October 11, 2009

Saturday, October 11, 1930: Dow 198.50 +6.50 (3.4%)

Assorted historical stuff:

Richard Whitney, NYSE Pres., defends value of speculation as providing liquidity to market, allowing investors holding securities to turn them into cash at any time; this is an essential service for complex civilizations. Short selling necessary part of market, absence would distort prices from “real estimate of security values.” Extent of short selling and “bear raiding” exaggerated. Also believes capital gains tax an indirect cause of last year's inflation in security prices.

L. Baldwin, Missouri Pacific Pres.: Backbone of the long drought has been broken; situation greatly improved over a few weeks ago; Midwest and South preparing speedy comeback from economic depression resulting from the drought; praises farmers' resourcefulness and determination.

Denmark Defense Min. proposes reduction of defense budget from $15M to $5M, abolishing ranks of General and Colonel and replacing with Inspector.

Mayor Walker's advisors now preparing to negotiate with BMT and IRT on city buyout; main question is price city can afford to pay while retaining 5 cent fare.

2,500 Bronx chicken pluckers schedule general strike for today; demand minimum wage of $25/week.

Airline demands construction of passenger waiting room at Newark Airport, say will move to another airfield if demand not granted.

Of 22M pounds of gelatin produced last year, 10M were used for dessert or salad and 5M for ice cream; also used to make movie film and unbreakable glass.

Mechanical ears” being installed on safes; detect noise such as drilling, triggering alarm.

Market commentary:

Market wrap: Stocks opened under heavy liquidation, with all sections hitting new low levels and very high volume.Selling continued until well after noon, interrupted only by a few brief rallies. A “stiff technical recovery” began in the afternoon; prices turned, and a good rally continued to end of the day, with leaders and all averages closing up for the day. Utilities, investment trusts, and trading favorites were particularly weak during early selling pressure. Bond market sold off heavily most of session on high volume, even soundest corp. bonds weak; sharp rally in last 15 minutes; US govts. were exception, dull and steady.

Foreign stock markets generally lower after Thursday's US selloff. Yields on first-grade German stocks now at 10%.

Early liquidation said mainly due to “unreasoning fear” caused by failure of one of NYSE's oldest brokerages yesterday. With credit ample, “It was the conviction in the banking community that a constructive program could be depended upon in the event of any real distress.” Some market students did contend there was evidence of banking support in the market. Nevertheless, various rumors again circulated during the early decline.

Trading remained orderly, with most industrial leaders having bids under the market and few wide-open breaks.

Bears argue that some stocks continue to sell at higher price earnings ratios and yields far below those reached in previous depressions; optimists reply higher valuations are justified in seasoned, financially strong stocks with record of consistently good earnings, also point to lower money rates vs. previous depressions.

Early selling ignored some positive news, including decline in brokers' loans, increase in commercial credit, and strength in commodity markets.

A. Coleman, Asst. Postmaster General, says inquiries indicate higher volume of mailings planned in Oct. and Nov., says this is one of best business barometers.

J. Schenck, United Artists Pres., says “business depression definitely is ending,” announces increased production schedule.

In spite of afternoon rally, there were 4 new yearly highs and 411 new lows. Until the rally, market had declined almost continuously since Sept. 10.

Market value of all shares listed on the NYSE on Oct. 1 was $60.143B, down $7.577B from Sept. 2.

Economic news and individual company reports:

Bradstreet's and Dun's weekly trade reviews say business situation complex, irregular, and difficult to read; Dun's notes improvement in retail trade over much of the country, though industrial activity hasn't clearly improved.

US steel unfilled orders Sept. 30 were 3.424M tons vs. 3.580M on Aug. 31 and 4.022M on June 30. Current consensus is that situation will not improve until next year at the earliest, and fourth-quarter steelmaker earnings will be poor.

Most aviation related cos. continue to lose money, but traffic is growing sharply; air mail in first 7 months was 4.453M pounds, up 17.5%, while passenger traffic on many airlines is up over 100%; for example, Aviation Corp. of Delaware carried 41,657 passengers in first 7 months vs. 20,659 in all of 1929.

Companies reporting decent earnings: American Chicle (chewing gum), City Ice & Fuel.

Company reports since Sept. 1: 126 companies reported higher earnings vs. 1929 and 158 lower; 545 dividends unchanged, 37 increased, 79 cut.

Higher priced cigars in decline as consumption switches to 5-cent segment.

Market joke:

“'I want to sell some Westinghouse short. I've got a tip that it is going very much lower,' said [the customer]. 'I would advise you against it,' said the broker. 'Remember, Westinghouse at 124 a share is over 75 points from the high of this year and more than 168 points from the high of last year.' 'But I'm positive it's going down. I have a chart that shows it,' said the customer. The broker sold the stock for the customer at 124. It got as low as 109 3/4 Friday. 'You see, you brokers don't know everything,' said the customer. 'What's the use?' said the broker.”

+ The Boring Stuff:

Editorial: Commodity prices have broken below postwar levels, with many important ones selling at or below production cost. Effects of falling prices are mixed. They cause problems for producers and subject debtors to constantly increasing pressure. On the other hand, the rentier

class benefits, wage earners who remain employed get a permanent gain in real (as opposed to money) wages, and construction costs decline. Most obvious current problem is world's debts to the US, particularly German; these will clearly be impossible to service if prices continue down; the sooner debts are adjusted to account for price declines the better for all.

Editorial: Most recent cotton crop estimate is 14.5M bales, down from 14.8M in 1929 and five year average of 15.3M. In spite of this decline, the total supply of cotton available will be about 20.5M, almost 50% larger than estimated consumption of 14M. “In such circumstances cost of production has nothing to do with the price ... [which] will be in accordance with consumers' ability and willingness to pay.”

Five-year survey of number of stockholders in US corporations shows banks with five-year gain of 336%, utilities 123%, industrials 115%, and rails 3%. Companies with largest number of stockholders are AT&T: 492,088, Cities Service: 359,000, GM: 218,392, and Pennsylvania RR: 191,079.

The Chicago conflagration still known as “the Big Fire” [Oct. 9, 1871] caused total damages of $167M, and many fire insurance companies failed following this and another great fire in Boston the following year.

Yale University endowment is $82.857M, up $12.990M in 1929.

Conservative observers remain skeptical, pointing out market has staged a number of good recoveries that didn't last; waiting for more definite indications.

One factor in early selling may have been protection of margin accounts; many margin calls reportedly went out Thursday afternoon.

Brokers' loans have been liquidated beyond all expectations, most recently declining to $2.905B vs. peak of $6.804B last Oct. This puts the market in a stronger technical position, indicating passing of stocks from weak margin accounts to strong hands.

Of the few stocks advancing during recent selling waves, a large proportion have been preferreds.

Some economists now believe weakness in the stock market is slowing business recovery.

Although auto production is far below 1929 level, observers were encouraged that the Aug. to Sept. decline was only 2.7% vs. 16.2% in 1929.

Delegates to 6th Int'l. Road Congress say rails should be allowed to operate buses in areas where highways have cut rail traffic. H. Thornton, Canadian Natl. Rwy. Pres., says rails should deal with motor and air competition by increasing speed and offering better passenger service.

Commodities up. Grains up sharply, wheat particularly strong. Cotton up moderately. Copper buying continues quiet; price outlook unclear.

Bonds, notes, and stock offered by corporations in Sept. totalled $328.2M vs. $235.2M in Aug. and $1.395B in Sept. 1929. First nine months were $5.396B vs. record of $8.948B in 1929 and $5.975B in 1928.

Dr. G. Smith, US Geol. Survey dir., recommends unit (cooperative) development of large new Kettleman Hills oil field in Calif. Regarding accusations Interior Dept. favoring large oil interests for concessions in Western oil shale areas, says date of practical oil shale development is “remote indeed.”

Agriculture Dept. corn crop estimate on Oct. 1 was 2.047B, up 64M bushels from Sept. forecast.

French retail prices have risen steadily from May through Sept., though wholesale prices continue to decline. French index of industrial production in Sept. was 139 vs. 141 in July, but equal to the 1929 average.

Net gold moved from South America to US in first half was $71.6M; attributed to low commodity prices and fewer US loans.

Two NYSE seats sold for $265,000, down $10,000 from prev. sale.

PG&E orders 12M pounds of copper at 10 cents/pound, covering requirements for next year.

Deere stock about 53 vs. 1929 earnings of $13.75/share and 1930 estimate of $10.50; traders said to fear drastic revision due to farm depression. C. Deere Wiman, Pres.: “We can see many indications that the worst is now over for all industry and that, especially in the farm equipment group, the outlook for the next year is reasonably good.”

A&P Sept. sales were $77.0M, up to 2.3% from 1929; first nine months were $800.2M, up 6.5%.

Sears sales from Sept. 11th to Oct. 8 were $32.8M, down 14.5% from 1929; Jan. 2 to Oct. 8 sales were $284.5M, down 7.5%.

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