November 14, 2009

Friday, November 14, 1930: Dow 180.38 +3.05 (1.7%)

An interesting piece of economics history:

Letter from T. Macauley, Sun Life of Canada pres., defending his proposal for Fed. Reserve to halt depression by buying $500M of bonds, increasing bank lending power by over $5B. Currently, dollar has no fixed purchasing power but varies with amount of currency credits outstanding as controlled by the Fed. “If we permit commodity price levels to go up and down with good and bad times, we are asking for trouble ... we shall automatically transform moderate depressions into severe ones and severe ... into disasters.” Suggests boom-bust cycle can be moderated by stabilizing value of dollar relative to broad price index of industrial and farm products, rents, real estate and security prices. Praises Fed actions in preventing inflation by selling bonds to absorb excessive gold imports in past years, and in already buying $450M of bonds to reduce effects of current depression; believes it may be hindered in acting more agressively by current criticism and opposition.

Assorted historical stuff:

Growing sentiment seen on both sides of the political aisle for modification of the Sherman antitrust laws, though form this would take is uncertain. Pres. Hoover is expected to mention the Sherman Law in his next message to Congress, while Dem. Nat'l Committee chair. Raskob outlined a specific proposal before the election.

Editorial: “China, with its great population and low standard of living, offers a great potential market ... so too does all Asia.” China trade already has grown dramatically; from 1900-20, imports grew from $155M to $940M and exports from $120M to $670M; since then wars and depression have somewhat reduced trade. China needs both physical infrastructure for business and political stability, but latter will follow former. Rehabilitation should be a business benefit, not burden.

British imperial conference apparently fails to reach definite solution of empire economic problems; another conference seen likely in Ottawa next spring.

Last Mountain Progressive Assoc. urges secession of Western Canada, saying Eastern financial interests working against best interests of the section.

Sir Percival Dewhurst Perry, chair. of Ford Motor Cos. in Europe, makes bold call on Russia: “The Russians have seen the writing on the wall. With the collapse of their five-year plan there is no doubt that they will revert to capitalism. It is the only way in which they can avoid a revolution.”

Use of airmail said to save costs in a number of fields, including: bankers sending checks for quicker deposit, vaccines, “style garments,” and urgent advertising.

Rate of admissions to NY State “Craig colony for epileptics” - one every 29 hours; “state hospital for criminal insane” - one every 38 hours.

One-room rural schools have been vanishing at the rate of 4,000 a year since 1920; however, 153,306 still remain.

Lunch service to New York high school students, begun by Dept. of Education on small scale 29 years ago, is now business of $2M annually.

Market commentary:

Market wrap: Rally continued for a third day in a row; considered noteworthy since this was the first three day positive streak since mid-August; seen as evidence “forced liquidation was burning out.” Sharp rebounds in majors including GM, du Pont, and Woolworth, and specialties including Fox Film and J.I. Case; coppers continued strong while major industrials including US steel and American Can pushed gradually upward, reaching best levels in the final hour; banks and trusts also strong. Some irregularity in final dealings but day's highs fairly well maintained. Bond market more active, generally higher, particularly corp. with rallies in many recently weak issues; convertibles rally; US govts. remained firm, hitting high prices for the year.

V. Lersner, Bowery Savings Bank pres. (largest US savings bank), says savings can be overdone at times like these; “one should save, but not at the expense of the other fellow.” However, emphasizes that dollars in savings banks are not hoarded but loaned out, helping to increase wealth of the nation.

Rumors that E. Meyer, Fed. Reserve Gov., would issue “constructive statement regarding credit conditions” were denied by authorities.

Steel industry update: Immediate outlook gloomy, with production expected to dip to 35%-40% or lower over rest of year. Q3 earnings showed very few companies earning dividends, and many showing losses; Q4 will undoubtedly be worse. Growing belief that improvement will set in sometime between Jan. 15 - Feb. 15. Optimism on price stabilization. Peak of 60%-70% seen for spring upturn, followed by moderate lull and possible improved summer and fall.

J. Simpson, Marshall Field chair.: “We have scraped the bottom of the slump. That means things henceforth will be on the upward trend.”

Many brokers that have kept clients have the market for several months have changed views in the past few days. While expecting renewed irregularity after current rally, believe forced liquidation has brought standard stocks down to attractive prices for long-term investment.

Economic news and individual company reports:

Fed. Reserve reports money in circulation Nov. 12 down $14M to $4.477B, total Reserve Bank credit outstanding up $25M to $1.035B. Member banks in NY City report brokers' loans down $219M to $2.235B vs. $4.172B in 1929, new record low; “all other” (commercial) up $40M to $2.644B.

Companies producing over 90% of world's copper agree to reduce production by 20,000 short tons a month.

Labor Dept. says analysis of Oct. reports it received shows little change in employment situation, though large numbers remain unemployed; considered hopeful since Oct. usually shows seasonal increase in unemployment.

Agriculture Dept. reports demand for farm labor Nov. 1 was 73.6% of normal vs. 87.5% in 1929; supply was 107.2% of normal, highest in 10 years or more.

Big corporations seem to be accumulating more cash than ever, largely due to reduced inventories; in first 9 months, GM's cash was up $44.5M to $145.6M.

Companies reporting decent earnings: National Dairy Products, White Rock.


Paramount-Publix new releases include Harold Lloyd in Feet First, Maurice Chevalier in Playboy of Paris, and Jackie Coogan in Tom Sawyer.


“Ma Talltimber - I'm afraid Bud's learned to gamble at college. Pa - Well, I hope he's finally mastered the study. His expenses while he's been learning it have been too much for me.”

“'The spirit of your departed wife wishes to speak to you. Do you want to say anything to her?' 'It wouldn't do any good if I did. She always did all the talking.'”

+ The Boring Stuff:

Editorial: Protest of French metal-working industry on copper marketing policy is premature; reluctance of producers to contract for large future sales at today's prices isn't objectionable if based on individual producer's self interest rather than binding agreement. Copper buyers do have example of Stevenson crude rubber scheme which quadrupled rubber prices in a few months, but copper situation differs; producers can be expected to know by now that “any impediment to the free movement of commodities into consumers hands is evil.” Situation calls instead for production cuts, which arise naturally from low prices.

King Alfonso of Spain approves Cabinet's plans for ending dictatorship and returning to constitutional government; elections to be held March 1.

Over 31M vehicles passed through the Holland Tunnel since it was opened 3 years ago; income of over $6M this year to be divided between states of NY, NJ.

Large increase in cars seen parked along highways repairing flats probably results from decrease in tire sales in past year; older tires are much more susceptible to punctures and blowouts. Car owners should soon get tired of wasting time and effort on old tires, and at first sign of business improvement will buy new ones.

Broad Street Gossip: Market value of NYSE listed stocks Nov. 1 was $55.0B. Earning power of the country is about $70B even allowing for unemployment. “This buying power is what eventually will help stocks back to what they are worth.”

Short covering said important influence in rally; stocks that were heavily attacked recently rose sharply. Optimism on copper and steel also credited.

Demand by short sellers for stocks in the loan market lower than past several days.

Stock markets abroad generally higher following Wednesday's US rally.

Amer. Petroleum Inst. report: P. Clarke, Central Trust of Ill. pres., recommends oil companies keep cash reserves as high as possible to provide for period of lower earnings and any required expansion; says fortunate 1928-29 security inflation allowed many cos. to strengthen balance sheets. C. Ames, Texas Corp. VP, criticizes large waste of natural gas in Texas, Okla., and Calif.; says conservation of gas would relieve overproduction and insure maximum ultimate oil and gas recovery. Action on tariff postponed.

Broad Street Gossip: “The law says that there can be no concerted movement to regulate prices of any commodity, even though reckless competition forces prices down to below cost of production, thus threatening wage cuts. If the government withdrew its objection to price regulation ... permitting a reasonable return to the investor we should get our prosperity back in short order.”

W. Persons, former Prof. of Statistics at Harvard, analyzes current depression compared to previous ones and finds recovery should begin in next month or two, with normal conditions by end of next year. Similarity closest to 1884-85, though layman seems to think more of 1873, 1893 and 1907. Pattern of all seven depressions in past 55 years is much the same. Some novel factors now including international debt situation, installment buying, large bank loans on securities, and attempts at commodity price controls. However all previous depressions lasting more than 25 months were due to war or trouble involving gold standard; current sound credit conditions and financial status of most corporations could offset retarding influences.

Commodities mixed. Grains up substantially though off day's highs. Cotton down substantially on late break. Copper price has been advanced to 10 cents/pound; French and other foreign producers complaining of inability to buy large amounts far ahead into 1931; outlook for gradual advance in price seen.

Copper producers say curtailment will be done by orderly reductions across units. Believe plan is lawful since production is above requirements, curtailment is voluntary, and there is no price-fixing agreement. US copper industry hasn't yet presented plan to Justice Dept.; Att'y. Gen. Mitchell says no official or unofficial opinion will be expressed until program has been set in motion.

Chair. Wood of House Appropriation Committee predicts 1% income tax reduction started in 1929 will be continued this year, while Sen. Reed (R, Pa.) believes reduction can't be continued since budget will be in deficit; Administration believed in favor of continuing reduction.

Electric output by US light and power industry for week ended Nov. 8 was 1,731 GWHr vs. 1,748 in prev. week and down 4.4% from 1929; decline from previous week attributed to Election Day holiday.

P. Neff of Missouri Pacific Railroad reports bus companies handled about 1B passengers in 1929 vs. 800M for rails; estimates this year's passenger revenues for rails at $900M vs. $315M-$320M for bus companies.

Oct. life insurance sales were down 13.1% from 1929, bringing cumulative 1930 total below 1929 for the first time this year.

High grade municipal bonds are in strong demand around a 4% basis; those maturing in 1-5 years can be bought to yield 2.5% - 4%.

Dow average of eight finished iron and steel products was $44.56/ton, unchanged from prev. week and low for 1930; 1929 range was $49.88 - $51.25.

US Shipping Board reports 23,238 employed in 10 shipyards as of Nov. 1 vs. 22,608 on May 1; ships under construction to cost $121.5M, of which 3/4 will be advanced by the Board. Work expected to expand based on pending contracts.

Commerce Dept. review of conditions abroad finds mixed picture with some improvement in Argentina, Canada, and Japan, none seen in Brazil, Germany, and China, and some worsening in France.

France plans $80M public works construction program to start early in 1931.

Tire prices to car manufacturers to be reduced 5%-10% Dec. 1.

Sept. production of leather boots and shoes was 28.9M pairs vs. 28.4M in August and 34.8M in 1929.

Some railroads testing 3-fare plan (standard sleeper, tourist car, and coach).

Sears expects net about $3.15/share for 1930 vs. $6.62 in 1929; first decline since 1921.

White Rock stock about 35, yield almost 13%, 1929 earnings $4.42/share, 1930 expected earnings $4.75-$5.00/share.

Further weakness in scrap steel prices continues in several markets.

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