June 30, 2009

Tuesday, July 1, 1930: Dow 226.34 +7.22 (3.3%)

Assorted historical stuff:

New York Governor Roosevelt calls for system of unemployment insurance; says 90% of unemployment is not the fault of the worker, but cautions against insurance becoming “a mere dole which encourages idleness;” says line must be drawn against any person who refuses to accept an offered position.

Bolivian revolution inspired by students victorious; council of six army chiefs takes over; plans economic council to deal with crisis.

Canada has third largest railway mileage in the world, including two transcontinental railroads.

Trading volume on the NYSE set records for June (76.6M shares) and for Q2 (265.7M). June regular daily volume ranged from 1.7M to 6.4M; Saturday volume from 0.6M to 2.2M.

Market commentary:

Bulls encouraged by evaporating volume in Saturday's session in response to price declines. “Creeping” rally developed, possibly partly due to technical factors (after large scale liquidation the past two weeks, shorts had to bid against themselves to cover). New highs for the current rally in US Steel, GE, American Can, Westinghouse. Good gains in Kodak, Foster Wheeler, some utilities. Banks and trusts higher. Commodity trading dull, mostly down slightly.

Editorial: D.M. Marvin, economist for Royal Bank of Canada, says present depression caused by tight credit; points out that in spite of low rediscount rate many banks are not lending due to poor balance sheets; total credit extended by the Fed. Reserve banks fell from $1.621B last Oct. to $937M in June. Proposes Fed. Reserve banks inject $500M of reserve credit by purchasing government securities. Idea is worth considering, but must be done with care to avoid inflation.

City Bank of NY criticizes blind optimism about an upturn earlier in the year, but also cautions against excessive pessimism. Based on history, depressions usually turn around sometime in the year following their start; consumption hasn't fallen as much as production, leading to eventual rebalancing. Believes depression caused not by gold or credit shortage but by unbalanced production, leading to commodity price declines.

Labor Secretary Davis says business is definitely turning up in the East, predicts reasonable prosperity within the next year. “People have learned once again that only work produces wealth.”

Inventories at major corporations are low as they've been in years - this should lead to heavy buying when business turns up.

Railroad news has been bad, but managements are optimistic and yields have become attractive[5%-7%], leading to some investment buying. (P. Crowley of NY Central: business has turned the corner, E.N. Brown of Rock Island: freight traffic has hit its low).

Advertisement for Clement, Curtis, & Co. (broker): “Stocks at high levels look safe but are dangerous; at low levels they look dangerous but are safe.”

Economic news and individual company reports:

L.K. Boysen, Pres. Mortgage Bankers Assoc., says Chicago is badly overbuilt with 17.7% of office space vacant. Blames excessive loans on bad appraisals, inadequate foreclosure laws. Says some bond houses are “keeping their investors in ignorance of the defaults by advancing the payment of principal and interest out of other funds.”

Survey of 418 companies from variety of sectors shows 173 with increased dividends for 1930 vs. 139 decreased.

Gasoline consumption for April in 42 states was 919M gallons compared to 807M in March and 805M in April 1929.

GM sales so far this year down about 1/3 compared to 1929. If pattern of first Q repeats, profits for first half will also be down about 1/3 to $100M or $2.15-$2.20/share. Full year's dividend requirement is $3/share.


The Big Fight - story about gambling rings trying to fix a championship boxing match; adapted from the 1928 stage play starring Jack Dempsey. Best scenes are “the gambler's conferences and the training of the fighters.” Climactic fight is unrealistic; film has too much “repetition of 'fight picture' devices, now hackneyed.”

+ The Boring Stuff:

Federal government now employs 587,665 people, not including military, legislative, judicial, and DC government employees.

High yields might offer speculators the opportunity to do a carry-type trade, borrowing from brokers at 3.5%-4% and buying stocks yielding 6%-7%.

C.W. Young of Young & Ottley (investment firm) says investors who “have waited ten years to buy America on the bargain counter” will get the chance this summer. Blames current depression on political delay in passing the tariff, damaging business morale. Predicts a point in the next few months where stocks will more than discount all bad news and so be good buys.

Technical-style analysis: Two of the three Dow averages have held above the November panic lows, and all three now seem range-bound. If industrials or utilities break through the November lows, this would confirm a further big decline; otherwise trading in a range would probably indicate accumulation before the next leg up. Strictly speaking, a period of range-bound trading could be accumulation [bullish] or distribution [bearish], but if it were distribution this would indicate further economic trouble ahead; since production has been fairly stable the past few months, “such an assumption at this time would be merely borrowing trouble.”

US exports for Q1 1930 were 20% below 1929 but only 4% below the 1924-1928 average. Attributed to business recession and commodity price fall.

Mexico says it will counteract tariff by establishing local packing and canning industry and marketing products in other countries.

May meatpacking sales down 3% from April and 11% from May 1929.

Dupont estimates net for second Q at $1.31/share vs. $1.44 in 1929.

Continental Baking earnings improving from early part of 1930 but remain down from 1929; total H1 earnings down about 25% from 1929.

Foster/Wheeler (engineering/power) estimates first 6 months 1930 earnings up 20% over 1929; all plants operating at capacity.

UGI (gas/electric utility) net for year ended May 31 was $35.8M, up 23% over previous year; operating revenues up 7.6%.

McKeesport (tin plate for canning) earnings for H1 seen ahead of 1929. Benefiting from new markets for canned food and lower raw material costs.

Liquid Carbonic (Carbon Dioxide, soda fountains) earnings for 8 months ended May 31 were $823,521 vs. $671,562 in 1929. Sales up 10%.

Curtis Mfg. (pneumatic machines) net for year ended May 31 $3.62/share vs. $3.86 previous year.

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