July 17, 2009

Friday, July 18, 1930: Dow 239.07 +3.44 (1.5%)

Assorted historical stuff:

Editorial: Constantly increasing taxation is a burden on "every form of enterprise". It diverts money from productive uses to government functions which "though mostly indispensable, do not always require the scale of expenditure to which our public servants have become accustomed." Total taxation (including local) has risen from under $3B in 1913 to about $9B now; recently rising about $500M/year. This aggravates the current depression.

Fiat and GM negotiating for alliance, manufacture of GM cars in Italy.

New York Gov. Roosevelt says depression is increasing number of insane wards of the state; 1,700-1,900 increase now expected vs. estimated 1,000-1,200.

Shanghai put under martial law as precaution against "further outbreaks by Communists."

German Pres. Von Hindenburg decrees new taxes as part of financial reform. Budget to be balanced with combination of spending cuts, new “bachelor and spinster” tax, 5% across the board tax increase, and special “sacrifice levy” on income of civil servants.

Western Elec., RCA meet with German reps to negotiate talkie patent truce; W.E. now contracted to wire French studios at Billancourt for sound filming.

Movie house operator in Tehran fined for faking talking film by using phonograph manually operated to match silent film's speed.

Market commentary:

Market maintained uptrend, defying expectations of a technical pullback. After brief hesitation at open, strong buying began and uptrend persisted through day; most highs in the last hour. New rally highs for majors including Steel, American Can, Standard Oil NJ, AT&T. Some speculative issues had good rallies, attributed to bull pools (Vanadium, Wrigley, Auburn). Utilities and insurance strong. Banks and trusts mixed.

Federal Reserve faces tough problem in how long to continue easy money policy, since in time “this has always stimulated speculation to dangerous proportions.”

The "younger element in Wall Street" who think this is a bad depression haven't seen a serious industrial depression. Looking back at the Wall St. Journal from 1914, we see steel companies operating at 35% of capacity, all making losses, and equipment companies at 25%. It's a pretty mild depression when companies can still earn their dividends vs. making losses in the past, and when major stocks have increased their number of holders by 10%-50%.

P. Tomlinson in the Elks Magazine: "Now ... is the time when the wise and conservative investor can place his money in American industry at the greatest possible advantage. Not for many years have stocks and bonds been in a position where the average man can estimate their true worth as he can today."

Brokers getting many more inquiries about stocks. Conservative observers still don't advise buying on a large scale, but buying standard stocks on reactions (dips). Buying on dips is in evidence now and seems to be supporting the market.

Lammot du Pont, pres. E.I. du Pont de Nemours, sees fundamental conditions still sound and foundation for upturn secure in low commodity prices and interest rates. A.G. Baumbogger, first VP Montgomery Ward, sees general industrial business on the rise and all indications are that low point of the depression has passed.

Investment trusts [similar to mutual funds] quieter these days. In year-end reports, trusts described devastation caused by the Oct.-Nov. panic; "some of these remarks were rather apologetic in tone, while others [implied] that the showings of their companies, after all, were not so bad as some others." Midyear reports were mostly silent on the June mini-crash.

Economic news and individual company reports:

Wholesale prices in June down 2.3% from May, down 9.6% from June 1929.

Radio Corp. reported earning small profit for first half after large inventory loss in Q1. Broadcasting division now out of the red; "National Broadcasting Co. is probably going to be made into an important money maker in the future." RCA Photophone also doing well.

30 main NYSE-listed rails dividends up 9.2% in first half vs. 1929.

Wrigley selling for about $75, earned $2.82 in first half, dividend of $4. Expected to benefit from removal of tariff on chicle.

A.G. Spalding (sports equipment) earnings for first five months about 5% above 1929; selling for less than 8 times earnings, yielding 5.2%.


"'You have not printed any of my poems,' said the literary genius. 'No, not yet," replied the editor. 'Well, some of them have been printed in weekly papers," exclaimed the genius, "and I want you to understand that they will be read long after Shakespeare's are forgotten.' 'Quite so, but not before,' said the editor."

+ The Boring Stuff:

First contracts awarded for 1,000 mile 24-inch diameter nat. gas pipeline from Texas Panhandle through Oklahoma, Kansas, Nebraska, Iowa, Illinois to Chicago.

Commodities mixed; wheat, corn slightly lower, cotton up slightly, copper steady. Brokers' loans up $40M to $3.243B. Bonds trading quiet, prices steady. General uptrend in bond market seen in July; most of demand from bank and insurance companies, not individual investors.

Credit likely to remain easy for some time, but extremely low current rates seen unlikely to last (call money at 1.5%-2.5%). Rates for credit in the 3-6-month range have already begun to move up. This month seen as a low point for industrial activity; demand for credit anticipated to increase seasonally in August.

Better feeling seen in both trading and business circles, although business upturn not yet evident.

Midwest steel manufacturers see better outlook; prices have turned stable, consumer stocks are low, and higher automotive production anticipated.

C.M. Colby, pres. General Foods, discussed outlook while sailing on "Bremen" liner for two-month vacation abroad. Confident years results will be satisfactory; first half net about $2/share, equal to 1929 level. Bullish on Birdseye quick-freezing process. Based on talks with company field reps, sees gradual recovery under way, looks for marked improvement in public sentiment in fall.

First half total corp. financing was $4.4B, of which $3.87B was new (expansion, not refinancing); vs. $5.8B, $4.96B in 1929; $5.01B, $3.47B in 1928.

Livestock prices generally rose steadily from 1924 to 1929; average price paid per 100-pound rose from $7.36 to $11.24 [prices plunged in 1930 - see 7/11].

Western Union (telegraph) Q2 net $2.77/share vs. $3.81 in 1929, but up from $1.45 in Q1. Q2 improvement due to expense cuts more than improved business.

NY Railways and NY State Railways (street rails) business down from 1929, suffering operating losses.

S.S. Kresge Q2 net $0.70/share vs. $0.69 in 1929.

Sun Oil first half net $2.42/share vs. $2.68/share in 1929.

People's Gas, Light & Coke Co. Q2 net $2.96/share vs. $3.18 in 1929.

Cream of Wheat first half net $1.48/share vs. $1.43 in 1929.

Chesebrough Mfg. (Vaseline) stock traded after long period of inactivity; up 10 to 158.25. Earnings $13.22 in 1929 (up from $8.36 in 1925), dividend $6.50.

GM June dealer sales 97,440 units vs. 200,754 in 1929; first half 764,219 vs. 1,171,868. Auburn Auto shipped 1,116 cars in June vs. 1,800 in May and 3,144 in June 1929.

Ward Baking net for 15 weeks ended July 5 was $709,823 vs. $1,207,164 in 1929.

Waldorf Systems (restaurants) first half net $1.23/share vs. $1.13 in 1929.

Indiana Limestone first half sales $5.438M vs. $5.121M in 1929.

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