June 14, 2009

Weekly Digest June 9-14, 1930: Dow 249.69 -14.24 (5.4%)

Assorted historical stuff:

Senate passes the Smoot-Hawley tariff 44-42; bill now goes to the House, where passage is very likely.

Thomas Edison on big government and big business: calls the US government the most inefficient big business in operation; favors high wages; criticizes mergers where “the vast size of the business tends to mismanagement;” urges Hoover to seek reelection.

Governor Roosevelt warned that municipal governments of New York are increasing debt two to three times as fast as the state – this will lead to unsound levels of debt or an unsustainable tax burden.

New York City increases salaries for city commissioners, judges, deputy tax commissioners, etc. Increases range from $2,500 to $10,000.

Editorial citing Josiah Stamp, “sound economist and active man of affairs.” Blames the worldwide downturn on insufficient gold supply (dollar was gold-backed), and consequent deflation. Estimates since mid-1920 purchasing power of gold is up more than 60%. As a result, U.S. National debt while being reduced from over $26B in 1919 to under $17B currently has remained roughly constant in purchasing power. Credits Secretary Mellon with determined policy of running surpluses to reduce this debt, without which debt would be $41B in 1920 dollars. Rise in value of gold has increased burden on debtor nations. Calls for cooperation for more effective use of gold stocks and price stabilization.

Oil producers in Oklahoma and California have agreed to curb production. This will help to deal with excessive oil supply, since they account for 50% of the nation's oil production. Producers in Texas (about 30% of production) may still be a problem.

Senate Lobby Investigating Committee accused of straying from original purpose and unconstitutionally seizing private papers and records. Regarding lobbyists, “They are parasites, fakers, and whatever other hard names of that ilk anybody can happen to think of.” But the committee has too much power to damage targets of their investigation with no restraint.

Lower Manhattan development is going great guns. “In the downtown financial district a dozen or more skyscrapers are in the process of construction, several have been recently completed, and numerous others are contemplated.” Major projects in the Wall Street area include the Irving Trust Company's 50-story tower at 1 Wall Street, the Bank of Manhattan's 70-story tower at 40 Wall Street, the New York Stock Exchange Annex, and the Bank of America building. Several large parcels have been assembled for future development including a full block containing 14 old buildings at Wall and Pearl Street, believed to be the first full block on Wall Street ever owned by an individual.

Most frequent air service in the United States is between Cleveland and Detroit (10 roundtrips a day).

German budget is seen running 500M mark deficit after being in balance when passed a few weeks ago; taxes running below estimates while estimated unemployed have risen from 1.2M to 1.6M.

Japan is suffering a severe economic slump. “Early in May leading shares of the Tokyo Stock exchange ... hit the lowest level since May 1908.” Five small banks were forced to close in April, which may have worsened the panic. Exports in the first 4 months of 1930 dropped 24% from 1929. The government is being asked to help the unemployed with a program of public works.

Unrest continues in India. The Simon commission counsels patience and gradualism. However, “it appears unlikely that the turbulent native elements” will be convinced.

Dr. Whitney of G.E. suggests using high-frequency radio tubes for home heating to produce a “fever heat” in the body. G.E. officials say “he has not conducted any experiments ... nor is the idea backed up by any fact.”

It's getting harder to get away from it all with “telephone, telegraph, cable, and radio in every conceivable place.”

Market commentary:

Leading economists and market observers are looking for clues on how long the current trade depression will continue. Since 1873 there have been thirteen periods of business depression. Ten of these had an average length of 15 months. The remaining three were much longer, but there were exceptional circumstances in each case that it is clear don't apply here. Credit is easy, inventories are not high, and the banking system was never sounder. Therefore the current depression should not last longer than 15 months. Since it began in July of 1929 in improvement is to be expected at the start of the fourth quarter.

YAEASHT (Yet Another Editorial Against the Smoot-Hawley Tariff): Hawley dismissed the threat of retaliatory tariffs since they would be unprofitable, but “a tariff war is no more effectively banned by the fact that it is unprofitable than any other kind of war.” World currently must pay the U.S. Over $1B annually in interest on debts, and also absorb a like amount in trade surplus – showing signs of difficulty doing so – this is likely to be made worse by throwing up barriers to their selling goods here.

A more optimistic story on the tariff predicts that it will pass but says it's a much better bill than generally thought and the talk of foreign reprisals is exaggerated. Also predicts ending uncertainty about the tariff should benefit business.

If you hold good stocks don't get discouraged about the recent slump. Every time since the Stock Exchange opened the good stocks have come back to make new highs, and it's safe to bet they will again, although you may have to wait a while.

There isn't much change in business conditions to account for the recent market slump.

Market has confounded observers by slumping when two weeks ago at least 75% of the Street was predicting a rally.

Market observers now predict range-bound trading within a 5-10 point range until the economic signs are clearer.

An increasing number of executives are expressing the opinion that the worst has been seen and that business is now bumping along the bottom ...”

Many businesses have cut costs without cutting wages. This should benefit earnings when business improves.

James C. Willson & Co. notes that for the first time since 1921, the dollar is fully backed by gold. Experience shows that when this happens a long and broad upswing in stock and commodity prices soon begins.

Economic news and individual company reports:

Inventories at large corporations are as low as they've been in years compared to consumption and production. This predicts better business when industry begins to stock up again. Companies have better balance sheets than in the depression nine years ago, so they won't need to borrow money to do so.

Of 34 representative railroads, only 3 report increased revenues and income for first 4 months of 1930; the remaining 31 report declines in revenue between 4.4% and 18.4%.

Auto production for Q1 1930 down 31% from 1929 but only 6% below 5-year average. Sales at retail down 17% but higher than any year but 1929.

Rubber at new record low, blamed on sympathy selling with stock market. Rubber tapping holiday in May.

Scott paper reports net income of 390,000 for the first five months of 1930 compared to 296,000 for 1929.

R.J. Reynolds tobacco Co. has started using radio advertising to support the Camel brand after Lucky strikes has been taking some market share. Strategy has been successful and earnings per share of over $4.00 are expected this year compared to $3.32 last year.

Gulf Steel first-quarter net income is down, said second-quarter may show a loss; may need to cut dividend if business is not improved by August.

Fox film reports earnings of $5.7M for the quarter ended April 26 compared with $3.9M in 1929.

Technicolor Corp. (color film processing for movies) has been forced to stop accepting new contracts since printing labs in Boston and Hollywood are already working at 24-hour capacity. They now employ 1100 technicians and have already increased capacity 700% in the past year.

Gillette safety razor company is marketing a new line of deluxe razors priced from $5 to $75 each. Blades made of “patented Kro-Man steel” to sell at 10 for $2.

New York Theater was much more interesting in 1930:

Change Your Luck, a musical comedy at the George M. Cohan Theatre. A few numbers are well done, but generally an “uneven, forced, and inchoate splurge.” The second act includes a “three-round slugging match, with gloves, seconds, and referee, between two young women from the chorus.” The men's dancing is generally better done, but the women's assignment is “mainly wiggling, in an attempt at some sort of compromise between the characteristic rhythms of Broadway and Harlem.”

Artists and Models: “The showgirls are not featured in the program of Artists and Models, but they are featured in fact ... they wear something at the waist and in more than one scene the rest is just a gesture in the form of gauze ... they parade as bridesmaids in costumes that would greatly enliven the usual real wedding ceremony or as widows who are so sad that they wear nothing to speak of, but their weeds and a pale blue handkerchief trailing from the left wrist.”

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