October 24, 2009

Friday, October 24, 1930: Dow 188.10 +3.12 (1.7%)

Assorted historical stuff:

Editorial: Proposal of the rail unions for a 6 hour workday is dubious. Unemployment is a grave concern; “its existence is a serious blot upon our record as business people.” But what is to be accomplished by this proposal? If it's to force hiring more workers, then “to put two men on a piece of work which can be done by one is not 'finding employment' for anyone; it is in effect a form of dole.” If it's to get a pay increase for those already working through overtime, how can this be justified at a time when a lower cost of living is raising real wages?

Railway execs not receptive to union movement for 6 hour day with no cut in pay; Illinois Central and Atchison presidents call it impractical and unaffordable.

B. Anderson, Jr., Chase Nat'l Bank economist, says Italy dealing with depression relatively well; production down less than US and rest of Europe, no apparent need for foreign credit, and stock market decline more moderate than US and Britain.

Berlin Mayor reports $20M city budget deficit due to unemployment payments and lower revenue; unable to pay salaries next month without short-term loan.

British House of Commons committee on ministerial pay recommends raising PM MacDonald's salary $10,000 to $35,000 due to high upkeep at 10 Downing St.

Residents of Quito, Ecuador petition govt. to lease Galapagos to France, Germany, or Japan as alternative to selling to US due to financial crisis.

Pres. Hoover to appoint timber conservation board with similar purpose to the existing oil conservation board.

M-K-T Railroad boasts sterling safety record: no passenger deaths in past 12 years during which it transported over 50M passengers a total of about 4B miles.

Henry Ford returns from 10-week European trip; refuses to comment on trip, saying his remarks abroad had been misrepresented by the press.

Market commentary:

Market wrap: Leading stocks started to rally early, and continued with only minor interruptions for most of the session. Bulls found this particularly encouraging since the main body of stocks resisted a bad break in rail stocks connected with the Van Sweringen brothers, including the Alleghany, Pere Marquette, and Chesapeake & Ohio. Majors including US Steel, American Can, and GE staged strong recoveries from recent lows; the general list also acted well. Continued pressure on the Van Sweringen stocks held the general recovery in check, but some gains were sustained into the close. Bond market irregular but mostly higher; South American higher, other foreign and US govts. steady; convertibles higher, corp. mixed but generally higher; Van Sweringen-related bonds down sharply.

Ability of the general list to resist breaks in special stocks was seen as evidence “forced liquidation was largely burned out.”

Several brokers report clients buying stocks for cash are now paying careful attention to fundamentals such as position of the company in its industry, prospects of the industry, management, earnings, and dividends. This contrasts with “fancies which appeared to rule when stocks were being carried to abnormally high levels.”

Signs seen that “the current downward movement has reached its final stages.” Business is “admittedly unfavorable,” but past precedent strongly suggests this has been largely discounted in stock prices. Recent action in commodity prices indicates a bottom. Cooler weather is seen improving business activity in many branches. It's increasingly clear support in the form of investment buying is coming into the market; majors have found effective support above recent lows, and thousands of new investors have been buying stock outright, cleaning up the floating supply “to an extent that makes further progress on the downside increasingly difficult.”

Broad Street Gossip: “If history repeats itself, you can expect to see the following ... Oct. 24, 1930: 'If I had only sold out in Sept. 1930! Just see where they are now.' Oct. 22, 1931: ' If I had only bought some stocks in Oct. 1930! Look where they are now.'”

E. Shumaker, RCA-Victor Pres., says depression is being prolonged by doubt and fear on part of business men; “If every industry in the US that is now closed down or working part time would resume normal operations, we would almost immediately have prosperity, despite the fact that this depression is worldwide.”

Economic news and individual company reports:

Market value of NYSE-listed stocks and bonds represented 29% of estimated total US wealth [of about $400B]; there are about 10M security holders in the US. As a result, many think “a sustained improvement in security values would do more toward restoring confidence than anything else.”

Fed. Reserve reports money in circulation Oct. 22 down $50M to $4.450B, total Reserve Bank credit outstanding down $52M to $992M. Member banks in NY City report brokers' loans down $139M to $2.613B vs. $6.634B in 1929 and low since Nov. 1926, “all other” (commercial) loans down $39M to $2.496B.

Electric output by US light and power industry for week ended Oct. 11 was 1,710 GWHr vs. 1,704 in prev. week and 1,772 in 1929.

H. Firestone, VP of Firestone Tire, estimates 55M tires sold in 1930 vs. 70M in 1929; sees heavy replacement business in 1931.

Fla. Supreme Court rules for bondholders, orders West Palm Beach and Hastings to pay interest due this year.

Companies reporting decent earnings: national biscuit, General Foods, Hershey, almost all major meat packers (Armour, Swift, Wilson), Bon Ami, Apex Electrical Mfg., S.R. Dresser (pipe fittings and couplings), General Printing Ink.


“A party of tourists were enjoying the wonders of the Grand Canyon. A native passing by was asked by the driver of the car: 'I say, neighbor, can you tell us what caused this terrible gorge?' The rider gazed fondly at the wonderful site and replied 'Well, they say a Scotsman once owned a ranch near here, and one day he lost a golf ball down a gopher hole ... '”

+ The Boring Stuff:

US bankers almost universally disagree with Macauley proposal for Fed to buy govt. bonds in order to stabilize prices; say problem is not one of lack of credit, since rates are already around 2% - “you cannot make a man borrow money even at low interest rates unless he can find profitable use for the money”; believe it's not province of Fed to establish price levels, which should be arrived at naturally. Banking opinion on what is causing the depression varies widely, with factors cited including over-speculation, “maladjustment in price and wage situations” relative to production, tariffs, reparations, foreign debt, etc.Only banker quoted in favor of the proposal is E.W. Edwards of Fifth Third Union Trust.

Editorial: Increasing trial balloons have been seen regarding a moratorium in German reparations and revision of Allied war debts. These are premature and probably politically motivated. In particular, German complaints that creditor nations have disarmed them while neglecting their treaty obligations to promote general disarmament probably won't go over well with Allies who are having enough problems amongst themselves with disarmament. “Nor are they unaware that Germany's aspiration toward revision of national frontiers may be found lurking just behind the reparations question.” Further deflation in prices would probably make debt revision inevitable, but “revision compelled by world economic forces is one thing. A political demand ... is another.”

Mexico plans to restrict imports to $25M/year to stabilize its silver-based currency.

Navy General Board Recommends 10-15 year, $750M-$1B building program to bring US Navy to full strength allowed under London Naval Treaty.

J. Eastman, ICC member, criticizes setting of rail and utility rates based on “fair value” of property, says should be based on ability to attract needed capital. R. Taylor, former ICC member, criticizes Transportation Act as vague on rate-setting (using “just” 48 times and “reasonable” 66 times without defining either); suggests asking rail officials for proposals on rates, says restoring confidence in rails would relieve depression generally.

C. Morris of Western railways committee criticizes govt. payment for waterway development and maintenance, allowing unfair competition with rail transport.

Wets are making much of the fact that the Keeley Institute for treating alcoholics now has 500 patients, more than ever before. However, this is deceptive; an investigation by the Women's Christian Temperance Union shows that of 148 institutes of this kind operating before Prohibition, 105 have closed their doors for lack of business and the remaining 43 have been converted into general hospitals admitting occasional alcoholics.

Size of short interest now a matter of debate; main indication is in the market for loaning stocks to short sellers, but some say supply of stocks for loaning is being artificially restricted.

Brokerage houses seen studying possibilities of fixed investment trusts (similar to ETF's) due to their increased popularity since the fall panic, as the managed trusts (similar to mutual funds) that they normally sponsor have fallen out of favor. Meanwhile, failure of some brokers is causing problems for trusts they sponsored due to intertwined dealings; this is causing talk of new regulation.

Prof. S. Livermore of the Univ. of Buffalo finds that investment trusts largely confine their holdings to a small group of the largest US stocks. In a wide sample of trusts, only 4% of stocks were foreign. For managed trusts, 45% of holdings were in 100 leading US stocks; for 10 leading fixed trusts, 40% of holdings were in 15 stocks, including AT&T, American Tobacco, GE, US Steel, etc.

Many NYSE brokers urging clients “to keep their respective unclouded and not succumb to the prevailing pessimism.” Current forced liquidation “has resulted in a mental state diametrically opposed to ... the final stages of the bull market, when traders inflamed with profits could see nothing but ... continuation of the upswing.”

Some commentators who were advising caution at the market peaks last year are now advising bears against overstaying their position.

Bulls traders complain the market since Sept. 10 has been the worst for making money since last Oct. since there have been so few tradable rallies; many are now stuck with stocks bought many points above current prices.

Conservative observers say technical rally was anticipated, but note resistance, continue to advise staying on sidelines.

Substantial amount of selling to establish tax losses still seen in the market.

Commodity and stock prices have diverged since Oct. 10, with the Dow plunging from 198.50 while most commodities up or at least steady above yearly lows.

Commodities mixed. Wheat up slightly, falling back after sharp early rally; other grains down. Cotton up sharply. Copper being offered by some small producers at 9 1/2 cents/pound while most still hold at 10 cents (record low was 9 cents in the 1890's).

Dow average of eight finished iron and steel products was $44.70/ton vs $44.70 prev. week, low for 1930. Scrap down in Midwest markets, steady in East.

US Steel Q3 net expected about $2/share vs. $3.02/share in Q2 and $5.57 in Q3 1929; will cover dividend requirement, but a hoped-for extra dividend is seen as unlikely for some time. Other steel companies expected to do relatively worse, with a number expected not to cover dividends in Q3.

Bank of France gold holdings now over $2B, up $40M in week ended Oct. 17; “will someday be used as a powerful weapon to restore Europe to prosperity,” when France begins lending its tremendous reserves out.

Cuban govt. and sugar growers begin to implement plan to buy 1.5M tons of the sugar surplus currently in storage, and sell it gradually over the next 5 years.

Antwerp diamond cutting industry Sept. figures show 3,820 out of 14,279 cutters unemployed; number of working days has been cut from 15/month to 3/week.

Deere (farm equipment) stock about 5 1/2 times estimated 1930 earnings.

Consolidated Film preferred stock about 18, pays $2 annual div., callable at 35, earned $7.96/preferred share in 1929 and $3.10 in first half.

Colgate-Palmolive-Peet says foreign units all profitable in 1930, combined net will be above 1929; co. is largest seller of toilet soap in 48 countries.

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