September 23, 2009

Tuesday, September 23, 1930: Dow 222.78 -7.07 (3.1%)

Assorted historical stuff:

Editorial: Agriculture Sec. Hyde, trying to explain why the Farm Board has failed to support wheat prices in spite of $500M appropriated, “has uncovered a Russian bear's nest and from it dragged a diminutive teddy bear painted red.” Assertion that Russian sales of 7.5M bushels depressed prices seriously is ridiculous considering Farm Board has bought 70M itself and could easily buy more if prices were so easily influenced. “If an artist could put it on canvas that 7.5M bushels of wheat as compared with the annual sales on the Chicago market would be ... a mangy little bear dropping one kernel of wheat upon a heaped up bushel.”

Rep. Hamilton Fish (R., NY) to investigate Russian wheat short-sales; Farm Bd. Chair Legge speculates motive is depressing economy to promote Communism.

Hoover is first Quaker president; Quaker church custom of allowing anyone to speak at services has been modified to avoid “cranks and propagandists.”

H. McLaughlin, Pres. Ohio St. Fed. of Labor, calls for wealthy men to join John D. Rockefeller, Jr. in relieving unemployment by forming one or more $100M syndicates to tear down slums and build individual homes for workers.

New air mail route to be operated between Cairo and Cape Town by Imperial Airways Co.

Portrait of a Man by Franz Hals, valued at $250,000, bought by Mrs. B. Jones of Pennsylvania. Soviet govt. to sell four paintings by Rubens, Rembrandt, Van Eyck, and Van Dyck valued at $200,000 each from property of Hermitage Museum.

Market commentary:

Market wrap: With international markets showing sizeable losses on political uncertainty, bears found conditions favorable and were able to depress majors to new lows on the current reaction, including US Steel, American Can, Allied Chemical. Companies with large international business particularly weak, including IT&T, American & Foreign Power. Banks and trusts particularly weak. Commodity weakness was also attributed to the international situation. Trading volume was down from Friday, possibly due to Jewish holiday. Some sluggish rallies failed to hold; further declines on higher volume took place in final hour, with some stop-loss orders uncovered. Bond market active; foreign govts. weak, particularly German; US govt. dull, steady; corp. steady, convertibles down.

Commodities very weak. Grains down, with some wheat futures hitting new post-1914 lows. Cotton hit new season low at 10.85 cents. Crude rubber hit new record low (7.70 cents), as did cocoa (5.15 cents) and raw silk in Japan. Copper unchanged at 10 1/2 cents.

Recent market decline has taken place in spite of some good business news; attributed to bear attacks, rumors concerning German situation. Another factor may be anticipated poor third-quarter earnings; recent tendency has been for lowered forecasts.

Bank of America reports recent more active demand in many lines of business, though construction and automotive still lag; “while the increase in the volume of trade is of moderate proportions the improvement has been sufficient to be reflected in a more optimistic business sentiment and in greater confidence in the general economic situation.” Criticizes popular tendency to go to extremes of optimism and pessimism as obstacle to recovery, calls for “even balance, and patience.”

Royal Bank of Canada on commodities: “Judging by the course of events in other apparently similar cycles of the past, and giving due weight to the effect of the present worldwide policy of cheap money, it is reasonable to suppose that the present average of prices has about reached the bottom of the cyclical movement.”

Slackness in the car industry seen as “leaving a wake of unemployment” since industry is a large consumer of other products and raw materials.

Economic news and individual company reports:

Income tax receipts for fiscal year through Sept. 19 were $488.8M vs. $558.7M in 1929.

Federal spending for construction in 1930 is expected to be considerably above the $352.4M in 1929.

Commerce Sec. Lamont reports some encouraging business news including gain in exports in August that was broad-based and higher than usual seasonal pattern; gains in retail trade together with low inventories; and increased buying ahead of raw materials by industry.

Chicago Society of Commerce reports wholesale and retail buying improved in past week, with moderately priced goods doing better. Inventories low, with active restocking by merchants country-wide. General opinion that business will continue to improve up to and including holidays.

Reports of improved business from Republic Steel, Minnesota Steel, National Cash Register, and Oakland-Pontiac (cars).

Cars produced were 223,046 in Aug. vs. 262,363 in July and 498,628 in Aug. 1929; first 8 months were 2.705M vs. 4.225B.

Companies reporting decent earnings: Loews (movies and theaters).


Africa Speaks, extraordinary documentary; scenes include lion killing a boy guide, then turning on the two photographers, “swarms of billions of locusts flying over the earth, devouring every green thing for miles around and sending herds of wildebeest running,” and “the duck-lipped women of Ubangi.”

+ The Boring Stuff:

Editorial: Manchester Chamber of Commerce's revolt against the gold standard is a shocking reversal. “Manifestly the national nerves of Great Britain are in a state of great disturbance ... Gold is, first of all, the ultimate measure of price, and second, the ultimate form of money ... Thirdly, as banks reserve money, it is the limiting governor of bank credits. ... A pound sterling is 113 grains of fine gold and nothing else. ... Apparently the chamber wants a pound which is something else” so that scarcity of gold won't depress prices, and to overcome limits on bank credit imposed by the gold supply. While it's unsafe to be dogmatic about these things, experience suggests the result would be “merely a possible relief of unemployment for a time by a hidden but real expropriation of the tax paying class.”

German situation “while disturbing, is by no means alarming”; confidence that stable govt. will be arrived at, though continued nervousness likely until result is known. Some reports of capital flight. Stock market down. Bonds down sharply on continued rumors of renegotiation of obligations. Swiss market and bonds more active in past month on investors' desire for “countries characterized by stable political conditions and a cautious financial regime.”

Harvard Economic Society says depression has been worse than originally expected, but now sees moderately better than seasonal recovery.

Julius H. Barnes, Chamber of Commerce of US Chairman, says believes number of unemployed higher in 1921, when there were 32M workers compared to 42M now. Also relays report by S. Sears, Pres. Natl. Council of Traveling Salesmen, predicting shortages of consumer goods as buying improves.

Scrap steel price strength has historically been useful leading indicator since it's a raw material for steel production.

Bulls believe current break can still be explained on technical grounds; if Aug. support around 217 holds, “it would strengthen indications that the windup of the bear market was seen on the June break.” Strong evidence of this was already seen in the early Sept. rally above the July-Aug. top; it's also considered highly significant that volume on the current break is lower than on the breaks in June and Aug., with little “genuine liquidation” seen.

Many market letters that were bullish two weeks ago are now bearish; however, since the start of the year the market has acted against the consensus.

Conservative observers favor taking profits and reducing long commitments on any rally; popular attitude is to wait to buy until market establishes new resistance.

Traction (mass transit) issues benefiting from improved prospects of city transit unification with BMT and IRT.

Fed. Reserve member banks report for week ended Sept. 17 loans on securities up $72M to $8.404B, “all other” (commercial) loans down $3M to $8.477B.

Production at 875 lumber mills was 273.8M feet, new orders were 98% thereof and shipments 95%; a week earlier 901 mills reported production of 248.3M feet, new orders 97%, and shipments 93%,.

Illinois industrial employment in Aug. was down 0.9% from July and 16% from Aug. 1929. Payrolls were down 0.2% from July, and hours worked up 0.3%.

NYSE seat to be sold for $300,000.

Frazier, Jelke, & Co. compare dividend yields on high-grade common stocks at different times. Aug. 1921, commonly cited as a great buying opportunity, had yield of 8.15%, vs. Aug. 1930 yield of 4.42% and Sept. 1929 yield of 2.88%. However, general rates were much higher in 1921, so the return now is relatively more attractive compared to other options; in 1921, dividend yield was 36% higher than commercial paper rate, whereas now it's 47% higher.

Canada's Aug. exports were $69.3M vs. $96.3M in 1929; imports were $78.2M vs. $111.6M.

Oil, Paint, and Drug Reporter says shipments of some types of chemicals to industry have recently increased.

Company reports since July 1: 244 companies reported higher earnings vs. 1929 and 498 lower; 1174 dividends unchanged, 57 increased, 113 cut.

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