December 8, 2009

Monday, December 8, 1930: Dow 178.37 -2.74 (1.5%)

Assorted historical stuff:

[Strangely unfamiliar dept.] Editorial: There's a near consensus that cutting wages now would be self-defeating, spanning the political spectrum from Pres. Hoover to NY State Industrial Commissioner Perkins. Unionized industries have generally adhered to this, as well as some non-unionized ones. However, this rule might need to be broken in cases where wage cuts are needed to keep jobs; this must be dictated by circumstances of each business.

Editorial disagreeing with international law authority Judge J.B. Moore's stance that US should recognize Russia. The matter is one of policy, not law; US govt. believes recognition might threaten its own safety. Russia has explicitly announced aims for worldwide revolution, and that agreements it signs aren't binding.

Washington report: After only a few hours in session, Congress has managed to upset business twice, with calls for investigation of cotton price decline and steel price increase. Action on repealing rail profit recapture seen unlikely this session or next, as is investigation of relaxing antitrust laws.

[Strangely unfamiliar dept.] F. Perkins, NY State Industrial Commissioner, sees more even distribution of purchasing power among the masses as aid to preventing depression. To help stabilize industries, recommends reserve funds for individual industries and for public works, flexible working day, and distributing production over the full year.

Editorial by T. Woodlock: Regulation of monopolies such as rails should be relaxed when new competition enters the field.

Navy Sec. Adams asks pay raise for officers and enlisted personnel, noting pay has only increased 11% since 1908 while cost of living has more than doubled.

Chicago citizens' group urges gift certificates be given for Christmas, rather than bonuses or other cash gifts, to stimulate trade.

Univ. of Missouri has only laboratory in the US where radium is recycled from glow-in-the-dark dials of watches and clocks. Each dial contains 10-15 cents worth of radium, which is in a proportion of one hundredth of an ounce to several hundred pounds of paint.

Oldest locomotive still in service is the “Ryde,” built in 1864 for the Isle of Wight Railway; has travelled over 1.5M miles in 65 years of service.

Rich store of gold and silver vessels found in ruins of Pompeii by government investigators.

Market commentary:

Market wrap: Market moved down, with volume picking up as the brief session closed; oils, utilities, rails weak. Bond market active, irregular; US govts. dull, slightly lower; German govts. strong; prime issues steady; lower-grade issues weak with many new yearly lows. Commodities little changed.

Week in review: Business news mostly unfavorable. Stocks worked gradually lower on very dull trading. Govt. bonds mostly firm with German rallying, but corp. bonds weak with many new yearly lows. Money markets dull with no material changes; continued easy conditions expected for protracted period. London continued to lose gold; reports of support for pound. Steel price rise declared. Oil production continued lower, but gasoline in storage rose and prices fell. Cotton continued weak. Grains traded in narrow range; Farm Board attracted attention with statement seen as admitting govt. stabilization couldn't succeed.

[How could you invest in fly-by-night outfits like that? dept.] Trading favorites including J.I. Case and Coca Cola suffered bad breaks in Saturday session.

[Word seems to be leaking out dept.] Bank of United States was off 2 1/2 in past week to a new low about 12; another bank in the previously reported 4-bank merger, Public National, was down 9 points in the week to about 70. (Other two banks in the merger are International Trust and Manufacturers Trust).

Goldman Sachs has been “largely instrumental” in the agreed 4-bank merger. The merger involves Manufacturers Trust, which has been under operating control of Goldman Sachs Trading Corp.; this will be exchanged for an interest in the new bank, to be 4th largest in NY. Goldman Sachs Trading is seen adopting a strategy of increasing liquidity and switching from management of banks to holding stakes on an “investment basis.” [To review, G.S. Trading Corp. was an investment trust started by G.S. at the end of 1928, that eventually went down about 98% but did supply the material for many Eddie Cantor jokes.]

[Market down a couple of days in a row - time for the more cautious commentary.] Upcoming news expected to be bearish for some time; unfavorable earnings reports, dividends cuts, disappointing department store sales. Bears expected to mount another test of early Nov. lows.

Market observers now favor waiting since market is back close to early Nov. lows; support at this level would be considered positive.

Last month's confidence that Dec. retail sales would be favorable has been replaced by a more conservative outlook due to poor Nov. sales by leading stores.

Railway declines in traffic have overshadowed favorable news in Hoover's mention of consolidation and ICC's recommendation to end profit recapture.

Market observers worried by decline in rails to below the Nov. 10 low; liquidation in rails has previously indicated rallies were ending.

Observers still see market technical position as favorable; brokers' loans continued down, liquidation has apparently been confined to individual weak spots, and trading has been very dull. Short interest has increased in the past few sessions, based on demand in the loan market.

Market decline partly attributed to tax loss selling. One trader took tax losses in Sept., bought back 30 days later, and has now taken another round of tax losses.

Tire industry sees increased demand next year based on replacement sales.

Economic news and individual company reports:

Total internal revenue collections for fiscal year ending June 30 were $3.040B vs. $2.939B in 1929; expense for administering internal revenue laws was $34.352M, or $1.13 per $100 collected, vs. $1.17 in 1929; income tax collected was $2.410B vs. $2.331B; tobacco tax was $450.3M vs. $434.4M.

Treasury to offer $400M in certificates Dec. 15 at record low rates of 1 3/4% - 1 7/8%.

Irving Fisher's index of 200 commodities for week ended Dec. 5 was 80.7 vs. 80.6 previous week and vs. 92.7 a year ago.

Wholesale price of gasoline in Chicago market has declined steadily recently, reaching 4 1/4 - 4 3/4 cents at end of the week.

Midcontinent Oil and Gas Assoc. (oil industry group) meeting endorses proration (production control), protective tariff on oil, redistribution of work to increase employment.

Sears-Roebuck sales in Nov. 4-week period declined 20.8% from 1929, but R. Wood, pres., looks for “storm of buying after the present calm.” National Tea Nov. sales declined 10.8%. Woolworth expects good Dec., full-year earnings close to 1929 though sales will probably be lower.

Silver prices have declined over the past few weeks, with observers believing new record lows are imminent. So far lower prices haven't affected production enough to materially improve the market; this may be because silver is mostly a secondary product. Chinese currencies (Hong Kong dollar and Shanghai tael) have been weak as a result.

T. O'Connor, US Shipping Board chair., looks forward to the day US can build super-liners as large as any afloat, recommends changes in ocean mail rates to make it possible.

Los Angeles Nov. building permits were $4.784M vs. $6.079M in 1929; first 10 months were $68.8M vs. $89.0M.

Butter futures continued to soften, though eggs were firmer.

Companies reporting decent earnings: Allied Chemical.


“Preacher - Your chief enemy is drink. Blotto - And yet you have told me to love my enemies.”


The Blue Angel - Directed by Josef von Sternberg, with Emil Jannings and Marlene Dietrich. Brilliantly acted, uses inventive direction and pantomime well. “Hitherto American talking films have depended too entirely upon the spoken line for dramatic effect. The stage has been aped, the exclusive virtues of the cinema medium forgotten.” Finale of the film “is unrolled in powerfully dramatic silence.” Film has weaknesses of “gruesomely sentimental plot, and ... plodding direction,” but this is overshadowed by the magnificent acting of Jannings and “the girl whom Mr. von Sternberg discovered singing in a German cabaret. Henceforth it is beside the point to compare Miss Dietrich with Greta Garbo. The resemblance is striking, but each artist has, none the less, an individuality all her own.”


  1. Whether downward adjustment in wages would make matters worse or better marks out sharp divergence of opinion among 21st century economists.

    Mark Thoma has a relevant post, today.

    Lee Ohanian, a UCLA economist, has been very aggressive in pressing the case that the failure to let wages fall, prolonged the Great Depression. Personally, I think Ohanian is a hack, but it is interesting to try to figure out how theory, distant from experience, leads to such intuition, while contemporary experience suggested something else.

    Keynes, who thought wages might "fall without limit" without any positive effect on employment, focused, instead on aggregates, where income, spending and wage rates were related, and changes in relative wage rates could offer no effective relief.

    It might be noted, too, that the "new economy" of the 1920s -- autos, petroleum, telephones, radio, movies, refrigerators, home electricity, continuous process manufacturing -- was vastly more productive than the steam and farm economy. Yet, there were vast areas of the country, without paved roads or electricity.

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