June 15, 2009

Monday, June 16, 1930: Dow 244.25 -5.44 (2.2%)

Assorted historical stuff:

President Hoover expected to sign the Smoot-Hawley tariff, also to issue a statement explaining why and expressing the intention to use the flexible clause of the bill to correct problems.

War Department awards contracts for new airplanes and engines totaling almost $6 million, for a total of 402 new airplanes with spare parts and 128 new engines with spare parts. Companies awarded include Douglas, Boeing Airplane, Thomas Morse Aircraft, Sikorsky Aviation, and Wright Aeronautical.

Trolley service on 6th Ave suspended for construction of the 6th Ave subway.

Market commentary:

Stocks were unnerved in the Saturday session by further weakness in commodities, including wheat, cotton and copper, and also possibly by bad trade news – exports in May $322M versus $385M in 1929; imports $285M versus $400M in 1929. Major industrials including Union Carbide, GE, and US Steel generally lower; IT&T hits new yearly low. Volume was lower than earlier in the week.

The trading community is probably being too pessimistic about the effects of the tariff. While it has its bad points, agitation over the bill has caused business uncertainty for more than a year, so the matter being settled should have an immediately beneficial effect. The threat of European reprisals is exaggerated. Every tariff revision in the past has also caused storms of protest, but trade has always increased to new records. Trade volume this year is good compared to every other year except the extraordinary one of 1929.

Market students have been encouraged by the general gloom for the past two weeks. This contrasts with the “new era” thinking of last summer when no end was seen to the rise in stock prices and margin debt was hitting a record every week. History says the current gloom is just as mistaken as last summer's unjustified optimism. Historically there has been no case in this country since 1900 when business failed to turn upward the year following a depression.

Martin J. Insull, president of middle West utilities company, says business is much better than the popular psychology. We forget that 1929 was an outstanding year, far above normal. Fluctuations, whether booms or busts, “are not so important in the long run, as they appear close at hand. The trend of business activity and prosperity is gradually higher year by year and this is more significant than the short-term changes.”

The Department of Commerce is criticized for sugarcoating a report on construction contracts in the first five months of the year. They emphasized a 35% increase ($152M) in public works and utilities while burying the fact that othe building contracts had shrunk by 32% ($641M).

Economic news and individual company reports:

Some commodity prices compared to a year ago: crude oil down to $2.50 a barrel from $4.10 a year ago; copper down to $.12 a pound from $.18; steel scrap down to $12 from $15; general commodity index down to 87 from 96.6.

Report of 29 chainstore companies including Sears Roebuck, A&P, Woolworth etc. shows sales in May up 3.9% over 1929, sales for the first five months of 1930 up 5%. These stores generally sell lower-priced articles. If reporting only same-store sales, there would probably be a slight decline.

Treasury is speeding up the authorized Federal building program to place as much work on the market as possible this year. Total authorized spending is $363 million outside D.C. and $190 million in the city of Washington.

New life insurance purchases for the month of May were down 4.7% from 1929, but the total for the first five months of 1930 was 1.3% higher than 1929.

Small investors (“from one to 10 or 50 shares”) seem to have come back into the market because of lower stock prices, after withdrawing last fall. The number of holders of General Motors stock increased from 117,788 last July to 218,413 before the end of January. US steel and Pennsylvania Railroad also showed substantial but smaller increases in number of shareholders.

Earnings of the great Northern Railway and the Northern Pacific are down badly for the first four months of the year. However, the first four months usually are only a small fraction of the total yearly earnings and dividends still appear covered.

Lee J. Shubert, president of the Shubert Theater group, predicts a substantial improvement for the second half of its fiscal year ended September 30. Says theater business is recovering from the initial impact of talking films.

AT&T Q2 earnings are running about the same as Q1, long-distance business is substantially increasing.

IT&T declined from a high of 62 to 48 for the week. Earnings for Q2 estimated at no better than the 0.57 earned in the first quarter.

Fox film Corp. plans to spend an additional $5 million to build Movietone City, the largest talking picture studio in the world. Located on 100 acres near Hollywood, 36 new buildings will be erected for a total of more than 75 permanent buildings by the beginning of next year.

FlintKote Co., which operates in the roofing business and also owns or controls more than 1000 patents in many other fields, reports that royalty income this year is up over last year, while the roofing business is down over last year but improving month-to-month.

Richfield Oil sales in China running ahead of last year.


The song and dance man, George M. Cohan's revival of his comedy first produced in 1923, with himself in the leading role, at the Fulton.”

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