October 20, 2009

Monday, October 20, 1930: Dow 185.29 -2.08 (1.1%)

Assorted historical stuff:

Dr. C. Warburton, national drought relief committee chair., says credit associations beginning to function in drought areas to provide secured loans to farmers; Red Cross and communities are to help in cases of families in distress or unable to provide security.

H. Schacht, former Reichsbank Pres., calls on Secy. of State Stimson; wouldn't comment on government affairs, but declared German people would try to do everything right as long as possible, and maintain calm and not upset the world by violence.

O. Lee, Wisconsin Penitentiary Warden, notes very few men in prison have a good education: out of 634 admissions in the past year, only 5 had a university education and 154 hadn't gone beyond the fifth grade.

R. Updegraff, writing in the current issue of Tomorrow's Business, sees bright future for gas stations: “May it not be that new villages and towns and, ultimately, cities, will grow up around some of the best located of our roadside filling stations?”

Dornier DO-X [flying boat, world's largest plane] to start transatlantic service Nov. 3; airmail rates will be $1.50 for letter and $1 for postcard.

New York Trust Co. opens new branch at 57 St. and 5th Ave. today; 15 story marble building of classic Greek design, with almost all fixtures made of aluminum to harmonize with white marble; main banking room decorated with 200 by 13 foot historical mural by G. Coale depicting New York since 17th century.

First industrial enterprise within current US territory was manufacture of glass near Jamestown, Virginia in 1607. Production of glass goes so far back in history that its origin has been lost; it's mentioned in the book of Job, and Pliny credits its discovery to Phoenician sailors. “A Roman emperor is said to have beheaded a man who invented malleable glass, since then the precious stuff would no longer be valuable as tribute from his conquered enemies.”

Market commentary:

Market wrap: Another flood of selling early, with new yearly lows in majors including GM, GE, New York Central, and Westinghouse, and the general list under heavy pressure. Selling was attributed to liquidation of margin accounts and renewed bear pressure based on lack of support in Friday's session. However, trading remained orderly with “scale buying” seen, and moderate rally developed at end of first hour. This improvement was wiped out in the second hour by selling wave starting in American Can and spreading through the list. US Steel hit new 1930 low; specialties including Gillette and Worthington Pump down sharply; utilities and oils weak. Bond market active; foreign governments continue strong; US govts. steady; corp. moderately lower, particularly convertibles.

Week in review: Efforts at sustained stock rally unsuccessful, and prices plunged to post-panic low, though lower volume Friday indicated selling might be losing urgency. Foreign bonds rallied through week, led by Brazil; US govts. firm; corp. generally weaker, convertibles near year's low. German position seen considerably better on inability of Fascists to block Breuning govt., and new $125 loan; stocks rallied sharply. Continued unrest in Spain. Moderate rally in grains, while cotton hovered near yearly lows. Renewed caution seen by steel buyers after slight Sept. revival. Weakness in gasoline and oil prices.

Broad Street Gossip: Stocks have gone almost straight down since Sept. 10, except for two or three rallies; Friday's close of 187.37 was down 57.72 from the Sept. 10 peak. Some are now calling it Wall Street's worst market ever, “even more severe in certain particulars than the October-November market of last year.”

Experienced market observers see the current universal bearishness as very favorable; market psychology is exactly the opposite from that a year ago when bullish enthusiasm obscured unmistakable signs of a rapid decline in business. Many who were observant enough to sell in the final stages of the bull market are now taking advantage of deflated values and good yields to replace their holdings.

F. Hobbs of Central Trust of Ill. says business improvement started in July, is now apparent in “operations of several hundred concerns”; sees full recovery in 1931.

Economic news and individual company reports:

Total internal revenue collections in Sept. were $545.1M vs.$594.0M in 1929.

BLS reports retail food prices Sept. 15 were up 1 1/3% from Aug. 15 but down 9 1/2 percent from 1929. Wholesale prices in Sept. were up less than 1/2% from Aug., first rise in over a year.

Panama Canal traffic increased in first half of Oct., first gain since March.

GM dealer sales in Sept. were 78,792 vs. 85,610 in Aug. and 146,483 in 1929; first 9 months were 1.009M vs. 1.676M. A. Sloan, Pres., says Nov. dividend payment secure; seen as reflecting confidence GM can maintain dividend under current conditions.

Dow made new post-panic low. There were 2 new yearly highs and 221 new lows [Note: most of these new highs are in preferred stocks].

Stock market joke:

“'Sorry my stock trend chart was a little off last month,' apologized the chart reader to his $5 a month client. 'Don't apologize,' replied the client. 'I made money.' 'That surprises me. How did you do it?' asked the chart fiend. 'I read it upside down and didn't know it,' answered the client.”

+ The Boring Stuff:

Editorial: Breuning's address to the new Reichstag was promising in that he made a firm stand against extremists on the left and right. Most significant to foreign observers was his position that Germany must make an honest effort to fulfill the Young plan (reparations) before asking for modification. It's encouraging that Germany showed a $250M trade surplus over the first 9 month, though at some cost to their internal economy. This suggests that with moderate improvements in world trade the Young plan payments may be sustainable.

Editorial by T. Woodlock: Regulation of utility rates in US and England differs in important principle: in US, rate is set to be a reasonable return on investment, and utilities can never make more than this; in England, reasonableness is judged by worth of the service to consumers; for example, some utilities are allowed to increase dividends proportionally to reductions in rates. The US system seems driven by public alarm over excessive profits and concentration of economic power.

Pres. Hoover meets with T. Campbell, prominent Montana wheat grower, and W. Ripley, Harvard economics professor.

NY City Board of Estimate adds more than $5M to city budget including $1M for unemployment relief, “the method of its allotment to be determined later.”

Chicago City Council Chairman starts drive to compel Pennsylvania and other rails to begin $14M construction program in city, and to campaign for other building projects to relieve unemployment this winter.

Individual ownership of rail stocks has barely changed the past five years, but ownership by holding companies and by other rails have grown significantly.

Invention of the airplane has made it more difficult to corner the market on a stock. In the Northern Pacific corner [of 1901], when the stock soared to $1000 a share, deliveries of shares by train from Philadelphia took two hours; this would now take 20-30 minutes. “Any attempt to corner the market in any particular stock in the future will be confronted with the possibility of meeting a flood of shares coming from a wide area by airplane.”

Weakness in bank stocks over the past week has been “somewhat of a surprise,” and disturbed some market observers.

Since brokers' loans were already extremely low, it was evident much of the recent selling was liquidation of bank security loans; these declined sharply last week.

Some bears now said to be spreading their short sales among different houses to avoid large blocks.

Short sellers found stocks somewhat easier to borrow after Saturday's close; notably, US Steel was no longer loaning at a premium.

Growing use of stop-loss orders thought to have contributed to selling.

When the current wave of pessimism subsides, it undoubtedly will develop that there was no more reason for parting with good stocks under the present circumstances than there was for making long commitments at the height of the 1929 boom.”

Some companies now have working capital approaching or greater than their market cap.

Conservative observers advise remaining on sidelines, caution against going short as technical conditions may cause sharp recovery at any time.

E. Filene says chief cause of world depression is producing goods in modern scientific factories but distributing them through an antiquated system.

G. Murphy of G. M.-P. Murphy & Co. returns from extended European trip, attributes economic unrest to heavy taxation on most European nations.

Commodities quiet. Grains unchanged to up slightly. Cotton almost unchanged.

Canadian Bureau of Statistics estimates world wheat crop for 1930-31 at 4.471B bushels vs. 4.205B last year and 4.709B in 1928-29. Exportable surplus is 1.272B, of which Canada has largest portion at 264M; world requirements estimated at 752M. US Agriculture Dept. estimates corn production for 1930 in 14 countries at 2.619B bushels, down almost 21% from last year.

Farm Board to open effort to reduce cotton acreage by 5.8M acres to 40M; will emphasize careful planning of substitute crops.

Irving Fisher's index of 200 commodities for week ended Oct. 18 was 82.7 vs. 82.9 in previous week and 94.6 in Oct. 1929.

881 lumber mills reported orders for the week ended Oct. 11 were 3% above production of 256.6M feet; production is over a third below 1929 levels.

US cigarette production in Sept. was 10.190B vs. 10.351B in 1929; large cigarettes were 550M vs. 872M; large cigars 524M vs. 592M.

Cuban sugar producers reportedly approve plan to segregate 1.5M tons of 2.2M stored surplus; Pres. Machado calls for cooperation of Cuban producers and foreign interests to implement plan.

NYSE seat sold for $245,000, down $10,000 from last sale.

Companies reporting decent earnings: Allied Chemical.

Standard Oil of Indiana's proposed 9% cut in Venezuela oil output seen as unlikely; Venez. output for first 9 months was 101.8M barrels vs. 101.6M in 1929.

Hershey stock about 81, or about 10 times 1929 earnings; yield over 6%; first half 1930 earnings were slightly above 1929; Q3 earnings expected less favorable due to unseasonably hot weather, but Q4 expected well above 1929.

Eastman Kodak anticipated to benefit from decline in silver, since it's world's largest private consumer.

Sears, Roebuck 1930 sales expected to decline about 10% vs. 1929; decline in net expected to be worse due to higher overhead.

Segal Lock & Hardware introducing new safety razor, says demand in this division continues very strong.

Bendix Aviation to reduce instrument prices; new list includes: altimeter $18, airspeed indicator $10, turn indicator $20, compass $10.

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