Confidence in this interpretation is strengthened “since the action of the market has closely conformed to speculative theory.” While better business developments would be necessary to make for a strong uptrend, “it is felt that the obvious absence of liquidation on recessions affords an effective safeguard against a serious break.”

Some increase in short interest seen recently, by borrowing through individual firms. This could set the stage technically for rally.

Some observers point to steady upward trend in the bond market as encouraging for stocks, though investors may need to think long-term.

Conservative observers still favor taking profits on long positions on any further recovery, and only buying stocks gradually during sharp setbacks.

Commodities firm. Grains up moderately. Cotton almost unchanged after early strength. Copper still at 10 1/2 - 10 3/4 cents, though large bids for 1931 delivery at 10 cents have appeared.

Total number of NYSE-listed shares is now 1.282B, almost 3 times the number on Jan. 1, 1925, while brokers' loans are not much higher. It's evident from this that the position of brokers in terms of the ratio of margin loans to stocks owned by customers is now the strongest ever.

US electricity output in week ended Sept. 13 was 1,700 GWHr, down 3.9% from 1929.

Greater NY savings banks report deposits in August up $18.7M to $3.559B, vs. decline of $3.4M in 1929; deposits have gained $261.4M since Nov. 30, 1929.

North Carolina Gov. Gardner advised tobacco farmers to pledge to cut production 20% and form a cooperative organization to market crop.

British registered unemployed on Sept. 8 were 2.140M vs. 2.060M on Sept. 1 and 1.148M on Sept. 9, 1929.

US Aug. silver output 3.749M ounces vs. 3.551M in July and 5.006 in Aug. 1929; world June output 18.607M vs. 18.237M in May and 17.802M in June 1929.

Ford had 41.6% of all new cars registered in the US in the first 7 months.

Spalding stock about 43, yield 4.6%, earnings for year to Oct. 31 about $5/share.

Those who point to tobacco stocks as depression proof can take evidence from the case of Reynolds Tobacco; in 1921 when total corporate income reported to the Bureau of Internal Revenue was down 47.4%, Reynolds showed a gain of 52%. Some are also recommending Borden, pointing out that dairy consumption has been increasing for years and “ice cream now is considered a nutritious food rather than a luxury.”

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