October 10, 2009

Friday, October 10, 1930: Dow 192.00 -8.56 (4.3%)

News flash:

Prince & Whitely, a prominent Wall Street house with branches in many cities and member of the NYSE since 1878, suspended by NYSE for insolvency. Partners and attorneys expressed belief the firm is solvent and creditors will be paid in full. Firm's difficulties said due to “a frozen condition which resulted from attempts to support the market in securities in which the firm was interested.” Reaction to suspension was much greater than to the Sisto failure last week.

Assorted historical stuff:

Rep. Byrnes (D., Tenn.) charges Treas. Sec. Mellon is exaggerating budget surplus for political ends; Mellon defends record, says accusation is itself political.

Editorial: Some leading industrialists are calling for recognition of Russia for business reasons. While these reasons may be correct, they are superseded by Pres. Wilson's stand in 1919: “We cannot recognize ... a government which is determined and bound to conspire against our institutions.” Since Russian govt. is pledged to world-wide revolution, recognition would, as Elihu Root put it, be a “formal and solemn lie.”

Col. L. Smith of Better American Federation, tells Congress 20,000 firearms have been bought in US by Communists.

J. Barnes, US Chamber of Commerce Chair., says recent plunges in commodity prices are mainly caused by previous govt. efforts to support prices at artificially high levels; “the forces of economic law may apparently be temporarily elastic, but in the end will break under the strain.” Calls for stronger cooperation between government and business to tackle depression. Criticizes excessive tariff competition, says tariffs only justified to protect against cheap labor.

Agriculture Sec. Hyde defends spending billions on road construction as economically justified; “besides cheapening transportation ... they bring educational opportunities to many, relieve the tedium and isolation of the country, and develop national and state patriotism.”

V. Bello, Cuban Congress Pres., suggests taking care of sugar surplus by mandatory use of gasoline-alcohol mix as motor fuel.

France cracking down on US jazz musicians by requiring working permits; said due to increasing unemployment among French musicians.

Cure for pneumonia by electrically-induced fever of 116 degrees presented at Amer. Phys. Therapy Assoc. convention.

Market commentary:

Market wrap: Market continued to drift down early, with several leading issues hitting new yearly lows. Bears focused particular attention on US Steel, targeting the final support level at 150 (the panic low last fall), and succeeding in penetrating that level slightly after a tough fight. A broad selling wave then spread through the list, and the downtrend intensified following announcement of suspension of a major brokerage; many stop-loss orders triggered; many majors hit new yearly lows, including New York Central (rail), GM, AT&T, GE. Prices closed near the day's lows. Bond market down on high volume; almost all bonds classes weak; Brazil and German bonds plunged, with substantial declines spreading to other South American and European bonds.

In spite of large selling volume and signs of forced liquidation, trading was generally orderly; most stocks had plenty of bids under the market and there were few wide-open breaks except in stocks sponsored by Prince & Whitely.

German stocks and bonds down on unexpected Reichsbank discount rate hike from 4% to 5; first rate increase by major banks since the fall panic. Step attributed to desire to reduce capital flight, though it hadn't yet reached serious proportions; German industry has shown market seasonal improvement in Sept.

F. Corley, Marshall Field VP, says inventories have been cleaned up, general business and industry on eve of recovery.

Automotive industry seen planning significant price cuts on 1931 models; in past year carmakers who held or reduced prices have done much better than those who tried to increase prices to maintain profit margins; recent drastic price cuts to clear old models have also shown public willing to buy bargains.

Dow closed below Nov. 13 panic low of 198.69. There were 3 new yearly highs and 321 new lows.

Economic news and individual company reports:

Dow steel average of 8 finished products was $44.76, down from $45.60 last week and new yearly low. Steel scrap prices continue decline; heavy melting steel at Pittsburgh is down 50 cents to $14.75/ton, and down $1 in past 2-3 weeks.

US electric output for a week ended Oct. 4 was 1,695 GWHr, down 5.1% from 1929.

Sept. department store sales were down 7% from 1929, with daily avg. down 11%; first 9 months were down 6%.

US and Canada Sept. cars and truck production estimated 226,361, down 3% from August, 47% from Sept. 1929, and 40% from five-year avg. for Sept. First 9 months 3.061M, down 37% from 1929 and 18% from the five-year avg.

Mexico suffering severe inflation, with costs of “articles of prime necessity” doubling over past 2 months; blamed on currency weakness.

Companies reporting decent earnings: White Rock Mineral Springs, International Agricultural Chemical.


“ Mother - Your face is clean, but how'd you get your hands so dirty? Small Son - Washin' my face.”

+ The Boring Stuff:

Pres. Hoover has called for consideration of modifying the Sherman antitrust laws, saying aim of our system should not be to produce competition that destroys stability of an industry. Recent examples where this may apply include the coal and oil industries. Administration will not relax enforcement of existing law, but seeks to start public discussion of antitrust laws to begin tackling the difficult subject of modification.

Editorial: In the past there have been regular campaigns to “incorporate” the NYSE. So far none have succeeded and the Exchange governors remain in full control of its members under clauses that require conduct to be in accord with business ethics and best interests of the Exchange. This self-regulation is invaluable in cases like the recent suspected short sale “riots”; the Exchange can deal with these cases effectively, while a law could not “short of prohibiting under heavy penalty” all short sales; this would be disastrous. “The problem lies in a domain where statute law cannot effectively go.”

Dr. H Schacht, former Reichsbank head, speaks at Bond Club luncheon regarding German situation. Says political situation misrepresented and German people wouldn't tolerate revolutionary measures. However, depression is grave, with 4M unemployed and people faced with deprivations that threaten their existence. Says German people will stand by obligations including Young Plan, but calls for modification as contemplated in the plan based on impossibility of meeting requirements.

US business has invested heavily in both France and Germany, but attitudes in those countries toward this investment differ. France while recognizing some benefit, is wary of letting traditionally French businesses be bought, and also dislikes idea of “speeding up” of industry by applying US methods, possibly destroying “the glamorous tradition which envelops her meanest trades”. Germany by contrast has welcomed US investment unreservedly and is “avid for Americanization of her industries” and application of modern methods. Some of this difference may be due to the unemployment situation, which is much worse in Germany.

Canada backs idea of tariff wall around British empire but rejects free trade within empire; offers reciprocal preferences to other dominions.

California facing severe water problem due to low rainfall and annual 6-8 months dry season. Boulder [later Hoover] Dam should help, but federal and state authorities are planning a statewide list of other projects to aid in water conservation through construction of dams and reservoirs.

New York's Social Register has grown from the proverbial “Four Hundred” to 15,000; proposed names are decided on by a six-member committee, from whose decisions no appeals are possible.

Meeting of NY City taxicab operators opposes Mayor Walker's taxi commission proposal for regulated monopoly.

Madison Square Garden to hold fifth World Series Rodeo Oct. 23 - Nov. 1.

Investment trust (similar to mutual funds) report: Executives reportedly more phlegmatic over losses “since they have been persuaded by ... statements of competitors that they are in the same boat as to the character of results accomplished over the past year.” They have also become accustomed to the once shocking reality of trust shares selling for less than net asset value; discounts of 20% or more are now the rule. Staffs have been reduced greatly, and some are now subletting office space. Almost all new trusts are now of the fixed type (similar to ETF/index fund).

Broad Street Gossip: Stocks, commodities, and optimism have all slumped, but wages have mostly been maintained at the high levels of last year, particularly at big corporations; this has enabled buying power to show a much smaller decrease than “general business and earnings.”

Some of market nervousness attributed to uncertainty over upcoming congressional elections and political situations in other countries.

Odd lot (small) buying reportedly increasing, but not in enough volume to affect the market.

Large volume and declines in leaders seen as indicating cleanup stage of selling wave had been reached, and overdue rally in the making.

Dow transportation average has been trading below last fall's low for some time. Although utilities have been weak recently, the utility average is above the fall low.

Conservative interests still keeping customers on the sidelines in spite of substantially lower prices.

Outlook for disposal of US wheat surplus said clouded by European bans on wheat imports attributed to fear of Russian dumping.

Commodities weak. Grains down sharply, wheat close to season lows. Cotton little changed. Copper buying slower; there's some concern recent active buying was mostly for stocking up, and if production is not curtailed further prices will fall more. Eggs hit 20-year lows. Cocoa futures continued up sharply on concern about Brazilian revolution.

Fed. Reserve reports money in circulation Oct. 8 down $5M to $4.487B, total Reserve Bank credit outstanding up $2M to $1.012B. Fed. Reserve member banks in NY city report brokers' loans down $158M to $2.905B vs. $6.713B in 1929, “all other” (commercial) loans up $18M to $2.466B.

Youngstown District steel makers anticipate no further reductions from current 53% production level for at least another week.

Michigan Republicans call for “a reasonable tariff on copper,” pointing to success of steel protection in maintaining prices.

Cuban Pres. Machado says in favor of proposed international plan for sugar stabilization.

NYSE seat sells for $275,000, increase of $17,000 over previous sale.

National Auto. Show to be held in NY and Chicago January; to exhibit 54 makes, 9 more than last year.

American & Foreign Power Co. reports on status of their operations in Brazil: service 264 cities and towns; business generally continuing normally; only damage reported is at Bahia where radical element destroyed some streetcars; past experience indicates that disturbances of this type generally caused only minor damage to property of electric power and light companies, with earnings tend to rise following settlement of the trouble.

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