December 3, 2009

Wednesday, December 3, 1930: Dow 186.82 +1.34 (0.7%)

News flash from State of the Union address:

Temporary 1% income tax reduction won't be continued. Says capital gains tax leads to security inflation and retards recovery; asks study of effects. Subject of Prohibition not mentioned at all. Modification of anti-trust laws should be investigated but against repeal of Sherman Act. Rails should be consolidated through new legislation to strengthen condition. Federal public works should get additional $100M-$150M for temporary expansion to already large $500M/year program. Asks for seed and feed loan program for drought stricken farmers. Children's health should be aided by small Federal program, as recommended a year ago. Seeks tightening of immigration law and deportation of criminal aliens and those illegally here.

More stuff from State of the Union:

[Note: Overall, not a bad speech in my opinion - more content than is usual today. Full text here.]

Fundamental strength of economy unimpaired; progress in peace, security, education, science, moral and spiritual awareness.

Origins of worldwide depression lie in overspeculation and in worldwide overproduction, leading to demoralizing price falls, decline of buying power, and unemployment. Political unrest also has prolonged and deepened downturn.

Extent of downturn is 15%-20% by various indexes. At this time, major forces of depression are now outside US. Nevertheless, encouraged economic activity is holding at 80%-85%, financial and industrial institutions have come through unimpaired. Important to remember these crises have been met many times before, and US is now stronger and richer than ever in its history. US is largely self-sustaining, can “overcome world influences and ... lead the march of prosperity.”

Depression can't be cured by legislation or executive pronouncement. Recovery can be helped by cooperation, govt. can encourage this. Cooperation has included agreement to maintain wage levels and labor peace; distribution of available work to maximum number of employees; acceleration of public works and construction by rails and utilities to degree above even the most prosperous years (total of $7B in 1930 vs. $6.3B in 1929). These measures have broken the precedent of previous depressions, when wages and public works declined.

Organization of local relief and employment committees has kept suffering to a minimum; unemployment is far below other large industrial countries. More extensive organization has been set up after it became clear problem would last through winter; response has been gratifying.

Federal govt. has contributed with greatest program of construction in our history, exceeding $500M annually vs. $253M in 1928; favors further expanding these activities temporarily by $100M-$150M. Some are proposing still more govt. projects, but many will be unsound economically or not ready for an immediate start. Doesn't make sense to increase taxes to fund projects, since this will lead to a drop in private employment.

Deficit of about $180M expected for this fiscal year due to revenue shortfall of $430M, increased spending of $225M; the 1% income tax reduction must be discontinued, and even doing this, the “most rigid economy” will be needed to avoid tax increases.

Foreign relations maintained a high degree of goodwill; a number of arbitration and conciliation treaties will be presented to the Senate, as well as the revised World Court protocols.

Assorted historical stuff:

Sen. Bingham introduces bill allowing doctors to prescribe malt liquors for medicinal purposes. Rep. MacLeod introduces amendment allowing manufacture and sale of liquor for use in the home and “places of abode.” [Does it count if you practically live in the bar?]

[Was humbug some kind of a cuss word then?]Canadian Premier Bennett hits British PM MacDonald's failure to denounce British official J.H. Thomas' description of Canadian tariff proposals as “humbug”; says this indicates MacDonald's endorsement of “unusual and injurious” statement, Canada now forced to “embrace other means to strengthen position.”

Editorial by T. Woodlock: If, as now seems inevitable, we must have a govt. operated power plant at Muscle Shoals, we must at least keep thorough track of the details and results of the experiment so that we can finally get a fair and impartial comparison with private power cos.

Editorial favoring Gov. Roosevelt's appeal for saving money on “archaic” small local govts. by “radical readjustment of local chaos into a centralized authority ...”

Dr. M. Hutchinson [curiously, invented both Klaxon horn and the first electric hearing aid] announces invention of instrument to eliminate deadly carbon monoxide fumes from city streets, increase airplane efficiency by a third, and save nation over $1B annually in fuel.

[Isn't that kind of like decaffeinated coffee - I mean, what's the point?] German scientists discover method of growing nicotine-free tobacco.

At the galleries: Ralph Chait Galleries - one of the most important collections of Chinese ceramic art to come on the market in some time. The Old Print Shop - a rare series of old American temperance prints from 1840-1875, when the movement was forming. The Art Center - reproductions of the stained glass windows in the cathedrals of Chartres, Cologne, Nuremberg, and Canterbury.

Market commentary:

Market wrap: Stocks gained moderately in the morning, were steady as the State of the Union address was digested, then continued up following a short dip on disappointment Prohibition wasn't mentioned. Bonds mostly improved on slow trading; foreign govts. strong, South American up sharply; US govts. slightly down; corp. steady, speculative and convertibles up. Commodities strong.

Steel cos. strong on rumors of product price advance; rails rallied on mention of consolidation in State of the Union address.

[Strangely familiar dept.] “Due to the lack of demand from brokers and business, banks have been forced to seek employment for their funds in investments.” Many have criticized this heavy buying of investment securities by banks in the past year as risky. Bank defenders point out there's been a large increase in deposits too, so the ratio of investments to deposits is still relatively small.

Rep. L. McFadden, chair. of House Committee on Banking and Currency, blames numerous recent bank failures on “high pressure” bond salesmen who unloaded unmarketable, low-grade bonds on country banks not equipped for investment research.

[It seems the big interests are said to be operating every time there's a couple of up days in a row, and mysteriously disappear when the market turns down again.] Some say the market is now too big to have individual leaders as in the days of J.P. Morgan, Sr., and there has been no recognized bull leader for a decade or more. However, “everyone knows that the so-called large interests have taken concerted action to check market disruptions many times,” most recently this past month. “Eight years ago, the 'big interests' combined to support the market”; this was the beginning of the major bull market that ended in fall 1929.

E. Decker, Northwest Bancorp. pres., blames real estate and stock booms and depression on loose banking; interest rates and margin requirements should have been raised earlier. “Loose credit is the cause of more failures than credit difficult to obtain.”

[Ay Chihuahua! dept.] Observers believe market may be entering a period of dullness characteristic of the end of previous bear markets, when liquidation has been completed. Now watching closely for market to show ability to break out into a sustained advance, which would strongly indicate bottom of the 1929-30 bear market had passed.

Economic news and individual company reports:

Income tax receipts in Nov. were $28.223M vs. $28.281M in 1929; 5 months through Nov. $610.5M vs. $668.8M. Customs receipts Nov. were $36.365M vs. $44.126M; 5 months $170.6M vs. $262.9M. Gross public debt Nov. 30 was $16.101M vs. $16.568M in 1929.

Q3 net profits of 261 industrials were down 51% from 1929, lowest Q3 since 1924; rail equipment and paper were only groups showing increase. Q3 net operating income of class 1 rails was down 29%, lowest since 1923. Public utility net was only down slightly.

Rail freight loadings for week ended Nov. 22 were 779,757 cars, down 49,494 from prev. week and down 169,959 or 17.6% from 1929 week.

Meat packers make final argument in DC Supreme Court in petition for right to distribute foods (by modification of the 1920 Consent Decree).

Companies reporting decent earnings: Borden (dairy products), Lorillard (cigarettes), Kelvinator (refrigerators), Hygrade Lamp (lamps and radio tubes).


Lightnin', starring Will Rogers. Pretty dull fare; dime novel heros, and villians have gone out of style, and most “are satiated with stories of treacherous efforts to rob simple country folk of the old homestead.” Film is slow-paced, “and the star, Will Rogers, is not entirely happy speaking the outmoded dialogue assigned to him.”


“Prospective Employer - Why did you leave your last post? Chauffeur - My guv'nor and his wife fell out, sir. Prospective Employer - But why leave for that? Chauffeur - Well, if you must know, sir, they fell out of the car.”

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