Wednesday, July 16, 1930: Dow 233.79 -0.42 (0.2%)

Assorted historical stuff:

American Museum of Natural History produces The Bottom of the World, a film about expedition to the Antarctic; "The penguins, to which a large part of the film are devoted, are excellent camera subjects, and provide a natural humor in their likeness to human beings."

About 4.7 million people owe their living to the auto industry, 3.96M directly employed. Industry has gone from being insignificant 25 years ago to now essential to prosperity. Other important industries developed in that period: telephone, radio, electricity, electric refrigerator, airplane [true, but we've produced twitter!].

GE to build world's largest electric generator for Hudson Avenue station of Brooklyn Edison. To be rated at 160 MWatt, 16,500 Volts, 7,000 Amps.

Number of German mark-millionaires was 15,547 before the World War, decreased to 3,917 after the [hyper-]inflation period, but has since doubled.

Molly Picon, Yiddish comedienne from Second Ave.Theater, appears at the Palace with "a program of character studies and incidental songs." Result is disappointing; "work she does so successfully on the Yiddish stage cannot be adapted well to the English vaudeville circuit."

World registration of motorcycles 2.625M in 1929 vs. 2.506M in 1928.

Market commentary:

Major industrials hit new rally highs on increasing volume. Some setbacks in last hour, thought technical, due to "temporarily overbought position." Utilities and oils strong. Banks lower on profit taking.

Sentiment helped by some recovery in industrial activity from holiday shutdowns. "Important banking interests" encouraged in belief early July was low point of trade recession. Auto recovery now expected to lead to larger improvement as summer progresses.

Hopeful sign seen in low inventories carried by industry and retail; about as low as ever compared to volume of business. Retailers have been buying "hand to mouth" for months. This differs from the 1921 depression, when inventories were at record highs. This should add a large boost when the economy turns.

More bullish factors: Dow yield, allowing for probable dividend cuts, is 4.75% vs. 3.25% for commercial paper; a spread over 1% has been a reliable buying indicator. Also, generally low interest rates, and the passing of a year since business began to turn down.

Dresser & Escher say "American industry is in the healthiest condition it has been in years; inventories low, the cash position strong, operating efficiency everywhere developed as it has seldom been developed before." They note that stocks recently almost hit the panic low from last November; "What a chance for the man who hasn't lost his head to lay the foundation of an everlasting fortune."

US ship building one of few industries showing improvement; busiest since 1921; attributed to Jones-White bill granting ocean mail contracts based on construction of new vessels; government has granted low-interest loans to finance construction. Worldwide shipbuilding is declining.

Economic news and individual company reports:

Zenith trying to produce lower-priced radio than current line selling for $185-$495, not including tubes.

General Foods expects first-half earnings about $2/share, roughly the same as 1929. Now sells almost 80 products; Jell-O subsidiary introducing new lime flavor; also introducing Post's Whole Bran. Investigating quick freezing to ship food overseas.

United Aircraft [later became Boeing, United Technologies, and United Airlines] expects Q2 earnings substantially improved over Q1's $.39/share, but well below $1.52/share in Q2 1929. Boeing subsidiary doing well; recently developed the Monomail commercial plane, able to carry 6 passengers and 750 lbs.mail at 140mph.

Paramount Film rental revenue in US for quarter ended June 28 were 7% ahead of 1929; foreign 21% ahead.

American Chicle Co. (chewing gum) Q2 earnings $1.21/share vs. $0.95 in Q1 and $1.31 in Q2 1929.

Joke:

"'Will you have a drink?' asked Sandy, noted for his thrift, of his guest, Angus McLean. 'Yuss,' said Angus, who tossed it off and set the glass down thoughtfully. ''That whuskey,' he observed, 'is just right.' 'Just right? What do you mean?' 'Well, if it were any better you wouldna give it to me and if it were any worse I couldna drink it.'"

+ The Boring Stuff:

Editorial: Farm Board must announce its plans regarding upcoming cotton crop. Last year was disastrous, with fluctuating prices leading to one broker cornering the market (in spite of a decline in consumption); price spike was followed by a plunge, with many ruined along the way; probably also led to more decline in cotton use. As Coolidge put it, "Business can stand anything better than uncertainty."

Commodities generally higher, including wheat and cotton. Bond market quiet with some profit taking, strength in some convertibles.

Technical observers highly encouraged by industrials ability to repeatedly hit new rally highs; expect possible small corrections due to "technical reaction," but see further uptrend to 240-250 on the Dow. Increased rumors of "bull pools" organized for particular stocks (Radio-Keith, Hahn Dept. Stores), drawing in traders who have been absent for some time or have been on the bear side.

Col. L.P. Ayres of Cleveland Trust sees recovery starting in August; good factors include plans to increase auto and steel production, strength in bond market. Disputes idea that deflation prevents recovery, noting 1925-27 prosperity in spite of deflation. Sees deflation caused by artificially stimulated overproduction and tight credit; situation should correct itself. Compares current to previous depressions: "what we are now going through is no unprecedented phenomenon. Recovery has always followed in the past rather promptly after the development of conditions very similar to those now prevailing."

Rally has so far been stronger in major issues; many low-priced stocks have not moved much.

Italy unemployed at end of June 322,287 vs. 367,183 end of May.

Rail freight loadings for week ended July 5 were 792,141 cars, down 144,707 from previous week due to July 4/5 holiday. Down 119,002 from 1929.

May revenues for 172 class 1 rails $463.1 vs. $538.6M in 1929; operating income $69.2M vs.$103.6M.

May US electric output 8,006 GWHr, 1% below May 1929.

Farm wage index down 2% in Q2 vs. usual 6% seasonal rise. Supply of farm labor 103.4% of normal July 1 vs. 92.3% in 1929.

Life insurance purchased in June was $1.144B, up 4.1% from 1929; first half was $6.657B, up 1.8% from 1929.

May US tire shipments 5.564M, up 2.5% from April but down 22.5% from 1929.

A&P annual sales are running at over a $1B annual rate, approaching level of US Steel.

US Steel ingot production at 63% vs.55% previous week and 99% year ago; independents at 52% vs. 42% and 91%; Total industry 57% vs. 48% and 64%.

North Amer. Aviation first half net $0.47/share vs. $0.58 in1929.

IT&T expects 1930 earnings a little over dividend requirement of $2; business suffering because of depression.

Western Electric sales for first-half $201.6M compared to $194.7M in 1929. Commonwealth Edison Q2 net $2.66/share vs. $2.79 in 1929.

White Sewing Machine earnings severely affected by poor collection on installment credit accounts, increased repossessions.

Colgate-Palmolive-Peet first half net $1.66/share vs. $1.36 in 1929. Kimberly-Clark Q2 net $1.66/share vs. $1.62 in 1929.

Campbell Wyant Foundry first half net $1.65/share vs. $3.05 in 1929. Bohn Aluminum & Brass first half net $1.95/share vs. $5.08 in 1929.

Grand Union first half sales $18.1M, up 14.5% from 1929; no increase in store count.

Tueday, July 15, 1930: Dow 234.21 +4.98 (2.2%)

Assorted historical stuff:

Association Against Prohibition Amendment estimates last year's cost at $959.9M; about 90% is lost Federal revenue, remainder lost local revenue and costs of enforcement. Finnish Education Min. P. Virkkunen calls prohibition in Finland "chief source of intemperance, as well as failure on economic grounds."

Survey of 100 Detroit drivers held for violating traffic rules finds "42 were classified as of inferior intelligence, 12 as definitely feeble-minded, one as insane, and three as physically handicapped." Also, 46 were impaired by alcoholism, and only 13 were completely clean.

Building and loans plan to raise $1B new assets in next year; released for home-buying, this should raise US percentage of homeowners.

Next Congressional session in December will, among several big items, include a major inquiry by Senator Glass concerning banking in general and the role of Federal Reserve credit in speculation; also, regulation of wire and wireless communication, railroads, and power companies.

Navy completion of aircraft program in next two years will leave it with 1,000 planes vs. 354 in 1926.

Reichstag rejects most of Fin. Min. Dietrich's proposed taxation program.

New York State plans to finance future road construction from current revenues rather than public borrowing.

Central Park horse riders are supplied by 20 stables with average of 50 horses each; charge $2-$4/hour per horse. Midnight rides after theater are popular. Probably only place in the country that stables are still doing well.

International phone service to Lithuania now available; 3-minute call is $35.25, each additional minute $11.75.

New York State paid $928.5M of Federal taxes for year ended June 30, of a total of $3.038B from all states.

Market commentary:

Bulls encouraged by recent rally and technical indicators of strength. Buy orders accumulated over the weekend, leading to an opening rally with new rally highs for many major stocks. Speculative issues were particularly active. Oils, food, amusement, communication, utilities, banks strong. Most stocks closed at daily highs.

Good signs seen in rise in life insurance sales and bank deposits vs. 1929.

Leading traders seen buying; "They are picking out stocks strong in intrinsic value, with potentialities of a quick comeback when business returns to normal."

J.C. Stone, member of Farm Board, believes wheat prices have bottomed, says Board has no plans for stabilizing this year's crop.

Netherlands Trading Society report on Holland: "The curve of the business cycle is still tending downward, without, however, having so far assumed severe proportions."

Economic news and individual company reports:

Auto industry successful in reducing inventories by drastically cutting production. Current stock is well under 400,000 units compared to 559,000 in April of 1929. This amounts to less than eight cars a dealer. Production in June estimated at 343,000 cars and trucks vs. 567,424 in June 1929; half of production was by Ford.

New cartels being formed to control zinc and bottle production.

Australian trade awful; in 9 months ended March 31, imports down $6.2M from 1929; exports down $166.8M; trade deficit now $177M. Total debt is $5.6B [vs. $2.3B GNP].

May freight traffic on class 1 rails was 36.6B net ton miles, down 12.8% from 1929 and down 6.8% from 1928.

95 public utilities total May revenues $195M vs. $198M in April and $189.8M in May 1929; earnings $86M vs. $89M and $82M.

GE first-half earnings $1.01/share vs. $1.07/share in 1929.

A&P first-half sales $548M, up 8% from 1929; June sales also up 8% from 1929. Remodeling stores to attract "that part of the public that patronizes better shopping districts and demands unusual varieties and costly delicacies."

Joke:

“Applicant ... 'I may say I'm pretty smart. I won several prizes in cross-word and word-picture competitions lately.' Employer: 'Yes, but I want someone who can be smart during office hours.' Applicant: 'This was during office hours.'”

+ The Boring Stuff:

Editorial criticizing plan to relieve unemployment by reducing working hours, putting more people to work to produce the same amount of goods. This would increase costs of production, so ultimately decreasing wealth and increasing joblessness. Tries to get "something out of nothing, and no attempt to do that has ever yet been successful.

Editorial: Measuring the current state of business compared to 1929 may be too pessimistic since the first half of 1929 was "abnormally" active. However those who say production is only 4% behind the prosperous year of 1928 are being too optimistic, since they ignore increases in operating expenses and capital investment in the past two years. This causes earnings to decline more than revenue. Finally, price reductions are also taking a toll on earnings, but these are ultimately "the great corrective for depression" since they reduce production and increase consumption.

Commodities mixed; cotton slightly lower, wheat down early but rallied to close higher. Bonds started moderately active and stronger but slowed down later.

Editor: It's a good market for traders: “Isn't it safer to buy on the breaks and sell on the bulges now than it was last year when stocks were a great deal higher?”

Oil companies boosted by new hydrogenation process developed by Standard Oil NJ and IG Farben and to be shared with other oil companies.

New NYSE securities listed in June $784M vs. $1.140B in May and $1.862M in 1929; bonds $122M, $441M, and $304M; stocks $662M, $699M, and $1.557B.

Canada May business failures 166 with liabilities $2.601M vs. 194 with $5.025M in April and 183 with $2.295M in May 1929. Bell Canada reports telephone revenues down substantially so far in 1930, but notes recent improvement; outlook much more encouraging than a few months ago.

US and Canada newsprint shipments for first half were 1.938M tons vs. 2.015M tons in 1929.

June crude rubber consumption by US manufacturers 34,463 tons vs. 39,902 tons in May and 43,228 in June 1929.

Tin producers' announced actions, including production curtailment, unsuccessful so far in supporting prices.

American Rayon industry has curtailed production from predicted 162M pounds to under 80M. This should be well under American demand. However European overproduction is still possible, and silk is now so cheap it's competing with higher-grade Rayon.

Land O'Lakes Creameries, a large butter cooperative, announces new action to support butter prices.

AT&T first-half earnings $5.71/share versus $6.15/share in 1929. W.S. Gifford, president, says business activity for first half was below record level of 1929 but compared favorably with 1928; company plans to spend a record $700M on additional plant facilities in 1930.

Pennsylvania Railroad first 5 months revenues $242.9M, down 10.9%; operating income $38.2M, down 27.7%.

Western Union first-half net $4.22/share vs $7.44/share in 1929.

National Biscuit reports Q2 earnings $.80/share vs. $.68/share Q1 and $.81/share in 1929. United Biscuit Q2 $.98/share vs. $.89/share in 1929.

Federal Water Service net for year ended May 31 was $3.01/share vs. $2.85 in 1929. Detroit Edison net for year ended June 30 was $10.02/share vs. $11.02 in 1929.

Oklahoma Nat. Gas profit for year ended May 31 was $4.77M vs. $4.43 in 1929.

L.A. Young Spring & Wire first half earnings $2.62/share vs. $3.69/share in 1929.

Worthington Pump expects first half net about equal to 1929; helped by operating efficiency, pipeline demand.

Emil Klein (cigars) first half net $1.22/share vs. $1.21 in 1929.

Monday, July 14, 1930: Dow 229.23 +4.37 (1.9%)

Assorted historical stuff:

Editorial: Opinions differ on seriousness of the American Communist threat, but it's clear that Kremlin at least has ambitions in that direction. Stalin himself pronounced the American Party of decisive importance, probably because US society may offer a more attractive option for mass prosperity. We must tolerate American Communists “so long as they refrain from criminal acts or clearly treasonable utterances,” and rely on truth as a “mental antiseptic.”

World auto registrations total 35.127M, of which 26.653M are in the US.

Industrial cities in Ruhr region of Germany suffering from slag heaps (artificial hills of industrial waste) that can smolder for decades. At Essen, slag heap of Krupp's works has been burning continuously since 1914.

Italian taxpayers complaining about number of government employees under Mussolini; currently 514,878 and rapidly rising.

Australian total production in 1928-29 fiscal year was $2.275B, total govt. expenditures including local $1.190B. Govt. currently having severe problems with budget. Large meeting of business leaders protests government plan to “borrow enough to balance the budget, making repayments from future revenue.”

Association Against the Prohibition Amendment reports prohibition cost the US govt. $869.5M in lost revenue in 1929.

Luther Burbank invents "prunasimmonia", cross between prune and persimmon. Delectable fruit with tomato-like skin and "rich, golden yellow meat."

Prominent bookmaker John Walters dies, leaving estate of $2.6M.

Postmaster General recommends increase in first-class postage to 2.5 cents/ounce to balance budget.

Market commentary:

Bulls encouraged by drop in volume late Friday and first half hour Saturday (lack of forced liquidation). Buying picked up over remainder of two hour session. Strong gains in oil (major oil companies settled California price war), food (low commodity prices). New rally highs in major industrials, market generally positive. Banks, trusts and insurance cos. higher. Bond trading moderate; speculative issues fractionally lower, US Govt. slightly higher.

Important economists strongly believe current seasonal lull is low point of the industrial depression; some good news in week-over week freight increase and June rise in construction contracts. Drop in steel backlog not as bad as feared; oil curtailment making progress; increase in rail freight rates.

Conservative observers still advise remaining on sidelines until market has demonstrated ability to resist bears. Forecast another test this week; market ability to move through last June 30 highs on volume would be positive signal. Also cautious about second-quarter earnings reports.

$11B decline in NYSE stock values in June was sizeable, but only represented 3% of total estimated US wealth.

Some say business recovery won't come until fall so market won't move much until then; but the market "is a rather impatient sort of creature and isn't going to wait for things to get better before it acts."

Economic news and individual company reports:

Total US Internal Revenue for fiscal year ended June 30 was $3.038B vs. $2.939B in 1929; corp. income tax $1.264B, individual $1.147B, misc. $628M.

Industries with good first-half earnings include cigarettes, sulfur, can, baking/biscuit, oil, and chain stores.

Total dividend payments in first half are up vs. 1929, in spite of generally worse earnings and many individual dividend cuts. Total for a large, representative group of companies was $944.9M in H1 1930 vs. $906.2M in H1 1929.

50 of 52 major rails reported declines in loading for week ended June 28 vs. 1929.

June contracts for new construction in 37 states east of Rockies totalled $601M vs. $457M in May and $530M in June 1929. Of total, $251.9M was public works & utilities, $96.8M residential. Permits for 20 cities on the Pacific Coast were $16.3M vs. $19.3M in May and $22.3M in June 1929.

Cling Peach Control Committee announces plan to restrict production to 13M cases, “and thus prevent a catastrophe to the industry.”

Surprisingly Political Joke:

"Teacher - Johnny, what's the difference between a battle and a massacre? Johnny - a battle is where whole lot of whites kill a few Indians, and a massacre is where a lot of Indians kill a few whites."

+ The Boring Stuff:

Editorial: Senator Capper's proposal to support the wheat market by having the Farm Board buy 100M bushels will be very expensive ($25M-$30M annually for storage alone), and won't work. “There is only one way to cure inflation whether in commodity or security markets, and that is by deflation.” Agriculture will eventually be more stable if we stop all intervention in the market and allow a complete adjustment to take place.

Investment buying has come in to support stocks over past 10 days in spite of little good business news, determined bear attacks, and lack of bank support for stocks. This investment buying is encouraging, as is strength in the bond market. Many experts also expect an early fall improvement in trade. Q2 earnings reports expected to be unfavorable, but this is largely discounted already in stock prices.

Technical chartists are more bullish based on recent Dow action. Considered encouraging that in the June break Dow held above five-year trendine at 208. Also encouraging that Dow is now able to rise above previous rally highs.

Short covering in recent sessions has substantially reduced the short interest.

Commodities generally lower over past week. Wheat broke to record low Friday about $.86/bushel; Farm Board announced no further price support operations. Record lows also seen in silk and sugar. Cotton fluctuated. Most bond prices moved higher in week, including rails, municipals, foreigns, and convertibles. Foreign markets past week: London stronger, Berlin weak, Paris dull.

Cost of proposed “express highway” between Brooklyn and Queens estimated at $40M.

Otis Elevator net for first half $1.49/share vs. $1.78 in 1929.

Eaton Spring & Axle first half net was $1.386M vs. $2.060M in 1929.

First National Stores (New England chain store) sales for 5 weeks ended June 28 up 10.1% over 1929; 13 weeks up 10.7%; about half of gain from new stores. Q2 earnings about $1.28/share vs. $1.42 in 1929. Annual sales about $120M.

American Toll Bridge first half revenues were $668,600 vs. $592,100 in 1929; operating expenses down substantially from 1929.

Continental Baking net for 10 weeks ended June 21 was $1.314M vs. $1.588M in 1929.

International Cement net for Q2 was $1.91/share vs. $1.34/share Q1 and $1.86/share Q2 1929.

Liquid Carbonic (carbonated drinks, industrial carbon dioxide) expects earnings for year ended Sept. 30 about $6.50/share vs. $5.67/share in 1929.

BMT (NY city mass transit) earnings improve ($7.60 for year ended June 30 vs. $6.52 in 1929), but future is clouded by structure of contracts with city and negotiations for possible unification with the city's new Eighth Ave. subway.

The Weekly Blather July 13, 1930

July 13, 1930 was a Sunday with no Journal, so again a little editorial commentary.

Inflation vs. Deflation II - This Time It's Personal

One of the more interesting current economic debates concerns whether the future holds inflation or deflation. On the inflation side we have a vast array of Orthodox Economists; arguing for deflation we have a few Lone Crackpots blogging feverishly from their wood-paneled basements. (Note: I'm exaggerating for comic effect here - quite a few O.E.'s now say deflation is a concern, although a couple of years ago the last statement would have been pretty accurate). Normally, I'd just set the odds at about 60-40 in favor of the L.C.'s and move on, but there are a couple of complicating factors. One one hand, we have the inconvenient truth that for the past couple of years the Lone Crackpots have been absolutely nailing things, whereas the Orthodox Economists have been lost at sea even more than usual. On the other, we have no less a personage than Buffett coming firmly down on the inflation side:

Well, I don't worry about deflation at all. We won't see deflation in any significant amount in your lifetime, which is more relevant than my lifetime.

So, I was driven to think about this issue using my own brain, and summarize some of the issues based on my extremely rudimentary understanding of economics. To begin with, we clearly have a number of conflicting events of titanic scale going on at the same time.

On the deflationary side:

Reverse Wealth Effect: Equity and real estate markets have taken drastic haircuts, on the order of 40%-50% off the peak in many places. This represents a huge amount of wealth that many people thought they had a couple of years ago and is now gone. This must affect future spending by those people.

Demographics: A big bulge of the population is approaching retirement years; this should increase effect of the above, since many have fallen below what they calculated as a requirement for retirement, so will be saving to catch up.

Un- and under-employment and fears of same: This likely will reduce ability and readiness to spend.

Credit Crunch: Availability of credit to entities not backed by governments remains tight; this reverses the previous pattern of borrowing for consumption; both credit card and home equity availability has been cut back.

Reduction of the Bezzle: A smaller effect, but worth mentioning - times like these tend to expose financial scams (Madoff, Stanford); as Keynes observed, embezzlement is inflationary until discovered because both the criminal and victim think they have the money. Discovery of the crime is therefore deflationary.

And on the inflationary side:

Massive rescues and backstops of financial institutions: In some quarters this may be thought of as the biggest inflationary factor because of the eye-popping number of trillions involved. I'm more with the L.C. crowd in thinking this will have little inflationary effect - given the huge amounts of rotting assets still owned by the banks, and the public crucifixion they know they're in for if they return for more money, the most likely fate of those trillions is to wind up in virtual Scrooge McDuck-sized piles in the banks' electronic vaults.

Other deficit spending: This should have some effect on demand, but not as large as generally thought. Infrastructure spending takes time to happen, while tax cuts will probably mostly be saved for the reasons above.

Demand by countries moving up the living-standard ladder: I think this is the most significant current inflationary effect, though not as much discussed. Unlike in 1930, we currently have a big population in countries that have built up large reserves and savings (ex. the BRIC countries - Brazil, Russia, India, China). This population would probably be desirous of moving up the living-standard ladder, and their governments would have the means to kickstart this if they choose to. I believe this is the largest current source of potential demand.

Sadly, my conclusion from looking at all this is that given the large element of chaos in the economic system, there is simply no possible way to know which of these massive effects will dominate. So, I wouldn't be shocked if we got deflation, high inflation, or one followed by the other. While this may be disappointingly indecisive, it does lead to a practical conclusion - that I shouldn't be investing in things that get killed either under high inflation (ex. the long bond), or under deflation (ex. the typical leveraged commodity producer). (Your mileage may vary and do your own due diligence, of course).

Why, then, does the consensus seem to be for inflation? I think people may be affected by two biases:

Recent experience bias: Recent, meaning “last 60-70 years” - for that period, the thing to worry about almost universally has been inflation, which seemingly could be ignited with the greatest of ease. The disturbing recent counterexample of Japan, which has been unsuccessful in igniting inflation in spite of trying for the past 20 years, doesn't yet seem to have affected this bias.

Convincing thought experiment bias: It can easily be seen that a really determined government can ignite inflation at will; for example, Congress could pass a law making Publisher's Clearinghouse sweepstakes checks into legal tender. So, it's easy to conclude that the government will simply do whatever it takes to avoid deflation.

However, isn't there a practical problem here? The Publisher's Clearinghouse Act would certainly create high inflation, the only problem being the currency would shortly afterward turn into confetti. What if it turns out that a really massive stimulus beyond that already enacted is necessary to counter the huge deflationary factors above? Wouldn't even the serious contemplation of such an action cause a firestorm both politically and in the bond market, due to fears of the currency becoming worthless, with really painful immediate consequences?

I think the idea of the US igniting inflation in this way might turn out to be analogous to gradually amputating your own finger with a cheese grater - it's certainly possible in theory, but the immediate agony resulting from starting the operation would as a practical matter prevent its completion. Or, as Yogi Berra profoundly put it, “in theory, theory and practice are the same, but in practice they're different.”

Favorites of the week July 7-12, 1930

No Journal was published July 13, 1930. Once again, a collection of my favorite items of the week. These aren't a representative selection but just the ones that made me smile or take notice.

July 12:

[Note: I'm starting to see how the overcapacity problem might have developed.] In spite of current overcapacity in steel (production at 60% of capacity), the industry leaders including US Steel, Bethlehem, etc. are still investing in expansion. “It would be a poor country if the big industrial leaders threw up their hands and quit on every little depression”

July 11:

[Note: Strangely familiar department 1.] Investment trusts [similar to mutual funds] faced with some hard questions after being heavily invested before the market breaks both in October and June. Now developing “more thorough appreciation of the task of handling the large amounts of money entrusted to them” and realizing “the essentiality of constant study of conditions, general as well as particular.”

[Note: Strangely familiar department 2.] A subscriber suggests one cause of the current downturn may be a bubble in construction; level is 100%-150% above prewar vs. 50%-60% for general business.

[Note: If only t'were so department.] F.H. Medart points out that depression years of 1921 and 1930 both added up to unlucky 13; therefore, after 1930 there should be clear sailing until 2029.

Japan discussing ways to build a domestic auto industry - may help lighten impact of London Naval Treaty on shipyards. Current Japanese auto market is almost insignificant; domestic production is about 400 cars/year.

[Note: Theater was much more interesting then department.] Who Cares, a revue by the Satirists, Inc. Numbers include “The Hunting Ballet,” in which a troupe of 12 “grinning and prancing” men impersonate ballet girls; “While good-naturedly funny, it [acknowledges] the excellence of the original.” Also “Thisishota,” a parody of Lysistrata, and “So This Is Television.”

July 10:

P.K. Schuyler, pres. Federal Bridge Co., says automotive demand for roads and bridges has far exceeded capacity of government construction. "Traffic moves along the existing highways at a good speed for some five or 10 miles, then when the highway enters a congested area there is a considerable delay encountered, particularly on Sundays and holidays." Cars are now dependably capable of 60 to 80 miles per hour, "yet these speeds can be used only at infrequent intervals." Calls for more private construction, particularly of toll bridges.

[Note: Movies were much more interesting then department.] Cecille B. DeMille to make his first comedy with music, Madam Satan. Production features “a masked ball aboard a Zeppelin, and the breakup in mid-air of the giant airship, with the descent to earth of the passengers via parachutes.”

July 9:

[A brief note: The next item is one of my favorites. A common observation by people who like the blog is that lots of it could have been written today. Well, here's a review in the 1930 Journal ... of an 1830 book ... about events in 1720 ... and it still could have been written today! Addendum: Thanks to Eldon for finding this story online - the text is here; or download in a variety of reader formats here.] Washington Irving's book “The Great Mississipi Bubble” republished by Random House. "The story was written about a hundred years ago and the actual event occurred more than two hundred years ago, but the narrative ... will interest many who witnessed the recent debacle of stock prices." A couple of quotes from the book: The boom - "Every now and then the world is visited by one of those delusive seasons when the 'credit system,' as it is called, expands to full luxuriance; the broad way to certain and sudden wealth lies plain and open ... "; The bust - "a panic succeeds, and the whole superstructure built upon credit and reared by speculation crumbles to the ground, leaving scarce a wreck behind."

[Note: Sheer genius department.]
“In stocks of wood no longer should one bear incarceration,
but hand and foot are many put 'in stocks' for long duration.
At each 'new low' as the markets go locked up in stocks securely -
for a long time yet some folks will sweat bound hand and foot most surely. - Gordon Price”

July 8:

[Note: Amazingly high number considering US has about 250M registered cars and trucks now vs 27M then - US 2006 number was 42,642.] US car accident deaths in 1929 hit a new high of 33,060, including 81 on Independence Day.

[Note: Am I the only one who thought of C. Montgomery Burns when reading this?] John D. Rockefeller celebrates 91st birthday. Plans to breakfast, work for about an hour, then play nine holes of golf with a few neighbors. After lunch and rest, plans usual afternoon drive through Westchester hills. "I am in the best of health, surrounded by dear friends and have naught but good will toward all."

July 7:

[Note: How is it that modern machinery makes things take twice as long to build?] Col. W.A. Starrett, President of Starrett Corp. (construction), travels to England as delegate of President Hoover, presents film of construction of Bank of Manhattan building in less than a year [70 story, 927 foot skyscraper at 40 Wall St].

[Note: Hopefully not soon to be strangely familiar department.] At least 45 Florida towns and cities in default on bonds; committee recommends austerity, state sales tax on nonessentials.

[Note: This company is still around as Conwood; one of their brands is the oldest US trademark in use, having been registered on Oct. 25, 1870, the first day the USPTO granted trademarks.] American Snuff has one brand that's been a leader for 148 years.

Saturday, July 12, 1930: Dow 224.86 -2.53 (1.1%)

Assorted historical stuff:

Editorial: Influential groups in Great Britain now moving toward tariffs, including unions and Conservative Stanley Baldwin (he has “come out for 'safeguarding,' a pussyfooting synonym for protection”). Free-traders can't even hope for a tariff cease-fire now; reduced to hoping for creation of several large trading blocs that may subdue extreme nationalism, and that may eventually merge into a world with fair trade relations.

UPI - prominent German industrialist says proposed British tariff wall might further damage German economy, already dealing with 3M unemployed, budget deficit of 485M marks, and annual reparation payments of 2B marks. Says tariff would cause European retaliation but trusts in British common sense to avoid.

US has the world's only known deposit of helium, meaning world's airship operators will need to come to us or use highly dangerous inflammable gas, “because of which smoking must be prohibited in or near the huge gas bags.”

IBM begins mailing out automatically calculated and printed dividend checks to shareholders.

P.W. Bridgman, Harvard physicist, creates machine capable of record-setting pressure of 600,000psi (40,827 atmosphere) - can hard-boil an egg in ice water.

Steel and brickwork completed for Hotel Edison at 228 W 47 St.; Herbert J. Krapp, architect.

Market commentary:

Recent rally continued in morning hours; new highs on current rally by US Steel, American Can, Consolidated Gas, AT&T, other majors. Rally petered out later in session on profit-taking. Market also came under pressure from commodity news: wheat plunged to new post-1914 low below 86 cents/bushel, cotton off sharply. Volume turned lower on the decline, many stocks trading in a narrow range. Construction stocks under particular pressure. Banks and trusts lower.

Conservative observers still cautious, although many now believe market has established resistance level likely to hold.

In spite of current overcapacity in steel (production at 60% of capacity), the industry leaders including US Steel, Bethlehem, etc. are still investing in expansion. “It would be a poor country if the big industrial leaders threw up their hands and quit on every little depression”

Auto industry pessimists should realize that with 27M cars on the road, “replacements alone guarantee a fair rate of activity for the industry.”

Tobey & Kirk surveys large number of bankers and corporate officials throughout the country. Reports current business conditions below normal almost everywhere, but increasing confidence in the immediate future; widespread expectation of early fall upturn.

“Getting up against stop[-loss]-orders has made half the gray hairs on Wall Street.”

Many investment trusts [similar to mutual funds] selling well below total asset values. Biggest discount - Goldman Sachs Trading Corp. selling at about 50%.

Economic news and individual company reports:

Refineries said to be making progress in cutting production to reduce excessive gasoline stockpiles. Situation still unsettled in California - uncontrolled price cutting, with retail gas selling anywhere between 8 and 16 cents/gallon on the Pacific Coast. Oklahoma oil operators meeting to decide on additional 20% production cut to match refinery curtailment; Pennsylvania oil cut to $2.10/barrel from $2.25 due to local overproduction.

NY State Industrial Commissioner Frances Perkins reports number of employed factory workers in state down 2% in June from May, 14% from Oct. 1929. Decrease larger than usual seasonal pattern, large May-June layoffs in metal, textile, and clothing industries.

Class 1 railroads as of mid-April had a total of 1,572,566 employees, down 5.6% from 1929.

Manhattan building plans filed in first half totalled $80.8M for 362 buildings vs. $419.8M for 654 buildings in 1929.

Air mail sent in June averaged 27,226 pounds/day vs. 26,425 in 1929.

Woolworth and National Dairy earnings reported holding up well in spite of lower sales volume. [lower raw material prices?]

Joke:

“First New-Englander: So you had an operation on your nose? Second New-Englander: Yes, it was getting so I could hardly talk through it.”

+ The Boring Stuff:

Drastic fall in the price of silver has caused problems for countries that hold much of their savings in that form, including China, India, and Mexico.

G.M. Walker, economist, says silver decline is an effect, not a cause, of Chinese and Mexican economic problems; instability in those countries has required them to import large quantities of food, resulting in large-scale silver sales.

Investment grade bonds generally stronger, particularly foreign and rail; US government slightly lower.

Recent increased optimism may be due to “the rise in the market itself.” Much of the nations' wealth is in securities. 10 million or more shareholders may find it “hard to work up enthusiasm when what they own is shrinking day after day.”

Dun's Review: no significant change seen in business conditions, restricted demand and price declines still dominating; but hopes for upturn after the normal seasonally slow summer period.

Total listed shares value June 2 was $75B, with $4.75B brokers' loans (6.3%); total at start of July $63.9B, loans $3.7B (5.8%). Ratio July 1929 was 9.2%.

Board of Grain reports increased wheat exports last 2 weeks of June, but still expects a large carryover from this year's crop in US and Canada. This year's grain crops expected substantially larger in both countries in spite of efforts to reduce acreage planted.

US sugar consumption for first half estimated at 2.86M long tons, down 5% from 1929.

Locomotive shipments up in first half (419 vs. 319), but orders way down (269 vs. 521, very few in June). Operations later in the year expected sharply lower.

British imports in June were 83.4M pounds vs. 91M in May and 91.5M in June 1929; exports were 42.8M vs. 51.0M in May and 49.9M in June 1929.

Montgomery Ward extends easy payment installment plan to all purchases over $25 except groceries.

White Rock Mineral Springs (mineral water and soft drinks) first half profits $2.38/share vs. $2.08/share in 1929.

Friday, July 11, 1930: Dow 227.39 +5.35 (2.4%)

Assorted historical stuff:

Sears-Roebuck fall/winter catalog to be mailed; over 1,100 pages, 46,000 items, more pages in color; will have average price cuts about 10%.

E.W. Beatty, pres. Canadian Pacific Rwy., advises curbing immigration from US and Europe to relieve unemployment.

Editorial: Farmers are complaining about tobacco taxes. However, acreage and prices paid have both been steadily increasing the past few years, suggesting the industry isn't exactly hurting. Also, the tax collected $450M [over 10% of total taxes] last year, which would have to be replaced. Sales taxes are fair because they tax proportional to use; “there can be no 'injustice' if the tax is reasonable in proportion to the value of the article.”

About $200M annually spent on industrial research by companies listed on the NYSE.

Front page of a San Francisco newspaper transmitted to Schenectady, NY by “telephoto.”

Daniel Guggenheim to support work of R.H. Goddard on designing rockets able to reach upper atmosphere.

New York City metropolitan area population 11.005M, up 2.395M from 1920.

Market commentary:

Stocks advanced for a third day in a row for the first time since end of May. Bears attempted attack on major stocks in first hour, but volume immediately dried up after small declines. A powerful rally then started in major industrials, rails, and utilities. US Steel rallied in spite of lower unfilled orders; rails possibly helped by rise in freight rates. Banks, trusts, and insurance companies also higher. Active short covering came in to help fuel the rally; many highs hit in the last hour.

Investment trusts [similar to mutual funds] faced with some hard questions after being heavily invested before the market breaks both in October and June. Now developing “more thorough appreciation of the task of handling the large amounts of money entrusted to them” and realizing “the essentiality of constant study of conditions, general as well as particular.”

A subscriber suggests one cause of the current downturn may be a bubble in construction; level is 100%-150% above prewar vs. 50%-60% for general business.

Rumors of big bankers and industrial heads getting together to “relieve the people of the pessimism which now engulfs them.”

Rumors of “bull pools” being formed by “prominent operators” to bid up particular stocks including Standard Oil of New Jersey, and Vanadium.

During the depression, industrialists have been cutting costs and increasing efficiency. This will increase profit margins when the recovery comes.

F.H. Medart points out that depression years of 1921 and 1930 both added up to unlucky 13; therefore, after 1930 there should be clear sailing until 2029.

Economic news and individual company reports:

German economy suffering; unemployment up, exports expected to decline due to world depression. Continued deflation blamed on “the fact that international income and the investment of capital have lagged behind the increase in production.”

Japan discussing ways to build a domestic auto industry - may help lighten impact of London Naval Treaty on shipyards. Current Japanese auto market is almost insignificant; domestic production is about 400 cars/year.

Combined earnings for 20 major aviation companies in 1929 were $7.5M, but all of it was by United Aircraft [later became Boeing, United Technologies, and United Airlines]; remaining 19 companies had $800,000 loss. Earnings considerably worse so far in 1930.

Montgomery-Ward says that in spite of just announced price reductions profit margins are being maintained thanks to lower inventory prices paid. Also defends easy payment installment plan, says experience over many years has been “thoroughly satisfactory and our bad debt losses negligible.”

IBM reports June sales highest of any month in 1930; sales in May were record. Q1 earnings were 13% over 1929 Q1.

Ford of Germany sales for first half up 55% over 1929. Ford also building new plants in Milan, Italy and near Mexico City.

Musical:

Who Cares, a revue by the Satirists, Inc. Numbers include “The Hunting Ballet,” in which a troupe of 12 “grinning and prancing” men impersonate ballet girls; “While good-naturedly funny, it [acknowledges] the excellence of the original.” Also “Thisishota,” a parody of Lysistrata, and “So This Is Television.”

+ The Boring Stuff:

Editorial: Some in Congress are demanding to see private communications about the London Naval Treaty negotiated this year. Hoover has refused on grounds the executive must keep these communications confidential [executive privilege]. Senators who have seen the letters say there's nothing sinister to be found. Opponents are using this as a distraction to delay or defeat treaty, hoping to find “a blazing indiscretion on the part of some incautious diplomat.”

Sentiment improved by run of 3 up days, but conservative observers still advise caution; suspect rally mainly technical/short covering and new bear attacks may follow. No strong rally expected in near future.

Commodities and foreign currency mixed. Foreign and corporate bonds higher including weaker issues; US government bonds lower.

Cattle, sheep, and lamb have had unprecedented price declines in the past year; Farm Board not involved in livestock.

Street bullish on oil; crude oil production and gasoline refining has been cut about 10% from last year; gasoline consumption still rising though at a slower pace.

Some support from brokers for automotive companies in spite of bad reports; several leaders are selling below book value; good reports on new models. Companies showing strength include GM, Studebaker, Chrysler, Auburn, Nash.

Merrill, Lynch says chain store sales declines for June due to lower commodity prices and discontinuing loss leaders. Expects profits to hold up better than sales.

Japan's economy in free-fall; many factors including government cuts, falling commodities, Chinese instability. Trade for first 5 months of 1930 down 35% from 1929. Many efforts to stabilize prices in silk (most important export) and other industries by coordinating production cuts and removing supply. Government rejects calls for borrowing and public works, calls for industry to “get down to bedrock.”

Total office, house, and store building permitted in 215 cities in June was $152.8M, down 12.2% from May and 30.1% from 1929.

Total auto exports first 5 months $173M vs. $299.4M in 1929, $213.9M in 1928. May exports $31.6M vs. $45.3M, $49M in 1928.

US Steel unfilled orders 3.968M tons, down 91.1M tons from May and vs. 4.257M on June 30, 1929. Decline not as bad as worst forecasts. Upturn expected in fall, but won't be apparent until August 15 at the earliest.

Electrical equipment exports for May $11.653M, up $244,810 over 1929; first 5 months $60.278M, up $1.513M.

Grape growers in California voting on industy plan to remove surplus from market.

Britain and Argentina refuse to accept American certificates that apples are free of fruitfly; apple growers say this all but closes export markets.

Gillette Q2 earnings $1.20/share vs. $0.95/share in Q1 and $1.84/share in 1929.

Auburn Automobile net for quarter ended May 31 was $4.25/share, down from $8.05 in 1929 but up from $0.53 in previous quarter. Nash Motors net for 6M ended May 31 was $1.36 vs. $3.93 in 1929; lowest level since 1924; dividend cut to $1/quarter.

Underwood (typewriters, office equipment) Q2 earnings $1.33/share vs. $1.89/share in Q1 and $1.94/share in 1929.

Continental Can sales for first half greater than 1929; assuming normal crops, expects full year equal to 1929.

Crown-Zellerbach (paper) net for year ended April 30 was $1.43/share vs. $1.72 in 1929.

Middle West Utilities electricity output so far in 1930 up over 1929; expects full-year earnings higher than 1929.

Thursday, July 10, 1930: Dow 222.04 +2.96 (1.4%)

Assorted historical stuff:

P.K. Schuyler, pres. Federal Bridge Co., says automotive demand for roads and bridges has far exceeded capacity of government construction. "Traffic moves along the existing highways at a good speed for some five or 10 miles, then when the highway enters a congested area there is a considerable delay encountered, particularly on Sundays and holidays." Cars are now dependably capable of 60 to 80 miles per hour, "yet these speeds can be used only at infrequent intervals." Calls for more private construction, particularly of toll bridges.

Farm Board declares wheat price can't be stabilized without cuts in acreage planted; Gov. Reed of Kansas bitterly denounces administration policies, saying they "subordinate agriculture to industry." Farmers in Texas reported dumping millions of bushels of quality wheat in fields to avoid more losses on storage charges. Prices in Texas down to $.65 a bushel, well below production cost. Even large growers with cost about $.50 a bushel are not selling; everyone waiting for Grain Stabilization Corp. to support prices.

Port of New York Authority calls for proposals for construction of Manhattan approach to the Hudson River Bridge [later G.W. Bridge].

Cecille B. DeMille to make his first comedy with music, Madam Satan. Production features “a masked ball aboard a Zeppelin, and the breakup in mid-air of the giant airship, with the descent to earth of the passengers via parachutes.”

Man found guilty of “selling” liquor in exchange for stock tips - although no cash exchanged, defendant gained “measurable benefit.”

Florida population about 1.5M vs. 968,470 in 1920.

Market commentary:

Major stocks hit new highs for the current rally; attributed to optimism on business conditions. Current seasonal slowdown hoped to be low point of the depression; market also considered technically stronger due to recent liquidation. Also some news of increasing construction activity in June and higher freight traffic for week ended June 28. Strength in major industrials, rails and utilities.

Action during day was not heavy but notable for lack of bear operations. Conservative observers still consider the market range bound and advise avoiding positions until it breaks out on either side.

Manufacturers said to be very cautious about preparing for fall and winter demand due to business uncertainty and unemployment.

PaineWebber says low interest rates are a strong force for business revival. Anticipates rally first in bond prices, than in investment stocks, then secondary stocks. Bond price rally is therefore the first signal of the general recovery.

National City Co. says Bond market outlook is good - fewer new issues and wide spread between rates on short-term paper and high-grade bonds.

Increased Italian import duties on cars not seen having a major effect on American companies; total market is $1.25M/year.

Economic news and individual company reports:

June auto production in US and Canada was about 343,000 cars and trucks vs. 441,826 in May and 567,424 in 1929. Auto executives believe conservative policy is bringing production in line with demand; dealer stocks are now about one month's sales.

Total class 1 railroads operating income for the first five months of 1930 was $307.7M vs. $457M in 1929.

Total electric production in the week ended June 28 by companies representing 70% of the industry was down 1.8% from 1929.

G.B. Everitt, pres. Montgomery Ward, announces general price cuts to "practically a prewar basis." Also new easy payment plan on orders of $25 or more.

United Fruit said to be helped by banana demand "larger than even the most optimistic projections", offsetting weakness in sugar.

Jokes:

“'Do you always look under your bed before you say your prayers?' asked the flapper's niece. 'No, darling ... first I say my prayers.'”

+ The Boring Stuff:

US Bureau of Mines studies shale oil as a possible substitute for petroleum in wartime. US is known to contain enormous reserves of shale from which oil can be extracted. Oil was found undesirable because it doesn't meet current requirements for oil products. However, when need for substitute becomes greater shale oil may become more viable. "With a greater demand, requirements can be dropped or modified and refining methods can be developed ... the world is now using fuels that not many years ago were considered impossible or impracticable."

Editorial: Farm Board appeal to cotton farmers to reduce acreage has failed. Desired reduction was at least 10%; actual acreage planted down only 2.7%. Cotton price has already declined from $.20 a pound last July to $.13 a pound currently. Surplus in storage is larger than last year, anticipated cotton crop is larger, and world demand is down almost 15%. Farm Board owes us an explanation of just how it plans to market all that cotton.

Book Publishers' Research Inst. reports average of 3,720 copies sold per book. Average publisher profit on $2.50 book 6.75 cents, author royalty 32 cents.

Commodities generally firmer; wheat and corn up sharply. Foreign currency irregular; France said to be accumulating gold foreign far in excess of needs; French bankers fear inflation as a result. Bonds generally higher, continuing past week's strength. Some strength also seen in convertible issues.

Rail revenues expected down this year, but may be able to maintain earnings by safely reducing maintenance expenditures. Recent series of prosperous years have allowed rails to make many improvements and modernizations that should decrease required maintenance in the future. Possible problem in declining passenger revenue - $29M decline in first four months of 1930 was equal to the decline for all of 1929 vs. 1928; rails must maintain schedules even when traffic declines.

Rail shares helped by anticipated gains in freight traffic in future weeks for crop transport, and rate increase allowed by Interstate Commerce Commission.

Steel demand hasn't yet recovered from summer slowdown; industry unsure how long it will take. Automotive, railroad car, and farm equipment business very slow; pipe, and tinplate strong; structural has been stronger but weak recently. July average production expected around 60%.

Tire companies are suffering. Competition very strong for new car business; retail replacement market first estimated at 50M for 1930, may not reach 45M. Price cut on June 5 has not stimulated sales. Best showings by General Tire & Rubber (makes high-end retail tire) and Goodyear.

US Steel unfilled orders to be announced today may decline below 4M tons; only two of the past 18 months have had unfilled orders below that total.

AT&T net income for the first half expected about $5.80/share vs. $6.17 in 1929.

Gen. Amer. Tank Car (refrigerated tank cars) expects earnings for first half well above 1929 level.

Walgreen June sales $4.3M, up 10 percent over 1929; six month sales $25.9M, up 23.5%. First National Stores sales for five weeks to June 28 $10.7M, up 10.1% over 1929; 26 week sales $55.6M, up 22%. Hahn Department Stores sales for February through May down 2.78% from 1929.

Nash Motors net income for quarter ended May 31 was $0.71/share vs. $2.42 in 1929.

Consolidated Laundries profit for 24 weeks ended June 14 was $0.90/share vs. $0.75 in 1929.

Wednesday, July 9, 1930: Dow 219.08 +0.75 (0.3%)

Assorted historical stuff:

[A brief note: The next item is one of my favorites. A common observation by people who like the blog is that lots of it could have been written today. Well, here's a review in the 1930 Journal ... of an 1830 book ... about events in 1720 ... and it still could have been written today!]

Washington Irving's book “The Great Mississipi Bubble” republished by Random House. "The story was written about a hundred years ago and the actual event occurred more than two hundred years ago, but the narrative ... will interest many who witnessed the recent debacle of stock prices." A couple of quotes from the book: The boom - "Every now and then the world is visited by one of those delusive seasons when the 'credit system,' as it is called, expands to full luxuriance; the broad way to certain and sudden wealth lies plain and open ... "; The bust - "a panic succeeds, and the whole superstructure built upon credit and reared by speculation crumbles to the ground, leaving scarce a wreck behind."

Public opinion now appears less keen on antitrust enforcement. Government used to get very upset about "Gary dinners" where steel industry met to allegedly fix prices, but steel industry survived depressions better then - no drastic price or wage cuts were necessary. Cooperation may be necessary to ensure prosperity.

After four years of relative labor peace, coal miners and mine operators are at odds on a new labor agreement. Main issue is maintaining employment as amount of coal sold shrinks. Mine workers union leader [John L.] Lewis says "he believes in cooperation, but not as a one-way street."

Iceland engineering program plans to heat entire city of Reykjavík using hot water from underground volcanic springs.

Pennsylvania Rail. begins experimental car transport service. Passenger must buy three tickets on which to check the car, plus an excess baggage charge of $45.

Pan American Airways carries 29,805 passengers in the year ended July 1; no accidents reported.

Market commentary:

Day's market action suggests bad news has been discounted. Expected slump in steel output was reported, and bears launched repeated drives on major stocks in the morning. However, volume dried up on declines. Stocks turned up in afternoon on higher volume, helped by stronger commodities and rise in rail freight rates.

Treasury Secretary Mellon is putting his money where his mouth is - his companies have announced new construction plans involving nine figure expenditures. Gulf oil alone is spending over $50M for new pipelines and refineries.

Professional bears seen continuing their activities; some observers recommend waiting for the market "to indicate its next important move."

R.H. Bean, exec. secretary American Acceptance Council, criticizes earlier complacency, but now optimistic: "The worst of the storm is undoubtedly behind us, and the casualty list is amazingly small for such a violent disturbance in industry and finance."

Some observers believe stocks are currently good long term buys although an absolute bottom may not have been reached. Cite a signal that has been very reliable for the past 30 years - stock yields going higher than rates on commercial paper. All 8 cases of this signal for the past 30 years have been good buy points, though in 5 of the cases of market declined a little more (average 7%). Average advance from the buy signal was 42%.

Editorial - British manifesto calling for a tariff wall around the Empire is a wakeup call, since half US exports go to countries within it.Time for President to use flexible provision of tariff to fix problems before British and European unhappiness leads to concrete action.

Economic news and individual company reports:

US freight loadings for week ended June 28 were 936, 848 cars, up 15,989 over previous week but down 159,721 from 1929.

New York leads all states with merchandise exports of $955M for 1929.

Building plans filed in New York for June totaled $34.8M down 6% from 1929.

American Cigar expects 1930 earnings lower due to heavy promotional effort to establish the new Cremo cigar as one of the leading 5-cent brands.

Great stock market-related rhyme:

“In stocks of wood no longer should one bear incarceration, but hand and foot are many put 'in stocks' for long duration.

At each 'new low' as the markets go locked up in stocks securely - for a long time yet some folks will sweat bound hand and foot most surely. - Gordon Price”

+ The Boring Stuff:

Wheat corn, and cotton down in morning trading but rallied sharply, closing with good gains. Other commodities steady to slightly lower. Investment bonds higher, advance to record prices for the year. Foreign currency steady at high levels.

Drop in brokers loans from last October's peak of $6.8B to current $3.2B is more remarkable considering over $10B of new securities have been listed on the New York Stock Exchange in the past 10 months.

Drop in brokers loans may be overstating liquidation since loans by banks based on securities have been rising. Over the past month, total loans on securities have only gone down by $462M, compared to brokers' loans reported decline of $803M. May still be seen as indication that stocks are passing from weak to strong hands assuming that stock buyers who use bank credit are more conservative than brokers' margin customers.

Auto industry is now essential to many others including steel, oil, rubber etc. Current output has fallen off but still is better than past years except for the record 1929. Should rapidly recover when the current depression is over.

Steel ingot production down to 48% of capacity from 64% previous week, due to curtailment over July 4 holiday.

Machine tool market demand reported "almost negligible".

Consol. Gas & Elec. of Baltimore earnings for year ended May 31 were $6.22/share vs. $5.83/share in 1929. American Water Works & Electric earnings per year ended May 31 $3.84/share vs. $3.92 in 1929.

Vacuum Oil reports sales and earnings for first four months of year at record level. California Union Oil first half sales $44.5M, up $1.5M from 1929; net income $1.20/share vs. $1.72 in 1929.

Burroughs Adding Machine first half sales about 10% below 1929, earnings expected somewhat below 1929. Underwood first half net about $3.50/share vs. $4.57 in 1929. NCR first half earnings about $1.19/share vs. $2.77 in 1929.

Woolworth June sales $20.7M, down 12.2% from 1929; 6 month sales $131.3M, down 3.3%. Kress June sales $5.2M, up 6.9% over 1929; 6M sales $30.3M, up 5.4%. J.C. Penney June sales $15.8M, down 7.4% from 1929; 6M sales $86.5M, up 4.1%.

General Mills expects earnings for year ended May 31 better than the $4.57/share in previous year. Milling industry has been able to use grain exchanges to hedge against fluctuations in grain prices.

Canada Dry reports June sales higher than 1929.

Melville Shoe reports first-half sales up 1.5% over 1929.

Borg-Warner (car components) operating income for first quarter $1.7M vs. $2.2M in 1929.

Tuesday, July 8, 1930: Dow 218.33 -4.13 (1.9%)

Assorted historical stuff:

Hoover urges passage of London Naval Treaty, accuses opponents of misinformation. "We must naturally expect opposition from those groups who believe in unrestricted military strength as an objective of the American nation."

Suspension bridge to be built across San Francisco Bay at cost of $30M.

US car accident deaths in 1929 hit a new high of 33,060, including 81 on Independence Day.

John D. Rockefeller celebrates 91st birthday. Plans to breakfast, work for about an hour, then play nine holes of golf with a few neighbors. After lunch and rest, plans usual afternoon drive through Westchester hills. "I am in the best of health, surrounded by dear friends and have naught but good will toward all."

S.P. Gilbert, supervisor of German reparation payments, issues final report critical of German finances. Says that while tax revenues have gone up satisfactorily, expenditures have ballooned out of control. In spite of this acknowledges Germany has restored its credit and reconstructed the economy, and is confident they can get things in order. German reaction mixed; admits some of the criticism is valid, but tactless since reparation-related supervision of German economy is now ended.

Chilean government forming council to study nationalization of "all public services, industry, commerce, banking, and other fields of business."

Market commentary:

Market opened with many sell orders, prices declining through the morning with higher volume than last week. Attributed to bad business news (lower freight loadings, increase in business failures, Chrysler salary cut), anticipated bad second-quarter earnings reports, and lower commodity prices. Some buying appeared and declines slowed in afternoon on lower volume.

Commodities generally lower, wheat and cotton sharply down. Index of commodity prices at lowest point in 15 years. Bonds generally steady.

Survey of 163 sales and tech representatives for cement unit of US Steel. On construction prospects for next year, 124 said better/no change, 39 worse. On employment, 35 better/53 worse/72 no change. On tariff passage, 28 pleased, 18 resentful, 108 indifferent.

Winthrop, Mitchell believes market is in much better condition after recent liquidation, believes stocks "getting near rock bottom levels", would buy many major stocks on further selling. They may go a little lower, but not worth trying to pick a bottom: "The long pull prospect of large profits is too good to be concerned about 5 or 10 point dips, which later will be regarded as only minor setbacks in a major upturn."

National Association of Credit Men reports late May and early June collections held up well, less seasonal softness than usual. Regarding tariff, inclined to believe that "getting the tariff matter settled, even if the results are not satisfactory to everybody, will have a stabilizing and generally bracing effect on American business."

Many companies have been using accumulated surpluses to pay unearned dividends in the hope of business pickup.

Economic news and individual company reports:

NY State income tax collected $78M, only $2M below record 1929 level.

NY State Securities Bureau recovered $1.5M from bucket shops (fraudulent brokers) in first half of 1930. Money to be distributed to victims; total losses estimated $33M.

Freight car orders for first half were 30,443 vs. 59,129 in 1929; locomotive orders 289 vs. 521; passenger car 516 vs. 839.

Reynolds Metal expects operating profit for first half equal to 1929. Half of business is metal foil, used in many food-related and other industries (other half is temperature control devices). Sizeable portion of foil output is used to produce 300-400 million Eskimo Pie [ice cream] wrappers/year. Management diversifying, has come up with aluminum foil-based wallpaper. Hasn't caught on yet, but "nevertheless serves as an indication of the progressiveness of management."

Joke:

"First Executive - Did you enjoy your vacation. Second -- Yeh, but there's nothing like the feeling of a good desk under your feet again."

+ The Boring Stuff:

China considering adoption of gold standard [currency is now backed by silver, which has declined along with other commodities]. Embargo announced on shipments of gold out of China; number of gold bars in Shanghai has decreased from 30,000 five months ago to only a few at present. Some concern that Chinese gold standard might cause world shortage of gold, with resulting deflation in gold standard countries.

Editorial pointing to Brazil considering destruction of 4.5 million bags of coffee to reduce unmanageable surplus. US plan for agricultural commodities is similar to Brazil's and can be expected to lead to similar result. Current plan has resulted an accumulation of large surplus at higher than current prices; now plan is to restrict production, but both approaches likely to lead to the Brazilian conundrum. "Wealth does not lie in producing commodities and then destroying them."

Cost of running Federal prisons was $8.2M in 1930 fiscal year compared to $3.4M in 1925.

Number of foreign students at Columbia - 899; NYU - 786; University of California - 651; USC - 452. West Coast foreign students are mainly Asian.

Canadian employment index June 1 was 116.5 vs. 111.4 in May and 122.2 in 1929. Best showing of any June 1 except 1929. Canadian Bank of Commerce expects summer business upturn. Strength in tourism, mining, wheat.

Big drop in brokers' loans seen as passing of stocks from weak hands (marginal traders) to strong (investors). Many brokers believe last week was year's low for stocks.

Hearst Consolidated Publications having public offering. Company to own 11 publications with total paid daily circulation of 2,563,426, board headed by William R. Hearst. 20% of stock in the offering is reserved for employees and officers.

New York Air Brake (rail equipment) first-half earnings expected $1.80/share vs. $2.14 for 1929. Second half expected worse.

Chrysler car shipments in June 28,407, 33% below 1929. May shipments were 40,644.

Willys-Overland produced about 58,000 cars in first half of 1930 vs. about 200,000 in 1929.

Corn Products Refining earnings for first-half expected about $2.25/share vs. $2.36/share in 1929.

Federal Bake Shops first half sales $2.26M vs. $2.19M in 1929.

American Ice expects June income above 1929 level.

W.T. Grant (chain store) reports June sales up 1.7% over 1929; 6 month sales up 11.6%. Kresge down 9.3% for June, down 0.3% for 6M.

Monday, July 7, 1930: Dow 222.46 (no trading July 4-6)

Assorted historical stuff:

Editorial defending London treaty being debated in Senate [limited naval buildup among US, UK, Japan, France, Italy]. Treaty is an honest effort to relieve the world of “the oppressive burdens of competitive armament.” Opposition is not to flaws in the treaty but to any limitation at all; “That is a plea for armament without limit short of national bankruptcy.” Unthinkable that the US should stand in the way of measure to help lift world out of present depression.

Col. W.A. Starrett, President of Starrett Corp. (construction), travels to England as delegate of President Hoover, presents film of construction of Bank of Manhattan building in less than a year [70 story, 927 foot skyscraper at 40 Wall St].

Lewis Stone, film actor, obtains restraining order preventing oil drilling in the surf off Venice Beach (Los Angeles, California).

Commercial Solvents Corp. files patent infringement suit concerning Weizmann's [later Israeli president] patent for producing acetone using bacteria.

Great Britain continues copying American customs - London Times begins publishing crossword puzzles, “an American innovation which developed into a craze which is now almost gone.”

Market commentary:

Brokers' loans close to a record low as fraction of stock value; should be bullish; market caps of Std. Oil NJ + GM now greater than total of all brokers' loans.

Finch, Wilson, & Co.: “We believe that many stocks are now selling far below their real value and that purchases can now be made with a minimum of risk and a maximum of confidence of higher prices later.”

Wall Street offices deserted over the holiday weekend, a marked contrast to last year when extra holidays were needed to give office staff a chance to catch up.

Many observers believe Bears will attempt another market test in the near future. Response should be important to future sentiment.

Some complaints of unavailable credit for business and agriculture, in spite of low rates and high supply of funds at banks. Blamed on risks of particular loans.

Editorial criticizing Dept. of Agriculture's forecast that wheat prices will be lower over the next 7 years. Suspicious this fits into Farm Board plan to reduce wheat acreage; says this is doomed to fail since foreign growers will take up slack and farmers will convert to other crops, with resulting pressure on those. Compares plan to “taking a part of the load from one end of the wagon and piling it on the other end.” No alternative plan suggested.

Minnesota Gov. Christianson calls Farm Board a failure, says wheat problem can only be addressed by drastic production cut or keeping surplus off the market. Says main cause of problem is reduction in foreign demand due to problems selling their industrial products, and debt and reparation obligations.

Economic news and individual company reports:

Leading British financial figures call for a tariff wall around the Empire, with duties on foreign imports and free trade within the Empire.

Continuation of the 1% cut in income tax rates enacted in 1929 to help business looks more likely; prospects helped by the likely adoption of a compromise veteran's relief bill that will only cost $30M-$50M/year compared to the original $181M-$400M.

Great majority of retail outlets offer some form of credit; of 35,000 outlets surveyed, 75% offered open credit, 18.7% installment, 20% cash only.

At least 45 Florida towns and cities in default on bonds; committee recommends austerity, state sales tax on nonessentials.

Sugar prices now at post-Civil War low of 1.22 cents/pound, production cost estimated 1.72-1.97 cents. Big overproduction still expected this year.

Chase National Bank deposits as of June 30 were $2.065B, first bank in the world to pass $2B in deposits.

Hershey expects first half sales $21M vs. $20.5M in 1929; earnings over $4.70/share vs. $4.69. Wider profit margin and higher earnings expected in second half due to lower commodity prices. Currently selling for 11.7 time 1929 earnings, yielding 5.5%.

American Snuff has one brand that's been a leader for 148 years.

Joke:

“'Mr. Booley is certainly well read. He repeated an exquisite quotation last night.' 'What was it?' 'I can't give you the exact words, but he said he'd rather be a something or other in a something else.'”

+ The Boring Stuff:

About 44% of California natural gas production in 1930 was wasted (blown into the air), due to lack of practical storage. Wastage is being reduced somewhat by production curtailment and pumping some surplus gas back underground.

In the past year, oil companies have begun using pipelines on a large scale to transport gasoline instead of tank cars and river barges; this allows refineries located far from cities to be competitive with those close by.

Recent markets dullness taken as evidence that forced liquidation has been exhausted, and the market is now largely taking into account the admittedly unfavorable current business conditions. Many shareholders said reluctant to sell since shares have “declined to levels which in many instances represent intrinsic value.”

Commodities over past week generally ended little changed. Cotton trading slump continues in England. Investment bond prices generally higher in past week, volume light.

Many investment trusts now selling well below liquidating value, after selling well above in 1929. Lehman Corp. selling for $71.50, liquidating value $88.97.

New construction started in 37 states east of Rockies was $2.638B in the first half vs. $3.016B in 1929.

Total Florida building contracts awarded in May were $13.2M vs. $3.9M in April and $5.4M in May 1929.

Railroad locomotive shipments for first half were 419 vs. 319 in 1929.

North­west farm income for May estimated down 19% from 1929.

United Light & Power net for year ended May 31 was $2.37/share vs. $1.76 previous year.

Rainier Paper & Pulp net for year ended April 30 was $479,623 vs. $486,607 previous year.

Allis-Chalmers (farm and industrial equipment) expects net for first half to be over 15% above 1929 level; orders booked in first half were $29.5M, a gain of $1.5M over 1929.

The Weekly Blather July 6, 1930

July 6, 1930 was a Sunday with no Journal, so again a little editorial commentary.

Another couple of surprises about 1930 - these were unexpected based on my previous reading about the Depression.

Availability of good economic and company information: Previously, I tended to think of this period as a kind of Dark Age when it came to investor and managerial access to information. It's therefore surprising to read the Journal day-by-day and realize that economic stats usually seem to be available very promptly - I may be wrong about this, but some seem to come out quicker than they do now, and there are usually good preliminary estimates of the important stuff. When it comes to company information, it's true that things aren't as standardized as they are now (quarterly reports with full financials), but many companies seem to be reporting more quickly than they do today, and often you also get good preliminary estimates toward the end of quarters (possibly prohibited now due to quiet period rules). So, those of you counting on superior computerized information/statistics to save us today might be barking up the wrong tree.

Overcapacity everywhere. One of the things that jumps out at me the most is that every day there seem to be three or four stories about different industries trying to cut production down to match demand using desperate measures such as industrywide cooperatives, production holidays and curtailment, and buying and segregating surplus. Now, I understand how this would happen after the economy had spiralled down to a really serious extent, but as measured by most stats this really hadn't happened yet at this point. So, it's an interesting question to me how this chronic problem of overcapacity in many industries at once developed. Some of it can be explained by government action (ex. the Farm Board for agricultural commodities), but it happened in many industies that weren't government-”supported,” such as steel and livestock.