November 7, 2009

Saturday, November 8, 1930: Dow 174.38 -6.34 (3.5%)

Assorted historical stuff:

A. Smith, Union Trust of Cleveland Exec. VP, addresses Nat'l. Battery Mfr. Assoc. convention; says present price levels and improving business outlook justify public buying for normal needs; predicts national efforts to relieve unemployment would put at least 300,000 to work in final quarter; “as to the immediate outlook for business, we have passed the worst of the depression ... The element of unreasonable fear and caution in business today is going quite beyond the realities ... we are working our way out of business depression because price declines are effective, like wage increases, in encouraging public buying ... I expect 1931 to be a period of unmistakable recovery, leading to a return of prosperity.”

Chicago Assoc. of Commerce launches “steady buying” campaign urging all those not affected by unemployment to buy “all normal wants.”

Johns Hopkins researchers establish fact that common cold is infection transmitted by “non-filterable viruses, minute disease producing agents so small as to defy most powerful microscope; if virus can be made to grow in laboratory tube, vaccine may be developed.”

French Nat'l Economic Council adopts resolution for calendar reform, with majority preferring the 13 month plan.

Mr. and Mrs. James A. Smith of Deposit, NY, have indulged their wanderlust spirit by traveling in 42 states over the past eight years. They live in “a regular cottage on wheels” measuring 11 3/4 feet long by 8 feet wide by 6 feet high. “It is equipped with electric lamps, running water, refrigerator, cooking equipment, wardrobe space, a six tube radio, comfortable chairs and a double bed.”

Port Norris Oyster Co. formed in Bivalve, New Jersey.

Market commentary:

Market wrap: Heavy liquidation resumed, “some of it appearing to be necessitous in character.” Selling began in rails, including leaders such as New York Central, Union Pacific, Pennsylvania, and others; many sold at lowest prices in several years. Liquidation then spread in all directions; industrials were weak with US Steel hitting a new low since 1928 and other majors down sharply; utilities also severely pressured, including AT&T and Consolidated Gas. Liquidation continued heavy into the last hour, and market closed at the day's lows. Bond market more active, with liquidation in many parts of the list and many bonds hitting new lows for the year; corp. generally down, particularly convertibles; foreign irregular; US govts. active, firm.

Heard in the customers' rooms of brokerage houses: “The way stocks decline without any substantial support is beyond belief.” “Is there something we know nothing about overhanging the market?” “Why don't the 'big interests' do something to end the decline?” “Stocks are cheap, many selling far below respective book values. Why don't people buy?” “Will they ever stop going down?”

D. Haddock, Arkansas Chamber of Commerce: “The economic situation is 'buyological' rather than psychological. A new 'buyology' will solve it - buy something.”

Consumer finance companies are reportedly reducing their bank credit lines due to materially lower business this year, attributed to drop in radio and auto sales. Delinquencies said to be “far below expectations” and customers have paid down much of their debt, but renewed buying is not yet evident.

Dow made new post-panic low, closing at lowest price since July 1927. The Dow utility average broke below the fall panic low for the first time. There was one new yearly high and 270 new lows.

Economic news and individual company reports:

Bradstreet's and Dun's weekly reviews report trade and industry somewhat quieter, possibly due to Election Day holiday and end of peak fall wholesale season. some isolated bright spots due to holiday buying and cooler weather stimulating retail sales, but no broad trade revival seen.

Total loans on securities at end of Oct. were $8.814B, down $721M in Oct. and $4.391B off the Sept. 30, 1929 peak. The decline in loans has been entirely in loans by non-banks (corps. and individuals) - loans by Fed. Reserve member banks were $8.057B, up slightly from Sept. 30, 1929; these are now 91% of the total vs. 59% at the peak. Security loans to non-brokers have been gradually increasing since May; seen as indicating stronger or “better quality” buying.

The stronger 5-and-10-cent stores have generally had earnings only slightly below 1929; the two largest chains are Woolworth and S.S. Kresge.

Amer. Iron & Steel Inst. reports steel ingot production in Oct. averaged 50.32% vs. 55.10% in Sept. and 85.64% in 1929; first 10 months 68.01% vs. 93.92%.

French market calmer after Oustric Bank requests “judicial liquidation.” However, French banks still appears to be withdrawing gold from London, causing Bank of England to advance short term rates slightly. The French banking troubles also apparently caused some nervousness in German bank stocks.

Company reports since Oct. 1: 155 companies reported higher earnings vs. 1929 and 337 lower; 355 dividends unchanged, 35 increased, 53 cut.

Stock market joke:

“Applications for membership in the Half Century Club are coming in so thick and fast that enlarged quarters are being talked of. Practically the entire floor space of the Double Century Club is for rent and a great part of the space of the Century Club.” [Note: I believe this is a reference to stock prices.]


“'Are you going abroad next summer?' 'No,' answered Senator Sorghum. 'What's the use of traveling around among people who don't speak my language, and who couldn't vote for me even if they did.'”

+ The Boring Stuff:

Gains by wets in Tuesday's elections considerable, but probably not enough to change law in next two years; strength of outright repeal advocates in House roughly doubled from 75 to 150. Election results may also act to change some of the less committed Congressmen currently counted as dry. Wets apparently now have strength to at least force an up or down vote in 1932 or 1933. It's unclear if wets will go for outright repeal, modification to allow beer and light wine, or “nullification” in which federal govt. will withdraw from enforcement in states.

Young Plan for German reparations, planned to last for 60 years, is now subject of widely discussed campaign for revision “before the ink has dried.” Campaign attributed to German economic troubles and recent election results; current German govt. still trying to carry Plan out. There is provision for postponing some payments in case of economic difficulty, but this in itself would probably be so damaging to general German credit that permanent revision would be needed. Plan will certainly need to be modified if price deflation continues; ironically, previous Dawes Plan replaced by Young Plan did contain such a provision.

Editorial: Report of the Farmers National Grain Corp. (established by the Farm Board as a cooperative marketing organization) is strangely uninformative on vital financial details including how much money has been paid in and by whom, marketing costs compared to private grain houses, etc.

New revolutionary govt. in Brazil says will revise terms of Henry Ford concession involving “immense tract of land in the interior.”

Capt. F. Hawks flies from Havana to New York in nine hours 21 minutes, breaking previous record of 14 hours; average speed was 182 mph.

Trading has been growing steadily more professional; activity by outsiders is largely selling for tax purposes or to get out of stocks.

Stop loss orders again prominent, attributed to traders who had bought during recent weakness expecting a technical rally.

Broad Street Gossip: One reason trading may have fallen off is that many traders have exhausted their cash resources trying to catch the bottom.

Some scale buying for long-pull investment has been seen, but not “any concentrated effort on the part of the former bullish leaders to move the market forward.”

Some speculation US Steel report of unfilled orders as of Oct. 31, to be released Monday, will show a surprise increase due to heavier buying on low prices.

J.S. Bache say tangible factors such as production, carloadings, and electric output were more favorable before the fall panic; however, “other considerations” influencing prices, including price/earnings multiples, dividend yields, money rates, and brokers' loans, are more favorable now; “as other considerations in the summer of 1929 warned of the approaching peak of the bull market, so do these considerations today hint of the early termination of the bear market.”

Many veteran traders expect a definite market upturn before end of the year, but with a period of irregularity first. They note that all stocks have joined in the downtrend, even those with 1930 earnings close to or exceeding 1929; this is unnatural and can't last. The downtrend is partly blamed on tax selling, but this should reverse in Dec.; this will also mark 18 months of business recession, and sentiment is now at a low extreme; the time to buy stocks is when no one wants them.

Some observers attributed part of recent stock selloff to insurgent Republican Sen. Brookhart's statement favoring Sen. Glass' bill for tax on speculation. Glass hearings will convene in Dec., but “well informed Washington authorities” now expect them to be “extremely conservative” since Democrats, anxious to maintain their recent advantage, won't want to do anything that might interfere with business recovery.

Number of stockholders in 38 motor cos. Mar. 31 was 431,398 vs. 191,914 in 1929 and 111,018 in 1925. GM holders were 218,392 vs. 82,415 and 39,799. Currently, only 12 of 50 representative motor cos. have any funded debt, and total debt is only $67.4M.

Most popular stocks held in fixed investment trusts (similar to ETF's): AT&T, Nat'l Biscuit, NY Central, US Steel, GE, Consolidated Gas, du Pont, Std. Oil NJ, Westinghouse, Atchison, Pennsylvania, Woolworth, Int'l Harvester, Amer Tobacco B, Eastman Kodak, Otis Elevator, Union Pacific.

Commodities strong in spite of break in stocks. Wheat up slightly but receded from early highs; other grains little changed. Cotton up substantially. Copper buying continues good abroad; domestic producers unwilling to sell, awaiting developments on curtailment.

Fed. Reserve entered open market last week for first time in a month, buying $20M of bankers' acceptances to keep rates from rising; seen as demonstrating continued willingness to maintain easy money conditions.

Sears sales Oct. 9 - Nov. 5 were $34.6M, down 17.8% from 1929; Jan. 2 - Nov. 5 were $319.1M, down 8.7%. Kroger sales for 5 weeks ended Nov. 1 were $25.2M, down 10.1%; for 43 weeks $221.6M, down 6.7%. S.H. Kress Oct. sales were $5.716M, down 1.9%; for 10 months $51.7M, down 2.6%.

Region where rails performed relatively best in first 9 months was Southwest, with operating income down 19.0% from 1929; worst was South, down 36.4%.

Rails extend test of reduced fares between Midwest and Pacific coast through Dec.; one-way coach fare from Chicago to Calif. is $47.50.

Detroit industrial employment index Oct. 31 was 79 vs. 74.8 on Sept. 30 and 98.5 on Oct. 31, 1929. Cleveland employment index was 91.6 vs. 92.0 and 119.2.

US soft (bituminous) coal production in Oct. was 44.3M net tons vs. 38.6M in Sept. and 52.2M in 1929.

A number of NYSE seats sold for $226,000-$240,000; previous sale was at $240,000.

Chevrolet prices for 1931 range from $475-$650 vs. $495-$685 for 1930.

GE reports sales of electric refrigerators in first 9 months up 30% over 1929.

Assabet Mills in Maynard, Mass., for years the largest woolen mill in the world, to suspend operations.

Some valuation extremes of companies in difficulty: four automotive companies (Mack Truck, White Motor, Reo, and Hupp) carry no long-term debt and are selling below net quick assets, i.e. below probable liquidation value, not counting plants or other fixed assets. Goodyear stock is about 41, or less than 4 1/2 times 1929 earnings of $9.34; annual dividend is $5 for a yield over 12%; company thought likely to continue dividend this quarter although it's not being earned.

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