December 29, 2009

Monday, December 29, 1930: Dow 160.30 -0.88 (0.5%)

Assorted historical stuff:

Rumors are afoot of conservative Republicans “carrying direct and open warfare into the insurgent camp” with the most drastic idea to have Pres. Hoover list certain Senators publicly as Administration enemies and oppose their reelection. While opponents of this move say it would split the party and defeat it in 1932, proponents reply the party must clean house regardless of consequences, and that prospects for 1932 aren't that bright anyway. Past Republican policy has been to allow relatively broad diversity of opinions, but some leaders believe it's led to a situation where many just use the Republican label to get elected, only to later “knife” the party organization on all questions.

[Strangely unfamiliar.] Rep. Garner's (House Dem. leader) proposal to pay soldiers the present value of their bonus certificate in cash seems unlikely to pass since it would force the govt., already facing a deficit, to borrow a further large sum.

[Communists: Red or herring?]
Officials who are usually skeptical of “general communistic alarms” believe there may be something to reports of Communists spreading rumors about bank stability. “On one occasion, according to reliable reports here, the occupants of entire buildings were called up from a telephone pay station to which the calls could not be traced [???] and given mysterious warnings about the safety of a certain bank.” On another, rumors were sent by telegram signed “Wall Street.”
Editorial dismissing Communist activities as a cause of the Bank of US failure; “it would be unfortunate if any sort of red herring were drawn across this particular trail”; those failures, like others this year were caused by “uneasiness of depositors concerning specific institutions”; public confidence must be based on bank management, “upon management and nowhere else must lie the responsibility for success or failure.”

Chamber of Commerce adopts electric power policy favoring private enterprise and regulation by states.

Bank of U.S. depositors petition NY State Att'y Gen. elect Bennett for full investigation; Bennett says will look into affairs of the bank immediately after taking office Jan. 1 to see if fraud took place.

Agriculture Sec. ends requirement to label foods containing corn sugar; this is expected to increase usage. First versions of corn sugar were “crude, dark sugar” less sweet than cane sugar, but improved refinement methods have lead to “clear, white granulated product.”

G. Beesmyer confesses to embezzling almost $8M from Guaranty Building & Loan of Los Angeles; sentenced to 10 to 100 years in San Quentin.

Govt. of Chile orders newspapers to cut crime coverage or be prosecuted themselves; attributes crime increase to “playing up” of crime in newspapers.

US telephone service to Finland established using intricate linkup of radio, submarine cables, and land wires over 9,000 mile span.

Apellate Court rules life insurance policy exemptions for death in “aeronautical expedition” don't apply to death in ordinary airplane flight.

US consumption of Christmas tree trimmings was over 800 tons, in addition to about 50M colored lights.

[The Waldorf would have taken three.] Donald Hefling, “hostler,” and Lela Gaskill, waitress, of Council Bluffs, Iowa decide to pay for their wedding by saving every nickel that comes into their possession; it takes them two years.

Market commentary:

Market wrap: Pressure on stocks continued in Saturday's short session; volume increased on declines and several popular issues hit new lows. Commodities narrowly mixed. Bond trading quiet, prices irregular on year-end selling; US govts. steady; foreign irregular; corp. mixed, mostly lower.

Week in review: Following vigorous recovery previous week, stocks lapsed into holiday dullness, ending mostly lower. Reduction of NY Fed discount rate to record low 2% from 2.5% considered most important development of the week. Bond prices higher on quiet trading. Steel operations lower on expected holiday shutdowns; improvement expected in new year. Gasoline inventories up sharply. Grains plunge. Cotton narrowly above year's lows. Rail traffic decline worsened; some optimism on consolidation.

Traction shares were strong on Untermeyer plan for unification of NY mass transit, though the plan requires some new laws and company concessions. Weak spots included department stores, communications, and steel shares. Corn Products strong following corn sugar ruling. Goldman Sachs Trading and Technicolor hit new lows.

[Strangely reversed.] An aggravating feature of the recent market has been substantial declines on low volume; for example, US Steel dropped 2 points Friday on sales of 30,100 shares. Bears say this indicates market is getting little support from the “large interests,” since a few thousand shares buying would have supported the stock.

Broad Street Gossip: The Fed. Reserve is making it easier for merchants and manufacturers to do business; “now all that is needed is an increase in business to enable [them] ... to take advantage of the Federal Reserve's bargain rates in money.”

[A very important skill, indeed .... ] Broad Street Gossip: “I believe the market is going much higher in 1931,” remarked a trader. “Now, all I have to do is try to reach that state of mind that will give me the courage of my convictions.”

Growing feeling that year-end department store business was weaker than expected.

H.L. Doherty & Co. says oil conservation efforts must be made more effective, “crystallize into concerted action.” However, E. Reeser, Amer. Petroleum Inst. pres., sees 1930 as year of “victory for constructive forces that have held to a common sense policy of proration of crude and curtailment of refined products”; crude oil inventories have decreased and the govt. has gotten behind proration.

Rise in call money rate to 2.5% believed temporary, due to preparations for year-end dividend and interest payments.

Few bull pools are now operating due to discouraging market action in past few months; some pools were organized in late summer but later forced to disband.

Stocks of 16 leading steel cos. are now selling at avg. of 5.7 times earnings for past three years.

Nat'l Industrial Conf. Board says business at lowest ebb, turning point may come early in 1931; recovery likely slow; “many competent authorities say that we cannot hope that 1931 business will exceed 1930 business by any large margin.”

Guaranty Trust of NY sees signs of promise in business situation, but no definite indication of early recovery. Commodities continue gradual decline; stocks and bonds have moved down; retail trade is up seasonally but industrial activity and employment has declined further. Process of financial liquidation has involved numerous bank failures, though as a group US banks are in a strong and liquid position. Business opinion generally sees recovery starting in first half of 1931, but slow and irregular at first; second half 1931 should show more progress and 1932 should witness substantial recovery.

Economic news and individual company reports:

Class 1 rails 1930 net operating income estimated at $898M, a 3.4% return on property investment, vs. $1.275B or 4.95% in 1929; revenues estimated at $5.365B, down 15.5%. Passenger traffic about 27B passenger miles, lowest in last 20 years and 42% below 1920 record high. Freight car loadings about 45.9M cars, down 13% from 1929 and 11% from 1928. Capital expenditures about $875M, up $21M from 1929 and $198M from 1928.

US Nov. motor vehicle output was 129,437 vs. 150,044 in Oct. and 217,573 in Nov. 1929.

Youngstown District steel operations up sharply from Christmas holiday week; at 37% this week vs. 23% last week and 40% two weeks ago. Signs of further improvement seen, though a sharp advance isn't predicted; a gain to 60%-65% by April would satisfy most executives.

1930 trends in investment trust companies: Fixed trusts (similar to ETF's) gain in popularity, larger organizations starting to sponsor them. Managed trusts (similar to mutual funds) out of favor; great majority are sitting on big losses in their holdings; very few were in position to do substantial buying at the year's lows; a number of consolidations took place, as well as a few bankruptcies; State Attorney's investment trust inquiry in the spring was generally reassuring.

British govt. is anxious to follow the US in cutting the Bank of England rate so that it can convert its huge 2B pound 5% War Loan to a lower rate of interest. This will be difficult now that British gold holdings have fallen below “Cunliffe minimum” of 150M pounds.

Companies reporting decent earnings: United Light & Power, Rath Packing.

Gillette's recent low was 18; if it maintains its $1 quarterly dividend, it would yield 22%.

A rare heartwarming stock market story:

A prosperous midtown clothing seller, having seen “Wall Street” in the headlines several times in the past year or two, decided to try his hand at trading. He deposited $25,000 at a broker, then told the customer's man “Sell me some of that, and that, and twice as much of that,” pointing to a list of blue chip favorites. The market then went down, down, and down some more. Finally, the crestfallen clothier returned to the broker to take his losses and quit the Street forever. To his surprise, the broker gently broke the news that he had a $55,000 profit - it turned out the customer's man had understood “sell me some of that” as an instruction to sell short.

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