October 25, 2009

Saturday, October 26, 1929: Dow 301.22 +1.75 (0.6%)

One year ago today:

[Note: Once again, your regularly scheduled 1930 news will be along later in the day. Continuing the recap of the 1929 Great Crash - the following describes Friday, Oct. 25, the day following Black Thursday.]

Market wrap: “Yesterday's market was notably orderly, presenting a striking contrast” to Thursday's session. Opening was strong on optimistic statements from govt., banking, and industrial officials, and decline of $167M in brokers' loans; active issues showed good gains on very heavy volume. Following the opening rally, stocks retreated to some extent; this was attributed to traders who had survived Thursday taking advantage of the rally to strengthen their accounts. However, support remained strong and leading shares were steady for the rest of the day. Volume slackened toward the close; final volume for the day was 5.923M shares, a very heavy day by normal standards though less than half Thursday's volume.

Technical note: The second secondary reaction was more severe than the first, and the third secondary reaction more severe than the second.

Opinion on Thursday's crash:

Pres. Hoover, at regular Fri. news conference, points to positive fundamentals for US economy: wages and productivity are tending upward; production and consumption of commodities are at high levels but prices haven't gone up; no significant increase in inventories of manufactured goods. Some scattered weak spots including construction due to high interest rates caused by stock speculation, and seasonal declines in a few industries, but these are relatively small compared to the whole picture.

More details on bankers' group that came in to support the market Thursday: Consensus among the group is that trouble is due to excessive speculation; business conditions considered sound, credit ample, and banks have abundant liquidity. First time “it can be authoritatively said” banks have stepped in to buy stocks directly. Object of support is not to advance the market or turn a profit, but to insure orderly trading so security prices can find their proper level. Only a small part of the resources available were used Thursday; “We have by no means used our big ammunition yet”; one member of the pool predicted a drive against the market would be met with powerful resistance.

Another reassuring factor was the Stock Exchange's fine performance. Before trading resumed Friday, all of Thursday's record-shattering trading of almost 13M shares had been cleared; confirming no Exchange houses were in any difficulty from Thursday's violent declines.

Editorial: Stocks had become over-inflated and vulnerable due to speculation. It's been clear since last Wednesday that the market trend had turned down. “The market will find itself, for Wall Street does its own liquidation and always with a remarkable absence of anything like financial catastrophe. ... Suggestions that the wiping out of paper profits will reduce the country's real purchasing power seem rather far-fetched.”

P. Mazur of Lehman Bros. took a contrarian view: “Yesterday's crash on the stock market is likely to have an immediate and probably lasting effect on retail buying. Not only will those who have lost money in the collapse cease to purchase luxuries for a time, but will withhold commitments upon necessities.”

Economic news:

Some 9-month earnings reports: Erie Rail. $4.08/share vs. $2.64 in 1928; Allis-Chalmers $11.92 vs. $8.55; Corn Products $3.78 vs. $3.

Bradstreet's reports retail and wholesale trade off slightly this week vs. 1928, while industrial activity was slightly higher. Dun's Review sees nothing in commercial situation to cause further drastic stock declines; some lines of business moderately down, but overall results this year should be unusually favorable, and credit appears to be easing.

Other stuff:

Amusing anecdote: “An immense throng milled about Broad and Wall Streets Thursday afternoon and a tone of great excitement was in the air. 'What's it all about?' an uninformed passerby wanted to know. 'The market has crashed,' someone told him. 'What market?' 'The stock market. Many people have lost money.' The uninformed one shrugged his shoulders. 'I've lost no money,' he said, as he pushed his way toward Beaver Street.”

G. Clemenceau, former French premier, says despite so-called “peace parliaments,” peace based on military strength will long be imposed on the world.

Theater: Button, Button - “major theme is a satirical treatment of current standards of sanity in the business and social world”; also makes fun of “modern poetry, golf enthusiasts, psychoanalysis, collectors of antique furniture, birth control, and the Little Theatre movement.”

Advertisement: On Thursday, Dow Jones Electric Page News Tickers (normally used to distribute financial news) flashed up-to-the-minute prices for about 20 leading stocks every 10 minutes [this was when the stock ticker was hopelessly behind]. “There is no substitute for Dow Jones News.”


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