Weekly Digest June 16-21, 1930: Dow 221.97 -27.72 (11.1%)

Assorted historical stuff:

Resolution introduced by Congressman Sabath to form a committee to investigate whether “the tremendous professional shortselling of stock on the various exchanges was responsible for the November, 1929, and present 'crashes,' and to what extent it is responsible for the depression of business.” Will also look into taxing short sales or outlawing them completely.

American Institute of Banking decides on educational program with theme of “less speculation and more thrift.”

As previously announced, President Hoover signed the Smoot-Hawley tariff bill at 12:59 p.m.

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.

A robot with “an electric eye, a radio for a brain, and magnets for hands” successfully performed a chemistry experiment. The electric eye observed acid being dropped into a basic solution; when a color change indicated the solution was neutralized the electric eye passed a signal to the radio, triggering a relay shutting off the acid flow.

Pullman Company (passenger rail cars) purchases in the last year: 1,165,000 towels, 444,000 pillow slips, 387,000 sheets, 63,000 porter's jackets, 5,786,000 paper bags for women's hats. Launders 278 million items annually.

Admiral Byrd's ticker-tape parade results in only 70 tons of ticker tape cleaned up, compared to 1,800 tons for Lindbergh.

City of Chicago is now recovering from having no tax revenue for the past two years. This situation arose because the 1927 property tax assessment was invalidated due to political favoritism. It was found that individual property assessments ranged from 1% to over 100% of full value. City politicians “regarded, with reason, the old flexible manner of assessment as a splendid means of collecting votes, etc.” After some delay a reassessment was done, which should allow tax collections to resume. In spite of not having any tax revenue for the past two years Chicago is only carrying about $95 per capita of debt, compared to $245 for New York City.

Miami's population grows from 29,571 in 1920 to 110,025 in 1930.

Weakness in Bolivian bonds due to rumors of revolution, however “revolutions in South American countries are of frequent occurrence and should not disturb the bonds of other foreign nations.”

German political situation is delicate; Paul Moldenhauer becomes the third German financial leader to resign in the past few months.

British House of Commons passes financial bill after a record long debate of 21 hours and 48 minutes. Chancellor Snowden defied “a bombardment of taunts and insults throughout the night.” Winston Churchill, head of the Conservative opposition, criticized the Chancellor for his “dictatorial methods.”

Canadian government announces a program to develop the Alberta tar sands. Applicants must have the rights to a promising process for mining the oil sands. After receiving a permit experimental work must begin within 60 days and at least $15,000 must be spent within the first year.

France imposing prohibitive tax on billboards to prevent disfiguring of the countryside.

Japanese typewriters have 7,026 characters, including the English alphabet tucked into a corner. Skilled typists can do 60 words per minute.

Story describing the Norwegian whaling ship Kosmos. Ship is 22,000 tons, carries seven steam-powered hunting boats and an airplane to help locate the catch. Capacity of 6-8 whales per day; giant opening with hinged doors at the waterline permits whales to be floated right into the vessel's hold; factory reduces the catch to oil, fertilizer, bonemeal, canned meats, etc., right onboard the ship. Operates in the Ross Sea off the Antarctic - “Because of the growing scarcity of whales, hunters must go farther and farther from shore stations, necessitating long cruises and larger whaling ships.”

Market commentary:

Editorial noting that large US loans to foreign countries are beneficial to US business because the money gets recycled to buy US goods; this helps to absorb our production capacity, which is greater than domestic demand.

Front page above the fold editorial: “This is America. Piffling talkers would turn back the calendar to the nineties and destroy the economic progress of thirty years. Vicious rumors spread for selfish purposes; flippant predictions of a five-year slump in business; wholesale demands for the cutting of wages are unworthy of American intelligence. Credit is super-abundant. Business is no worse than three months ago. Twelve months of declining volume is behind us. Many adjustments have been all but completed. Engineering and marketing brains are as fertile as ever. Problems there have always been. To proclaim their insurmountability is childish.”

Treasury Secretary Mellon denies Smoot-Hawley tariff will damage business, says tariff will end uncertainty, criticism has been exaggerated, and flexible provisions in the law will be used to improve it. Says previous tariffs have always caused “gloomy prophecies” that have never materialized.

Hoover's announcement on tariff favorably received due to removal of business uncertainty, and his announced intention to use his authority via the tariff commission to fix problems with the law.

AFL President William Green meets with President Hoover, says he believes the employment situation is beginning to improve.

Record low 2 1/2% New York Fed rediscount rate indicates to businesses that very easy credit is here to stay for a while. Reserve expected to be cautious about raising rates until it's clear business upturn is here to stay. Rates have been lowered from 6% last August.

“Stocks down, money down, wheat down, rubber down, copper down, silver down, silk down, gasoline down, steel prices down” - but don't forget, “what goes down must come up.”

Economists feel the current situation in commodity markets is starting to look like a bottom; a combination of underproduction and easy credit at low rates should work as usual to correct conditions.

“Depression-proof” stocks (ones whose earnings hold up well in economic downturns) have so far gone down along with the rest of the market, including tobacco, dairy, chain store, amusement stocks.

Industrial and financial sectors of the US economy are set up for high levels of production and consumption; the current depression puts buyers in control and they are holding off for lower prices. When consumers start spending again this will be reflected early in stock prices.

A financier worth over $100 million advises the recent market decline shouldn't worry stock investors. Has stocks bought 25 years ago, has gone through many panics and slumps, some much worse than the current one. Every time, “you would hear the same old stories about business. But I have held on and my investments have multiplied many times. Some of them are worth 10, 20, and 30 times more than they were when I bought them.”

Front page above the fold editorial: “A Turn of the Tide Near” ... “It cannot be imagined that the wholesale failures and interest defaults characteristic of earlier depressions will now be repeated. Confidence in our banking system wholly precludes the money panics of former eras.”

Head of a sizable New York investment trust says the current conditions of very easy credit and poor business have always been a buying opportunity in the past. Absolutely confident that any list of good stocks will have good gains by end of 1931 and probably show a profit by end of 1930. Cautions that current market technicals don't look that good and further declines may occur first.

More conservative market observers are still cautious because stocks broke through resistance levels so easily during the decline, advise waiting for another correction to buy.

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.

Economic news and individual company reports:

Heavy pressure on most commodity prices, including grains, cotton and metals. Almost all leading commodities at their 1930 lows. Organized efforts have been made to support some commodities by governments and private entities without success.

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.

Merchandise imports and exports in May hit a new low level for the year, reaching the lowest level since 1924. Surplus in May was $37 million compared to $24 million in April.

Income taxes (corporate and individual) were $35.9M in May compared to $43.5M in 1929. Taxes for the fiscal year ended May 31 were $1,887M, up $108M over the 1929 fiscal year. Other taxes were $57.8M in May, up $1M over 1929. French tax collections down 1% in May from 1929.

Total US rail freight traffic in April 34.8 billion net ton miles, down 9% from 1929.

New York Fed produces its rediscount rate from 3% to a new record low of 2 1/2 percent; expected to help business; indicates easy credit for some time to come.

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.

The market slump has produced many highly rated stocks with dividend yields over 5%, including some high-grade rails, GM (7.2%), Chrysler (11.2%). Most blue chips remain lower, however, including GE (2.5%) and AT&T (4.3%).

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.

Ford is expanding this year; spending over $30 million to construct six new branch plants and upgrade existing ones.

Retail auto sales for first four months of 1930 were higher than any previous year but 1929; 20% down from 1929. However many car companies are suffering because Ford took a large chunk of market share.

Thomas J. Watson, president of IBM, reports business is doing well and expects full 1930 results may be another record. Watson is currently sailing on the steamship Vulcania for a three-month trip to Europe, to help Walter T. Jones get settled in Paris as head of European operations. Foreign business is rapidly expanding and company now operates in more than 70 countries. First-quarter earnings $2.82 a share compared to $2.62 in 1929. Earnings later in the year are expected to be boosted by equipment for the U.S. Census.

Deutsche Lufthansa, founded four years ago to combine all the large air transport companies in Germany, is operating a large loss and will require continued subsidies.

American Airways announces an increase in air passenger rates to 7 cents a mile. Previously had reduced fares from 10 and 11 cents a mile to 5 1/2 cents in January. This resulted in increases of 300-400% in passengers carried, but even at full capacity this level of fares caused the company to operate at a severe loss.

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.

Jokes:

“' My little daughter has swallowed a gold piece and has got to be operated on. I wonder if Dr. Robinson is to be trusted?' 'Without a doubt. He's absolutely honest.'”

“Her Sweetie – How long will it be until your sister makes her appearance? Younger Sister – She's upstairs making it now.”

“He – Do you smoke? She – No, I don't smoke. He – Do you drink? She – No, I don't drink. He – Do you neck? She – No, I don't neck. He – Well, what do you do? She – I tell lies.”