September 19, 2009

Friday, September 19, 1930: Dow 234.18 -3.56 (1.5%)

Assorted historical stuff:

Editorial: August trade figures give some encouragement for the first time this year, and deserve the emphasis they were given at the White House. After steadily declining from $410M in Jan. to $266M in July, exports rose to $300M in Aug. Import figures did hit a new low at $217M, down from $310M in Jan., but part of this may be accounted for by commodity price declines - if these have bottomed as thought, both sides of trade figures might show improvement soon.

Editorial: Brazil is facing severe economic crisis. Almost 80% of export trade is coffee. However after many years of being almost the world's sole source, other countries have started raising competitive grades of coffee. The resulting oversupply has slashed coffee prices by more than half, resulting in huge losses for growers, labor discontent because of lowered wages, outflow of gold to pay for loans, and a huge surplus still to be disposed of. “Brazil must realize that it is now at the crossroads”; it must diversify into some other source of income.

Farm Board Chair. Legge dismisses proposed debenture plan to support wheat, calls for less acreage and consolidating small farms. Notes recent farm troubles, but says long-term record is good, and “difficulties will be surmounted.” Current farm mortgage debt is about $9B, mostly held by banks and insurance cos.

Dr. Frey, Dir. German Dept. of Health, reports on German alcohol consumption. Says current level is far below prewar years but has increased since 1916; alcohol-related diseases are much milder than at the turn of the century. Believes US mortality from alcohol is as large as German due to poorer available quality. Also believes number of brutal crimes in a country is directly proportional to rise or fall in alcohol consumption.

The NY City budget for 1931 may reach $625M; it wasn't too long ago that 100M people were criticizing the extravagant Federal budget of $1B.

Market commentary:

Market wrap: Stocks unsettled by series of bear drives, with leaders including US Steel, Westinghouse, American Can taking sizable declines. Volume again dried up and stocks traded in a very narrow range. Some pickup in activity and further decline in last hour, with sharp breaks in some trading favorites including Auburn Motor. Bond market active, generally higher; US govts. dull, slightly lower, foreign govts generally firm but German irregular on continued uncertainty.

Some observers were disturbed by increased volume on the late decline, by reduced volume on recent upturns, and by continued low call rates (taken as evidence of slack business demand for credit). Conservative observers advise staying on sidelines until “the market definitely has indicated its next important movement.”

Rep. Chindbloom (R. Ill.) returns from Europe, reports to Pres. Hoover. Says main criticism of tariff abroad is result of poor attitude of Americans abroad who disparage tariff, adding he is “thoroughly disgusted with such criticism.” Blames decline in foreign trade on reduced values. With regard to depression, says US doesn't have the unemployment that exists in Britain and Germany, and “our present depression would be considered prosperity in some parts of Europe.”

Rep. C. Kelly of Pennsylvania predicts continued price cutting over the next 10 years will bankrupt most manufacturers and almost eliminate independent retailers.

Trusteed Share News reviews history of severe market reactions in past 30 years, including those in 1903, '07, '17, '21, and '29. Points out that every market low was higher than the previous one, and therefore that buying after the market reaction “would have rewarded the investor in the highest degree.”

C. Caldwell, Pres. Interlake Iron, conservatively optimistic: “The consensus of opinion of men I have talked with from every branch of industry is that business has turned the corner and that the present pick up in business, even though it is slight, will be sustained.”

Swiss banks report large amount of idle funds due to slow economy and influx of foreign capital, particularly German and Spanish.

Economic news and individual company reports:

Fed. Reserve reports number of industrial and rail workers declined 1.5M in year ended July 1930; decrease in payroll was greater due to more part time workers. Level of all other (commercial) loans and demand for currency has been relatively low due to inactive condition of business.

First 77 days of fiscal year show Treasury revenue down $117.9M, expenditures up $41.7M.

Fed. Reserve member banks report brokers' loans up $79M in week ended Sept. 17, to $3.222B.

Of 52 major rail carriers, only 3 are expected to report increased Aug. revenues vs. 1929; overall revenue decline expected over 13%.

Companies reporting decent earnings: Freeport Texas Co. (sulphur), Arundel (sand and gravel), Fox Film, American Chicle (chewing gum).

Studebaker introduces new Dictator line of cars priced from $1,095-$1,250, vs. $1,195-1,415 for old Dictator line.


“A Scot was engaged in an argument with a conductor as to whether the fare was 5 or 10 cents. Finally the disgusted conductor picked up the Scotsman's suitcase and tossed it off the train, just as they passed over a bridge. It landed with a splash. 'Mon,' screamed the Scot, 'isn't it enough to try and overcharge me, but now you try to drown my little boy?'”

+ The Boring Stuff:

Krueger & Toll extends already diversified interests to another industry by taking control of L.M. Ericsson Co. Ericsson is a telephone company with rapidly growing earnings; it manufactures phone equipment and sets up and operates systems worldwide, with widespread operations in Europe and the Americas. Aside from their main business of Swedish Match and Int'l Match, K.&T. also controls or has interests in the largest Swedish bank, the largest owner of city real estate in Sweden, one of the world's largest iron producers, and banks and realty companies in France, Germany, Switzerland, and Poland.

Interior Sec. R. Lyman formally starts work on Boulder Dam, announces it will be known as Hoover Dam.

Announcement that some large industrial consumers have begun to buy raw materials ahead seen as significant. If this policy spread would lead to business improvement, but trade reviews indicate most consumers are still cautious.

Market seen in control of professionals, with most traders content to accept small, quick profits.

F. Newburger, Phila. Stock Exchange Pres., returns from Europe, reports bankers optimistic on business, looking to US for economic leadership; finds reputed ill-feeling regarding tariff to be exaggerated.

Some trading favorites including A&P and A.O. Smith, continue to sell at high earnings multiples, this comparative stability “indicates quiet confidence.”

Wall Street has changed its attitude in past year; last year all attention was focused on companies that were expanding, while earlier this week Kroger was favorably reviewed based on announcement that they have closed 391 stores in the past year.

One Broker's complaint: “Last year, prior to the break, a stock might advance or decline 10 ... points in a day without any of our clients making any enquiry ... Now a stock [changes even] a fraction of a point, and we are inundated with enquiries even to giving the history of the company in question for many years back.”

D. Alexander, Singer Mfg. (sewing machines) Chairman, says company feeling the effects of depression and foreign taxes, with sales down about 30% this year. Blames depression on artificial stimulus given to business for many years after 1918, says it was only a matter of time until this condition adjusted itself. Doesn't see quick recovery, but slight and gradual improvement “if there is no recurrence of unfavorable conditions”; much also depends on crop yields.

Austrian economy reported declining; Economic Research Inst. there has given up on anticipated fall improvement, now has “fallen back on the modest hope that in the near future the rate at which activity has been declining will slow down.”

Commodities weak. Grains down moderately. Cotton almost unchanged after early strength. Copper remains at 10 1/2 - 10-3/4 cents; some large consumers are trying to buy ahead for 1931 at 10 cents, but so far producers are holding out. Cocoa hit new record low of 5.64 cents/pound.

IRT management protests removal of 6th Avenue Elevated, tells NY Board of Transportation this could drive it into bankruptcy.

M. Maltbie, NY Public Service Commission Chair., criticizes illegal secret contracts between utilities and customers, calls for simple and uniform rates.

Suit brought against oil proration (limiting production) in Federal court following upholding of proration by state court in Oklahoma.

Farm Board announces current $250M appropriation almost exhausted, will request more funds out of $500M total authorized when Congress meets in winter.

F.W. Dodge report construction contracts awarded in 37 states east of the Rockies for Sept. 1-12 was factory of $13.537M/day vs. $13.893M in August and $17.776M in Sept. 1929. Proportion of residential construction was higher than in August; seen as indicating return to more normal business conditions.

Scrap steel prices continue firm although purchasing by mills isn't large; Dow average of finished steel and iron products unchanged at 1930 low.

NYSE seat sold for $325,000 down $25,000 from last sale.

Fixed investment trusts (similar to ETF's - hold a fixed portfolio with no active management) have become much more popular at expense of management trusts (similar to actively managed mutual funds).

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