July 15, 2009

Wednesday, July 16, 1930: Dow 233.79 -0.42 (0.2%)

Assorted historical stuff:

American Museum of Natural History produces The Bottom of the World, a film about expedition to the Antarctic; "The penguins, to which a large part of the film are devoted, are excellent camera subjects, and provide a natural humor in their likeness to human beings."

About 4.7 million people owe their living to the auto industry, 3.96M directly employed. Industry has gone from being insignificant 25 years ago to now essential to prosperity. Other important industries developed in that period: telephone, radio, electricity, electric refrigerator, airplane [true, but we've produced twitter!].

GE to build world's largest electric generator for Hudson Avenue station of Brooklyn Edison. To be rated at 160 MWatt, 16,500 Volts, 7,000 Amps.

Number of German mark-millionaires was 15,547 before the World War, decreased to 3,917 after the [hyper-]inflation period, but has since doubled.

Molly Picon, Yiddish comedienne from Second Ave.Theater, appears at the Palace with "a program of character studies and incidental songs." Result is disappointing; "work she does so successfully on the Yiddish stage cannot be adapted well to the English vaudeville circuit."

World registration of motorcycles 2.625M in 1929 vs. 2.506M in 1928.

Market commentary:

Major industrials hit new rally highs on increasing volume. Some setbacks in last hour, thought technical, due to "temporarily overbought position." Utilities and oils strong. Banks lower on profit taking.

Sentiment helped by some recovery in industrial activity from holiday shutdowns. "Important banking interests" encouraged in belief early July was low point of trade recession. Auto recovery now expected to lead to larger improvement as summer progresses.

Hopeful sign seen in low inventories carried by industry and retail; about as low as ever compared to volume of business. Retailers have been buying "hand to mouth" for months. This differs from the 1921 depression, when inventories were at record highs. This should add a large boost when the economy turns.

More bullish factors: Dow yield, allowing for probable dividend cuts, is 4.75% vs. 3.25% for commercial paper; a spread over 1% has been a reliable buying indicator. Also, generally low interest rates, and the passing of a year since business began to turn down.

Dresser & Escher say "American industry is in the healthiest condition it has been in years; inventories low, the cash position strong, operating efficiency everywhere developed as it has seldom been developed before." They note that stocks recently almost hit the panic low from last November; "What a chance for the man who hasn't lost his head to lay the foundation of an everlasting fortune."

US ship building one of few industries showing improvement; busiest since 1921; attributed to Jones-White bill granting ocean mail contracts based on construction of new vessels; government has granted low-interest loans to finance construction. Worldwide shipbuilding is declining.

Economic news and individual company reports:

Zenith trying to produce lower-priced radio than current line selling for $185-$495, not including tubes.

General Foods expects first-half earnings about $2/share, roughly the same as 1929. Now sells almost 80 products; Jell-O subsidiary introducing new lime flavor; also introducing Post's Whole Bran. Investigating quick freezing to ship food overseas.

United Aircraft [later became Boeing, United Technologies, and United Airlines] expects Q2 earnings substantially improved over Q1's $.39/share, but well below $1.52/share in Q2 1929. Boeing subsidiary doing well; recently developed the Monomail commercial plane, able to carry 6 passengers and 750 lbs.mail at 140mph.

Paramount Film rental revenue in US for quarter ended June 28 were 7% ahead of 1929; foreign 21% ahead.

American Chicle Co. (chewing gum) Q2 earnings $1.21/share vs. $0.95 in Q1 and $1.31 in Q2 1929.


"'Will you have a drink?' asked Sandy, noted for his thrift, of his guest, Angus McLean. 'Yuss,' said Angus, who tossed it off and set the glass down thoughtfully. ''That whuskey,' he observed, 'is just right.' 'Just right? What do you mean?' 'Well, if it were any better you wouldna give it to me and if it were any worse I couldna drink it.'"

+ The Boring Stuff:

Editorial: Farm Board must announce its plans regarding upcoming cotton crop. Last year was disastrous, with fluctuating prices leading to one broker cornering the market (in spite of a decline in consumption); price spike was followed by a plunge, with many ruined along the way; probably also led to more decline in cotton use. As Coolidge put it, "Business can stand anything better than uncertainty."

Commodities generally higher, including wheat and cotton. Bond market quiet with some profit taking, strength in some convertibles.

Technical observers highly encouraged by industrials ability to repeatedly hit new rally highs; expect possible small corrections due to "technical reaction," but see further uptrend to 240-250 on the Dow. Increased rumors of "bull pools" organized for particular stocks (Radio-Keith, Hahn Dept. Stores), drawing in traders who have been absent for some time or have been on the bear side.

Col. L.P. Ayres of Cleveland Trust sees recovery starting in August; good factors include plans to increase auto and steel production, strength in bond market. Disputes idea that deflation prevents recovery, noting 1925-27 prosperity in spite of deflation. Sees deflation caused by artificially stimulated overproduction and tight credit; situation should correct itself. Compares current to previous depressions: "what we are now going through is no unprecedented phenomenon. Recovery has always followed in the past rather promptly after the development of conditions very similar to those now prevailing."

Rally has so far been stronger in major issues; many low-priced stocks have not moved much.

Italy unemployed at end of June 322,287 vs. 367,183 end of May.

Rail freight loadings for week ended July 5 were 792,141 cars, down 144,707 from previous week due to July 4/5 holiday. Down 119,002 from 1929.

May revenues for 172 class 1 rails $463.1 vs. $538.6M in 1929; operating income $69.2M vs.$103.6M.

May US electric output 8,006 GWHr, 1% below May 1929.

Farm wage index down 2% in Q2 vs. usual 6% seasonal rise. Supply of farm labor 103.4% of normal July 1 vs. 92.3% in 1929.

Life insurance purchased in June was $1.144B, up 4.1% from 1929; first half was $6.657B, up 1.8% from 1929.

May US tire shipments 5.564M, up 2.5% from April but down 22.5% from 1929.

A&P annual sales are running at over a $1B annual rate, approaching level of US Steel.

US Steel ingot production at 63% vs.55% previous week and 99% year ago; independents at 52% vs. 42% and 91%; Total industry 57% vs. 48% and 64%.

North Amer. Aviation first half net $0.47/share vs. $0.58 in1929.

IT&T expects 1930 earnings a little over dividend requirement of $2; business suffering because of depression.

Western Electric sales for first-half $201.6M compared to $194.7M in 1929. Commonwealth Edison Q2 net $2.66/share vs. $2.79 in 1929.

White Sewing Machine earnings severely affected by poor collection on installment credit accounts, increased repossessions.

Colgate-Palmolive-Peet first half net $1.66/share vs. $1.36 in 1929. Kimberly-Clark Q2 net $1.66/share vs. $1.62 in 1929.

Campbell Wyant Foundry first half net $1.65/share vs. $3.05 in 1929. Bohn Aluminum & Brass first half net $1.95/share vs. $5.08 in 1929.

Grand Union first half sales $18.1M, up 14.5% from 1929; no increase in store count.


  1. "Major industrials hit new rally highs"

    See The Bernanke Market by Andy Kessler, WSJ, 7/15/09.

    Especially revealing is the graph of Money Supply vs The Dow

    "Hopeful sign seen in low inventories"

    Signs of Upturn in Inventories Remain Elusive WSJ 7/15/09. "When businesses add merchandise to store shelves again and consumers gobble up the goods, the signs of an economic turnaround will have arrived. That hasn't happened yet."

    Oil Prices Hit Eight-Week Low WSJ 7/14/09. "Benchmark U.S. crude-oil futures declined to a fresh eight-week low Tuesday, as expectations of rising fuel stockpiles and months of anemic demand kept a lid on prices."

    And a fascinating story about skyscrapers as indicators of depressions, since big buildings have been a frequent notable mention on this site: Skyscrapers and Business Cycles By Mark Thornton

  2. Thanks, Eldon - very interesting article about the skyscrapers. I actually came up with the same concept without seeing that, and named it the same thing! (see here). I think the article in general is very good. My main criticisms:
    - It seems overly restrictive to only count the world's tallest buildings; I think any cluster of very tall skyscrapers (such as that started in New York around 2007, including the Bank of America and New York Times buildings) can act as a warning flag.
    - To me, the article reaches a bit in trying to explain the construction as behavior by rational actors (shades of the efficient market theory). I don't think these buildings really make much economic sense even in the best of times and are therefore probably driven largely by ego and irrational exuberance, although some of the effects described in the article probably do make it possible for the money to be available for construction (as it's available for practically any harebrained scheme at those times).