November 7, 2009

Friday, November 7, 1930: Dow 180.72 +0.91 (0.5%)

Election Special:

Final outcome of Tuesday's Congressional elections won't be known for days or weeks, since a number of recounts will be demanded for close contests. It appears the two parties will differ by only 1-2 votes in the House, so vacancies, which average about 10 a year, may change the situation; decision which party organizes the House may be postponed until new Congress meets in Dec. 1931. Senate situation appears similar, with 48 Republicans, 47 Democrats, and 1 Farmer-Laborite. Regardless of exact outcome, Republican strength has been cut so neither party can have effective control in either chamber.

Only once in history has an “unfavorable verdict” for the President's party in an off-year election not been followed by a defeat in the next Presidential elections.

While Republicans shouldn't in fairness be held responsible for the depression, they may be suffering for campaigning as party of prosperity in 1928. Another cause of trouble is widespread feeling against “Washington optimism” expressed too often since last spring. The situation is still salvageable for the Republicans; the US is still “overwhelmingly Republican in a national sense,” and a more favorable business climate seems likely to develop. However, Republicans still have work to do - the party needs to select candidates and leadership of better character, and Hoover needs to recapture the confidence and imagination of the country.

Republican “insurgency” in Senate may be toned down as “some of the insurgents had unpleasantly close calls as results of the Democratic tide they helped to create.” Election results may “bring home the value of some semblance of party solidarity” and bring more cooperation between Senate Republicans and President.

Assorted historical stuff:

A survey of the 500 female students at Stanford got 225 responses. Summary: About 90% expect to marry, with 40% currently in love. College men and fraternity members preferred. 70% “do not enjoy kissing for its own sake”; 20% believe in “companionate marriage”; 80% believe in divorce; 30% “consider themselves experienced in love”; 20% “approve of the double standard of morals”; most important qualities in husband: personality, appearance, and wealth. Favorite cities: San Francisco, New York, Washington, Los Angeles; most admired women: Mrs. Hoover, Helen Wills, mother, Amelia Earhart; most admired men: Lindbergh, Hoover, Edison, David Starr Jordan, Admiral Byrd. Religion: almost half Christian, 15% no religious faith, 7% “exotic Oriental creeds”, 1% spiritualism.

British Labor govt. plan to revive farming and decrease unemployment calls for initial spending of $125M, large-scale establishment of experimental farming “along Socialist lines”; to be conducted through Agricultural Land Corp. “empowered to acquire land by agreement or by compulsory methods” or by reclamation; would grant jobless men and women small farms and cottages at nominal rent and provide loans as working capital.

Prominent German business leaders recommend wage cuts of 20%, reparations relief, and strict control of public spending to meet present crisis.

Number of movie theaters in China has more than doubled in the past few years; there are now 233 theaters with a total capacity of 137,000.

Dr. Dervieux of the Medico-Legal Institute of Paris asserts that in most advanced countries in Europe, 2 per 1,000 are buried alive, with percentage probably much higher in certain other countries. Group of 35 deputies, mostly physicians, proposes law requiring verification of death by physician before burial.

New York Railways plans to ask Board of Estimate to substitute buses for trolleys on all its Manhattan lines.

Market commentary:

Market wrap: General market remained unsettled; majors including US Steel and American Can showed gains over Wednesday but broader recovery “held in check by sporadic outbursts of selling in various departments”; utilities particularly weak on election results, with new yearly lows for AT&T and Consolidated Gas. Bears continued attacking weak spots, particularly stocks selling at high earnings multiples; targets included Eastman, Nat'l. Cash Register, GM, du Pont. However, leading issues showed increasing resistance as the session wore on, and pressure lifted from the general list; US Steel and Loews showed particular strength; some short covering and moderate rallying in last hour. Bond market more active; corp. generally lower; US govts. firm; foreign govts. irregular.

A number of market observers who have advised waiting to buy stocks until a definite turn for the better, are now saying current opportunities are too attractive to be overlooked; It's argued that with patience and good judgment there is little chance of suffering losses on standard stocks. “It is evident that liquidation has been extensive enough to suggest that it is fairly well completed”; the Dow has declined over 200 points from its peak, while brokers' loans are at a record low.

H. Firestone predicts largest tire business in history in 1931 due to sharp decline in 1930 tire sales even as total car mileage increased.

Broad Street Gossip: A Chicago banker reports “talking with some of my friends, I have reached the conclusion that while stocks may be off 50% to 75% from peak prices, sentiment is off 99% from its 1929 peak.”

B. Anderson, Chase Nat'l. Bank economist, sees fundamentals much better than in 1921, including both “general world picture” and domestic commercial credit situation (particularly corporate inventory and debt levels). Points out that in 1921, unlike today, “many businesses could not do even the business that was in sight” because of urgent demands from creditors. Estimates consumption and retail buying has for about 4 months outrun wholesale buying and factory production. Sees “makings of an upturn in business” that can become “long period of prosperity” if fundamentals are right, but should in any case be “good while it lasts.”

Economic news and individual company reports:

Revised Sept. exports $307.6M vs. $437.7M in 1929, imports $226.3M vs. $351.4M; 9 months exports $2.903B vs. $3.844B, imports $2.401B vs. $3.360B.

US and Canada auto production in Oct. was 156,743 vs. 230,888 in Sept. and 394,510 in Oct. 1929. first 10 months 3.223M vs. 5.269M.

Electric output by US light and power industry for week ended Nov. 1 was 1,748 GWHr vs. 1,725 in prev. week and 1,830 in 1929.

Total class 1 rail operating income in Sept. was $104.078M, down 22.5% from 1929; revenues were $467.469M, down 17.6%; 9 months operating income was $659.4M, down 31.5% from 1929, while 9 months gross was $4.083B, down 14.6%.

French market continues nervous on Oustric bank failure; several small brokers and banks fail. French banks said withdrawing gold from foreign accounts.

Companies reporting decent earnings: So. Calif. Edison, International Cement, Bulova Watch, George W. Helme (snuff and ground tobacco).


East is West - Melodramatic Chinese-American love story starring Lewis Ayres as Billy Benson, Lupe Velez as Ming Toy, and Edward G. Robinson as Charlie Yong. Cast is generally mediocre with outstanding exception of Mr. Robinson. Following much discussion “to the effect that the souls of all people are the same no matter what color their skin,” story ends with discovery that girl was the daughter of white missionaries who died in China when she was a child.


“'How did you head off your son's marriage? Did you tell them you'd disinherit him?' 'No; I told the girl.'”

“'Do you mean to say,' asked the magistrate, 'that such a physical wreck as your husband gave you that black eye?' The woman smiled proudly. 'He wasn't a physical wreck your worship,' she said, 'till 'e gave me that black eye.'”

+ The Boring Stuff:

Editorial: Gov. Roosevelt has asked the Public Service Commission for “searching inquiry” on New York's Central's proposal to increase commuter fares, adding “you of course realize that this hardly seems to be the appropriate time to increase rates ...” While we questioned New York's Central's wisdom in asking for an increase, we do feel compelled to ask Gov. Roosevelt the question: When is an appropriate time for increasing rates?

Editorial by T. Woodlock: Public anger tends to focus on packers and railroads as source of high meat prices, but they do their work very efficiently; back of the envelope calculation indicates they make a profit of about 1/2 cent per pound of meat, with distribution accounting for much more of the cost.

Govt. officials call for Congress to raise limit on spending for federal construction; current plan is for about $80M this year but could be doubled if limit is removed.

Luigi Facta, Italian Premier before Mussolini's march on Rome, dies at 69.

Republic Steel and other independents were weak on worse than expected earnings; these have been hurt by dependence on automotive industry.

Leading steel companies anticipated to show Q4 earnings considerably below Q3; some hope January will bring improved orders. US Steel ability to earn dividend requirements in Q3 considered indication of strong and diversified position.

A good percentage of Q3 earnings declines for many corporations may be due to inventory markdowns due to commodity price declines; many carry inventory at the lower of cost or market.

Stocks have again become more difficult for short-sellers to borrow, with premiums charged on some leading issues; attributed to reluctance of holders to loan shares. Short interest is still believed to be large, but increasingly done by outsiders.

Market observers have noted recent declines on unusually low volume; stop loss orders are believed to have played an important part.

Bond market as a whole rallied sharply last Nov. and Dec. following the fall panic, but has been relatively dormant since; however, highest-grade bonds have continued to advance gradually since Jan.

Renewed instability in commodities drawing attention; many operators trade both stocks and commodities, causing markets to move “sympathetically.”

Many investment trust (similar to mutual funds) companies are now liquidating holdings of other investment trusts. This may be due to public suspicion of these cross holdings caused by two failed NYSE firms that sponsored investment trusts bearing the firm's names (including Prince & Whitely); companies may also feel that “as matters have worked out in the past year ... they could have accomplished as much, if not more, by directing the investment of all their own funds.”

Stock dividend yields present a mixed picture now, with some of the “standard” investment stocks still having yields well below those reached in previous bear markets, while others are substantially higher, particularly among high-grade rails. One of the “new era” bull arguments in 1929 was that the tremendous increase in US wealth over the past decade had created a much higher volume of capital looking for investment. While new era conceptions have “lost their savor,” this increase in capital was a fact; “capital as well as labor is unemployed just now and the former ... must expect to work for a smaller compensation.” This means that when dividends are comparatively safe, yields must remain relatively low; these stocks even take on something of the nature of a bond.

Number of stockholders in 35 steel cos. Mar. 31 was 175,355, up 31% from Mar. 31, 1925; US Steel holders were 128,594, up 37.6%; others were up 19%. This contrasts with a gain of 114.5% in holders of a group of 469 industrial companies of all types.

While some oil fundamentals are favorable, including reduced production and increased gasoline consumption, gasoline and oil price cutting remains widespread and gasoline in storage of 37.215M barrels is still 3.5M above last year.

Commodities mixed. Grains up substantially. Cotton continued down. Copper unchanged at 9 1/2 cents.

During the postwar deflation, total loans and discounts at national banks declined 11.6% from 1920 high to 1921 low; current decline from 1929 peak is 9.6%.

Fed. Reserve reports money in circulation Nov. 5 up $65M to $4.491B, total Reserve Bank credit outstanding up $25M to $1.010B. Member banks in NY City report brokers' loans down $58M to $2.454B vs. $4.882B in 1929, “all other” (commercial) loans down $12M to $2.604B.

New bond offerings in Oct. were $416.6M vs. $424.0M in Sept. and $363.9M in Oct. 1929; first 10 months were $4.842B vs. $2.852B.

US Shipping Board has warned intercoastal shippers that if destructive rate cutting continues to endanger their industry they may recommend that Congress put the industry under the Interstate Commerce Act; calls for self-regulation of rates. Traffic reportedly about 25% below normal.

F.W. Dodge reports construction started in 37 states east of Rockies in week ended Oct. 31 was $57.3 M vs. $59.7M prev. week and $90.6M in 1929.

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.

Commerce Dept. reports Sept. iron and steel exports were 131,211 gross tons vs. 151,235 in August and 221,415 in Sept. 1929.

General Mills reports US flour production in Q3 was 29.289M barrels vs. 29.250M in 1929.

F.W. Woolworth Oct. sales were $26.422M, up 18% over Sept. but down 4.5% from 1929; first 10 months were $222.9M, down 4.2%.

George W. Helme (snuff and ground tobacco) stock about 84, yield 8.2%, 1929 earnings $8.52/share, 1930 earnings expected about the same.

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