December 5, 2009

Friday, December 5, 1930: Dow 180.99 -3.12 (1.7%)

Assorted historical stuff:

[Strangely unfamiliar dept.] Editorial: Some are suggesting raiding the “sinking fund” (used to reduce the national debt by about $440M annually) to close the deficit this year and continue the 1% income tax reduction. “But every consideration of sound finance,” in both short and long term, is powerfully against “such mere convenience. ... Public sinking funds, once raided for the convenience of statesmen, are almost impossible to restore.”

[Interesting how estimates of the number of unemployed are all over the place.] W. Green, AFL pres., estimates unemployed, not including farm and office workers, now number 4.860M vs. 4.500M at end of Oct.

[For the sake of uncounted future investors, stop before it's too late!] Postmaster Gen. Brown grilled by Congress on airmail spending, pleads for continuation of subsidies for airlines for two years to help develop the passenger air industry. Also proposes starting a “de luxe” overnight air mail service between NY and Washington for 25 cents an ounce.

[Banks ... good will ... does not compute ... ] G. McGarrah, Bank for Int'l Settlements pres., asks US banks to make careful study of loans abroad to avoid loss of good will by sudden withdrawals of money.

French Premier Tardieu resigns after govt. loses 147-139 vote following heated debate in Senate; entire Left Wing of Senate united in bitter attack on Cabinet.

Editorial: Sugar conference will at best be a stopgap to prevent producer bankruptcies. Long-term problem is tariff barriers and subsidies creating increased production by less efficient producers including Puerto Rico and Philippines, and leading to “an economic death grip on Cuba.”

Wild horses have become such a nuisance in parts of Oregon, Montana, and Colorado, that authorities are considering bombing the big herds from airplanes. The herds are suspected of spreading diseases to domestic horses. Slow demand for horses has all but stopped catching of the wild ones.

[Birth of a legend dept.] General Foods introduced new lime flavor of Jell-O nationally in past year, to great success. Also doing well is Minute Tapioca.

A Parisian seller of radio equipment was so irritated by the recent disappearance of his wife, an employee, and $5,000 of his money, that he broadcast the story on the radio, along with a threat of legal action. The guilty couple heard the message and returned panic-stricken to Paris; the employee has been sentenced to 3 months imprisonment and ordered to pay the husband damages of one franc.

Eddie Cantor's financial advisor says he was just joking in his widely quoted remarks about getting cleaned out in the market crash.

Market commentary:

Market wrap: Stocks continued lower on sluggish trading; merchandising and utility shares weak. Bond market dull; US and foreign govts. generally steady; corp. generally weak with many sharp declines and new yearly lows. Commodities firm.

Market observers “somewhat less confident,” though they continue to advise accumulating on reactions, and to advise against going short.

Weakness in bond market in recent weeks has been disappointing. “One authority” believes it may be due to problems of “some of the smaller banks” around the country, “although it is well known that banking conditions generally are unusually strong.” [To repeat: the first major banking crisis of the Depression is in the process of erupting.]

[Why don't they use these cool words on CNBC? ] Observers encouraged by continued market dullness, indicating “recrudescence of the heavy selling accompanying the Sept.-Nov. break was not likely”; believe “necessitous liquidation” largely complete, strong foundation under the market in buying from banks, insurance cos., investment trusts, and individuals. Period of dullness considered similar to windup of previous bear market in 1921.

Yields of 5% on “seasoned stocks” such as AT&T and US Steel, together with year-end reinvestment demand considered favorable for market.

Many less-active Curb Exchange [later Amex; small cos.] stocks now have huge bid-ask spreads; for example, Franklin Mfg. Pfd. was 28 1/4 bid, 50 ask.

Prospects for steel price increase seen better than for other commodities; there's no large surplus to work off, and independent producers are cooperating.

Price stability seen as important in all lines of industry; price uncertainty causes hesitation in placing orders; “experience indicates that price concessions, instead of increasing buying by attracting consumers, actually cause orders to be withheld.”

H. de La Chapelle of E.F. Hutton reports on study of market movements since 1884; finds market cycles average 3 1/4 years both peak-to-peak and bottom-to-bottom over that time, giving roughly 3 complete market cycles every major 10-year cycle.

M. Wolff of Hammerschlag, Borg notes striking reversal in investment trust fashions; managed trusts (similar to actively managed mutual funds), after selling at large premiums when issued, are now selling at 20%-50% discounts from liquidation value; meanwhile fixed trusts (similar to ETF's) are now at 7%-12% premiums.

Economic news and individual company reports:

Customs receipts in fiscal year 1931 estimated at $500M vs. $587M in 1930, but recovery to $625M expected in 1932. Receipts surged 113% in the 10 days following passage of the tariff, then slumped to a maximum decline of 54%, then gradually recovered until the decline for Nov. 5-14 was only 15% vs. 1929.

Rail report: ICC recommends abolishing recapture of “excessive” profits from previous years; notes economic difficulties of rails but says “country still needs its railways and can support them”; recommends regulation of rail holding cos. Treasury Sec. Mellon urges reduction of interest rate on some rail obligations to US. Operating income for class 1 rails in first 10 months estimated at $772M vs. $1.116B in 1929 and $986.2M in 1928; Southwest and West rails had best showings.

Steel report: More steel cos. join price advance. Sen. Norris (R., Neb.) and Sen Walsh (D., Mass) denounce rise as possible price fixing, call for investigation. Dow average of eight finished iron and steel products remained at $44.42/ton, low for 1930. Scrap markets continued dull, prices weaker.

Stock market history: Short selling has been prohibited in the past, including in Britain in 1733 and New York in 1812. These prohibitions have generally been defied and eventually whittled away and repealed.

Total corp. bonds in default Nov. 1 were $621.9M vs. $458.5M on Nov. 1, 1929 and record high of $758.6M in 1920. Most common type in default was real estate corp. Industrial bonds in default Nov. 1 were $241.0M.

Nov. car production in US and Canada was 146,185 vs. 154,585 in Oct. and 226,997 in Nov. 1929; decline was less than usual seasonal pattern. Ford output declined about 26,000. US passenger car registrations in first 10 months were 2.437M vs. 3.559M in 1929. Ford registrations were 992,370 vs. 1.189M.

Electric output by US light and power industry for week ended Nov. 29 was 1,680 GWHr vs. 1,722 in prev. week and down 3.8% from 1929.

Fed. Reserve reports money in circulation Dec. 3 up $50M to $4.615B, total Reserve Bank credit outstanding up $80M to $1.108B. Member banks in NY City report brokers' loans down $11M to $2.111B vs. $3.392B in 1929; loans on securities to non-brokers down $9M to $2.045B .

Britain continues to suffer heavy gold drain to France. Need seen for remedy to stop French influx. Bank of France reportedly buying sterling to attempt support.

Nov. merchandising sales were disappointing, generally falling well below 1929 figures, though some of the decline was due to Nov. 1929 having an extra business day. Woolworth Nov. sales were $24.1M, down 7.9%; S.S. Kresge $12.5M, down 10.8%; Montgomery Ward $22.4M, down 24.9%.

Companies reporting decent earnings: General Foods, National Power & Light.


“She - I don't want to go riding with you. Your car is an old one. He - Say, listen, lady; you're no 1930 model yourself.”

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