June 25, 2009

Thursday, June 26, 1930: Dow 215.58 +3.74 (1.8%)

Assorted historical stuff:

Editorial: Some have criticized the “failure” of President Hoover's prosperity conferences from last November, and been frustrated that the predictions of early recovery then were wrong. In hindsight it's easy to see the optimism then was mistaken and the downturn was worse than expected, but this was impossible to predict at the time. Also, the conferences did some good - they reduced the panic and pessimism of the time, and helped keep employment and wages from plunging as they otherwise would have. Some now say we should have “plunged headlong into general liquidation,” but would we have been better off with two or three times as many unemployed over the winter? We shouldn't allow frustration with the delayed recovery to upset our nerve.

Washington officials will be looking carefully at whether the record-low 2.5% discount rate will revive business. So far easy money hasn't affected the credit picture much, with demand for commercial credit continuing down. However, the lower rates and longer duration now in effect should give a fairer test. Also hoped that easy credit together with lower commodity prices will encourage businesses to restock.

The US oil pipeline system now is a total of 95,000 miles in length, ranging from 2 to 16 inches in diameter. About 2.5 million barrels of oil flow through it daily, or 70% of the world's production. The first oil pipeline was built in 1861; it was made of wood, 2 inches wide, and 4 miles long. Pumping charges for that pipeline were $1, compared to current charge of $0.50/barrel for 300 miles.

Over 20 million homes, or 70% of homes in the US, have electric service. The average home used 516 KWHr in the year ended March 31, 1930, at a cost of 6.08 cents/KWHr. Price of electricity has gone down more than almost any other expense since 1914.

Total German unemployed 1,858,000 on June 15, compared to 940,000 a year ago.

Henry W. Thornton, president Canadian National Railways, says conflicts of industry over trade are a threat to world peace; sees the fundamental obstacle to peace as “our hereditary contentious psychology, perhaps generally dormant but always explosive.”

Senate authorizes $1.5M to acquire for Library of Congress the Vollbehr collection of incunabula [early printing], including a Gutenberg bible.

Market commentary:

Heavy selling early, taking major stocks to new lows for the current decline. A sharp rally in the late afternoon, possibly due to short-covering, resulted in a gain for industrials. Rails didn't recover as well, ending at 125.03, lowest level since March 1927. Steel and rail freight news continued bad. Commodities still unsettled, but wheat and cotton steadier. Government denied rumors that the Federal Farm Board would be ended [helped support commodity prices].

Some traders believe the Dow Rails average closing below the 1929 low indicated bear market isn't over. Many important bankers disagree, feeling it's close to a bottom; Col. Ayres of Cleveland Trust anticipates “an abrupt and consequential upward movement of stocks and commodity prices ... by Labor Day.” Bullish factors include lack of public participation in the Spring rally, low margin positions, and high short interest.

Some market observers are distressed by lack of support by “big interests,” as seen in sharp declines for leading stocks on low volume. Stocks have gone down regardless of quality or ability to maintain earnings during downturn.

Old-Timer says he's not sure if stocks will go up or down from here, but anyone buying good stocks at this level will do well in the long run. “We get few opportunities like the present to buy things below intrinsic worth.”

Economic news and individual company reports:

Steel demand weak entering usual summer slowdown, but getting some support from structural and pipe steel, both higher than last year. Large projects include highway, subway, and pipeline construction. Industry mildly optimistic, sees low in mid-July and upturn in August.

Total value of 1930 US grain crops estimated at $3.331B, down from $4.071B in 1929.

American Tobacco reports record earnings for first five months of 1930, more than double previous year. Attributed to heavy newspaper advertising. Plans stock split and special dividend.


'Some of us thought stocks had scraped bottom on Thursday of last week,' remarked the Room Wit, 'but it happened that they scraped too hard and went through.'”

+ The Boring Stuff:

Conventional wisdom is that stock market moves anticipate business conditions, so stocks should go up soon if predictions of a fall improvement in business are true. Skeptics note that the market kept moving up last fall even though business started turning down in July.

Most individual railway stocks now selling below 1929 lows, including some of the stronger ones whose dividends aren't in danger.

South Carolina sued for anti-chain store tax - claimed to be unconstitutional.

Total building operations in May $169.7M, down 6.1% from April.

Chain store sales are holding up well, but stock prices are at yearly lows. Example 1: Great A&P Tea, selling at $185 or 15.7 times 1929 earnings of $11.77, yield 2.7% (down from a 1929 high of $494). Example 2: First National Stores, selling at $47 or 11.5 times 1929 earnings, yield 5.3% (down from a 1929 high of $90). Sales for both of these are up so far in 1930.

Archer-Daniels-Midland profit for quarter ended May 31 is $0.52/share compared to $0.51/share in 1929.

American Water Works & Electric income for year ended May 31 $3.84/share, vs. $3.92 in 1929.

US Smelting, Refining & Mining reports net income first 5 months of 1930 is $1.12/share vs. $2.19/share in 1929. Quarterly dividend cut from $0.875 to $0.25.

Atlantic Gulf & West Indies Steamship reports earnings first 4 months of 1930 of $5.07/share vs. $7.20/share in 1929.

American Ice profits in May $603,688 vs. $521,358 in 1929.


  1. Another interesting parallel - did you know the protectionist debate is alive and well in 2009?

    Day Pushes for New Free-Trade Talks with U.S.
    Toronto - Globe and Mail, June 26, 2009.
    "Canada has asked the United States for talks on a new chapter of free trade that would cover spending by states, provinces and cities and guard against a feared rise of protectionist Buy American measures..."

  2. So where do you actually get the information about the events in 1930? Is it from NY Times?

    One thing to add is that back int he 1930's the US Stock markets weer also open on Saturdays as well..

  3. Hi Admin -
    It's from microfilms of the Wall Street Journal. You are correct about the Saturday session - IIRC there was a five-hour session on weekdays and a 2-hour session on Saturdays.

  4. ::: Editorial: Some have criticized the “failure” of President Hoover's prosperity conferences from last November, and been frustrated that the predictions of early recovery then were wrong. In hindsight it's easy to see the optimism then was mistaken and the downturn was worse than expected, but this was impossible to predict at the time. :::

    WSJ July 6, 2009: "Vice President Joe Biden said the Obama administration "misread how bad the economy was" and didn't foresee unemployment levels nearing double digits, in comments likely to intensify calls for the administration to do more to counter job losses."

    "Some economists are pressing the White House to enact a second round of stimulus spending or find some other way to avert a prolonged job and wage slump. But the White House is in a tough spot. Officials want to give the $787 billion stimulus package passed in February time to work -- only 10% of the spending is out the door so far -- and there is little appetite in Congress, particularly among Republicans, for spending more money at a time of record deficits."

    Will we never learn?


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