October 22, 2009

Wednesday, October 22, 1930: Dow 186.40 -6.92 (3.6%)

Unemployment special:

Pres. Hoover appoints Colonel A. Woods. to develop organization to handle unemployment problem; former NY City police commissioner, organized employment agencies for placing veterans after the war. Cabinet Committee on unemployment work with Woods to coordinate cooperation of government agencies. Committee also to develop cooperative measures with industry and local bodies. Congress to be asked to remove some restrictions to permit expanding public works to the utmost this winter. Where possible, government departments and industries will be encouraged to “stagger work” by distributing available hours to more workers.

NY City businessmen's committee to relieve unemployment gets favorable reception from many financiers and industrialists.

NY Gov. Roosevelt says state will spend $22M on public works by end of the year.

C. Hanch, Natl. Assoc. of Finance Cos. GM, estimates employment has fallen at most 10% below normal, with factory workers (about 20% of all workers) worst, other sectors much less affected by depression. Says this indicates why no large rates of default have appeared in installment sales.

White House estimates number of unemployed at 3.5M based on April 1 Census report; says not trying to minimize situation but rather to afford a correct appreciation of actual conditions.

Agriculture Dept. reports index of farm wages on Oct. 1 was 150, down 10 from July 1, down 24 from Oct. 1, 1929, and lowest in 7 years; supply of farm labor exceeded demand by over 40%. Daily wage of farm workers ranges from $1.10 in South to $3.50 in Northeast.

Class 1 rail employees in July were 1.532M, down 2.08% from June and 12.22% from July 1929; wages were down less than 1% and 14.52%.

British registered unemployed Oct. 13 were 2.189M vs. 2.176M prev. week and 1.215M in 1929.

Assorted historical stuff:

Editorial: Senator Glass apparently means to start another “money trust” investigation like the one in 1913 [investigating control of bankers and the NYSE over the economy; followed by Federal Reserve Act and 16th Amendment]. The NYSE can be expected to mount a better defense this time. One item requires clarification: the subject of “gambling in stocks” is likely to come up now as it did in 1913, but it was never defined. The main distinction is in the person, not the act: if reasonable judgement is used, then it's not gambling. Therefore, since reasonable judgement is always possible when trading stocks, the act per se is not gambling; Q.E.D.

Dr. H. Schacht, former Reichsbank pres., says Germany will have to stop reparations payments unless other countries help her grow foreign trade; believes “some German government” will defy disarmament provisions of Versailles treaty unless allied countries disarm as specified in the treaty.

US govt. sources say no countries have yet asked for moratorium on debt payments, not even for the allowed 2-year postponement of principal payments.

Rep. E. Celler (Dem., NY) asks investigation of Navy aircraft carrier award to Newport News Shipbuilding over Brooklyn Navy Yard, charges secret bid leaked.

Buy-a-bale” movement proposed by Texas Gov. Moody to remove 5M bales of cotton from the market draws many responses. A couple of the more interesting ones: One Arkansas enthusiast proposed “burn a bale” movement, himself buying a bale and setting fire to it on a main street; movement ran out of steam when he was summarily thrown in jail for arson. W. Parker, economist for Fenner & Beane, has started using cotton cloth for everything possible, including writing paper.

US estimated to spend over $200M/year on industrial research in 1,500 labs. AT&T through Bell Labs spends about $20M, with main lab in NY City; research mainly concerns communications, but byproducts include “electrical stethoscope” used to diagnose heart disease, “artificial larynx” enabling those whose without vocal cords to speak, and spectacular experiment bombarding nickel crystal with high-speed electrons to demonstrate electrons are particles, not waves.

Plane being built secretly at Junkers factory in Germany reportedly designed to attain altitude of 35,000-40,000 feet, fly over 500 mph; trials at end of year.

Hong Kong aviators try to relieve drought by dropping over 100 lbs of “chemical called deolin” into storm clouds; material is “supposed to induce refrigerating action when it penetrates the clouds, causing condensation and eventual rainfall”; attempt was unsuccessful.

Notable art for sale includes Rembrandt's “Rabbi in a Wide Cap,” Turner's “A Dream of Venice,” and the finest collection of Gothic stained glass ever offered for sale in the US. The Metropolitan Museum is showing ancient and contemporary Mexican art; the MOMA is showing Corot and Daumier.

Market commentary:

Market wrap: Stocks succumbed to renewed pressure after Monday's rally; “fresh unsettlement” attributed to worries on price declines in various sectors. Oils particularly weak on gasoline price decline; coppers down on uneasiness over continued inventory buildup; Westinghouse plunged on bad earnings. Bears, encouraged by early success in isolated sectors, resumed aggressive operations throughout the list; declines gradually picked up momentum; GE and Goodyear hit new 1930 lows while majors including US Steel and American Can were under persistent pressure and specialties including Auburn, J.I. Case, and Foster-Wheeler plunged. Some irregular rallying toward market close. Bonds mixed: foreign govts. mostly higher; US govts. steady; corp. highly irregular, especially convertibles.

Hayden, Stone & Co. point out that in the 33 year history of the Dow Jones average there have been 5 major bear markets, with 4 severe enough to be called panics; in none of these cases did the market break substantially below the panic low in the following year. This is no guarantee, but there's a logical reason for it: in the throes of panic, prices tend to be driven lower then they'll be when investors are calmer and more rational.

Many of the Q3 earnings reports so far have been “fair reading,” especially in light of the pessimism going into earnings season.

Reports of heavy odd-lot (small) buying continue, as do reports of “support from important interests.”

Some point out stock prices are still high compared to previous depressed periods, but interest rates are lower today than in the past so a lower return is inevitable.

Some of the “best investment circles” are recommending high-grade bonds, anticipating money rates will stay low for a long time.

Construction related companies expected to have brighter prospects as “the nation's huge credit supply is gradually easing interest rates on mortgage money.”

Analysis of 14 leading fixed investment trusts shows 6 industrials held by all 14: du Pont, Eastman Kodak, GE, Natl. Biscuit, US Steel, Westinghouse.

Economic news and individual company reports:

Rail freight loadings for week ended Oct. 11 were 954,874 cars, down 17,618 from prev. week and down 224,666 or 19% from 1929 week.

Gasoline price declines have been widespread east of the Rockies; expected to translate to lower crude oil prices.

Irving Trust Co. mid-month report sees mixed picture, with unmistakable improvement in retail and wholesale sales, in the textile industries, and in employment in some areas. However, department store and higher-priced goods sales are down, heavy industries remain weak, and business failures are up.

F. Tilton, Asst. Postmaster General, says will ask Congress to raise first-class postage 1/2 cent to cut operating deficit; will hold off on layoffs due to depression.

Companies reporting decent earnings: IBM, Chesapeake & Ohio Rwy. (against industry trend), BMT (NY subway), Wilson & Co. (meat products).


A Devil with Women: Victor McLaglen in his usual role as a soldier of fortune, this time heading the army of a South American country. His “opponent in arguments over women” is a young man there to protect his uncle's silver mines. “This part, acted naturally by Humphry Bogart, is the high spot of the picture.”


Eddie Cantor joke about midget cars: “A chap riding in one said to the driver, 'It's dark; we must be going through a tunnel.' 'Tunnel hell,' replied the other, 'we're under a truck.'”

+ The Boring Stuff:

T. Macaulay, Sun Life Assurance of Canada Pres., gives views on the depression: Severity has greatly exceeded anything thought probable 8 or 10 months ago, when it was argued trouble was confined to the stock market, inventories were not high, and there was no inflation in commodity prices. Cause of this unexpected severity has been a drastic decline in commodity prices, with disastrous results in many industries and countries. This decline can't be explained by oversupply in particular commodities, since it cuts across almost all; instead, it's an increase in general purchasing power of the dollar. This causes severe problems for borrowers (since debt payments are fixed) and industries (wages are difficult to reduce, so many companies become unprofitable). In the 1920's the US had a large influx of gold; the Fed. Reserve wisely prevented inflation then by selling bonds, providing an outlet for investment of gold deposits at banks. The Fed should now reverse this by buying bonds on the open market; as little as $500M would probably increase bank lending capacity by several billion and undo the current excessive deflation.

Dr. R. Young of Commerce Dept. says shortage of gold not behind depression based on his study showing central banks had higher gold reserve ratios on June 30 than a year earlier.

British chancellor of the exchequer P. Snowden says firmly opposed to protective tariff for Britain, would lead to Parliament becoming “a sink of corruption”; says tariffs great cause of depression and not a panacea for unemployment.

British colonial office issues report critical of Zionists; Dr. C Weizmann, pres. of Jewish Agency for Palestine, resigns in protest.

Editorial by T. Woodlock: Rails should have liberal dividend policies; public has no right to demand earnings be limited and also that part of those earnings should be withheld from dividends as reserves or for property investment.

Building and loan business to celebrate 100th anniversary on Jan. 3; started with a few hundred dollars in Frankford, Pa., has grown to $9B in assets.

Demand by short-sellers borrowing stocks in the loan market was easier, with few stocks still loaning at a premium.

Many stop-loss orders were uncovered, allowing some short covering, but little evidence of heavy short covering was seen.

Conservative observers continue to urge staying entirely out of market, noting failure of Monday recovery to hold.

Some market observers see recent “extreme pessimism and apparent hopelessness” as indicating long term investors who don't pay that much attention to “nearby fluctuations” should begin to accumulate stocks.

A. Legge, Farm Board Chair., says farm commodity prices have hit bottom; “prices will probably hang around present levels a while and gradually improve.”

Commodities mixed. Most grains down slightly, corn down substantially. Cotton up slightly. Copper buying somewhat better on expected production curtailment.

Money raised by foreign govts., corps. in US markets in first 9 months was $1.056B vs. $840M in 1929 and $1.654B in 1928; 94% was in dollar bonds.

German conditions improved; funds are returning, and stocks have regained 2/3 of their postelection losses.

Brazil extends emergency bank “holiday” declared after revolution broke out until Nov. 30.

Gasoline stocks at refineries Oct. 11 were 36.276M barrels, down 849,000 in week; refineries operated at 66.2% vs. 66.5% prev. week; oil production was 2.371M barrels/day, up 3,950 from prev. week and down 532,450 from 1929. Oil industry support for tariff reportedly much stronger.

Some small oil companies in Oklahoma cut crude oil prices by $.50/barrel; no reduction by majors.

California has tremendous natural gas fields including Kettleman Hills, estimated to have 75 years worth; in past few years, large fraction of production was wasted.

Total rail passenger revenues in 1929 were $873.6M, down 33% from 1920.

Tire truce recently arranged among producers apparently breaking down as they compete for dealers, offering payment of rent and other lucrative “inducements.”

Percentage of movie theaters wired for sound: Canada 70%, US 55%, worldwide about 33%.

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