June 20, 2009

Saturday, June 21, 1930: Dow 221.97 -7.05 (3.1%)

Assorted historical stuff:

Resolution introduced by Congressman Sabath to form a committee to investigate whether “the tremendous professional shortselling of stock on the various exchanges was responsible for the November, 1929, and present 'crashes,' and to what extent it is responsible for the depression of business.” Will also look into taxing short sales or outlawing them completely.

American Institute of Banking decides on educational program with theme of “less speculation and more thrift.”

A robot with “an electric eye, a radio for a brain, and magnets for hands” successfully performed a chemistry experiment. The electric eye observed acid being dropped into a basic solution; when a color change indicated the solution was neutralized the electric eye passed a signal to the radio, triggering a relay shutting off the acid flow.

Admiral Byrd's ticker-tape parade results in only 70 tons of ticker tape cleaned up, compared to 1,800 tons for Lindbergh.

Japanese typewriters have 7,026 characters, including the English alphabet tucked into a corner. Skilled typists can do 60 words per minute.

Andrew J. Eken of Starret Bros. & Eken, while sailing on the SS Statendam, reports that the outlook for construction is improved. Although the volume of permits so far this year is down from 1929, in the last half of the year should see “contracts closed for a number of building projects of great magnitude, both in New York and other large cities.”

Chrysler building now has 156 tenants occupying from a single room to 14 full floors.

Market commentary:

Editorial noting that large US loans to foreign countries are beneficial to US business because the money gets recycled to buy US goods; this helps to absorb our production capacity, which is greater than domestic demand.

Front page above the fold editorial: “A Turn of the Tide Near” - gives some convincing calculations showing that current conditions don't indicate a long depression. Exports for the past few months are 20% under 1929; if this continues for the year total effect on US production would only be around 2%. Total installment credit is only $3 billion, or about 3 1/2 percent of national income. Even if unemployment hit a high level of 10%, remaining 90% should still make installment payments. Other indicators show the country's wealth and purchasing power hasn't been substantially hurt: department store sales for the first four months of 1930 are only 3 1/2 percent below 1929; bank deposits at 30 banks in New York district were at record levels in April; total corporate profits for the first quarter, while down from 1929, were up 5% from 1928. Commodity price decline is serious, but it's very unlikely that this decline will continue since current industrial production is below consumption, and corporations are rich in cash and low on inventory. “It cannot be imagined that the wholesale failures and interest defaults characteristic of earlier depressions will now be repeated. Confidence in our banking system wholly precludes the money panics of former eras.”

Treasury Secretary Mellon denies Smoot-Hawley tariff will damage business, says tariff will end uncertainty, criticism has been exaggerated, and flexible provisions in the law will be used to improve it. Says previous tariffs have always caused “gloomy prophecies” that have never materialized.

Stocks continued yesterday's rally early in the session, but rally quickly petered out after the first hour. Leading stocks retreated sharply from early highs; rally attempts in the midday and final hours failed. Volume was lower throughout the day. Decline in spite of good news surprised many people. Inability of the market to sustain rallies is causing increased caution.

A financier worth over $100 million advises the recent market decline shouldn't worry stock investors. Has stocks bought 25 years ago, has gone through many panics and slumps, some much worse than the current one. Every time, “you would hear the same old stories about business. But I have held on and my investments have multiplied many times. Some of them are worth 10, 20, and 30 times more than they were when I bought them.”

Record low 2 1/2% New York Fed rediscount rate indicates to businesses that very easy credit is here to stay for a while. Reserve expected to be cautious about raising rates until it's clear business upturn is here to stay. Rates have been lowered from 6% last August.

Economic news and individual company reports:

Income taxes (corporate and individual) were $35.9M in May compared to $43.5M in 1929. Taxes for the fiscal year ended May 31 were $1,887M, up $108M over the 1929 fiscal year. Other taxes were $57.8M in May, up $1M over 1929. French tax collections down 1% in May from 1929.

Trucks are taking over an increasing proportion of freight transportation from railroads. Number of trucks registered has gone from1.006 million at the end of 1920 to 3.379 million at the end of 1929. Tons of less than carload freight handled by railroads decreased from 89.9 million tons in 1920 to 63.3 million in 1928.

Oklahoma will continue restriction of oil production to 650,000 barrels a day in the third quarter as in the second quarter.

Germany cuts discount rate to 4% from 4 1/2 percent.

May auto production in the US 417,154, compared to 442,835 in April and 604,691 in May 1929.

Mack truck reports earnings for Q2 will be approximately $1.5 million, down from $2.5 million in 1929. Earnings for the first six months should cover the dividend give or take a small margin.

Abbott Labs, United Biscuit, Leonhard Teitz (German department store) report improved earnings so far in 1930.


“Quack Medicine Salesmen - Ladies and gentlemen, I have sold 6,000 bottles of this marvelous remedy, and not one complaint have I received. What, I ask you, does that prove? Voice from the Crowd - Dead men tell no tales.”

“' My little daughter has swallowed a gold piece and has got to be operated on. I wonder if Dr. Robinson is to be trusted?' 'Without a doubt. He's absolutely honest.'”

June 19, 2009

Friday, June 20, 1930: Dow 228.97 +10.13 (4.6%)

Assorted historical stuff:

About 1.7 million copies of the Manhattan telephone directory have been produced; it contains 460,000 listings of which about 285,000 are new or changed.

GE proposes a voluntary unemployment insurance plan, to be adopted by each plant based on workers vote. Workers would contribute 1% of salary with matching contribution by GE; unemployed workers would draw 50% of their salaries from the fund.

Weakness in Bolivian bonds due to rumors of revolution, however “revolutions in South American countries are of frequent occurrence and should not disturb the bonds of other foreign nations.”

German political situation is delicate; Paul Moldenhauer becomes the third German financial leader to resign in the past few months.

J.P. Morgan announces that Mexican Treasury Secretary will visit New York to discuss Mexico's resuming payments on debt that have been suspended for the past several years.

El Universal, a leading Mexican newspaper, suggests a boycott of American goods in response to the tariff.

France imposing prohibitive tax on billboards to prevent disfiguring of the countryside.

Market commentary:

Leading stocks rallied strongly off recent lows, led by US Steel, with GE, American Can, Union Carbide, and other leading industrials also participating. trading was heavy early but slowed sharply in the afternoon; ticker generally kept up. Sentiment much improved; traders more cheerful.

Buying by short-term traders feeling the market had become technically oversold following three days of liquidation, and also by investors looking for “long-pull commitments” attracted by low stock prices and high dividend yields. Illogical to expect a return to pre-Great War stock market levels considering the large increase in the country's wealth since. Short-covering also accounted for some buying; companies that were the recent target of bear attacks rallied especially strongly including Steel and utilities.

The time to have been pessimistic was last fall rather than now. “In the past we have always emerged from a period of depression with industry on a better basis because of efficiency and economy made necessary when business was bad.”

Frazier Jelke & Co. notes that pattern of the current bear market shows a close resemblance to the bear market of 1920-21, which ended in August of 1921 after a flat summer.

Industrial and financial sectors of the US economy are set up for high levels of production and consumption; the current depression puts buyers in control and they are holding off for lower prices. When consumers start spending again this will be reflected early in stock prices.

More conservative market observers are still cautious because stocks broke through resistance levels so easily during the decline, advise waiting for another correction to buy.

Head of a sizable New York investment trust says the current conditions of very easy credit and poor business have always been a buying opportunity in the past. Absolutely confident that any list of good stocks will have good gains by end of 1931 and probably show a profit by end of 1930. Cautions that current market technicals don't look that good and further declines may occur first.

Leading bankers now think that many stocks are at attractive price levels; this contrasts with the past few years when they were unhappy with high price earnings ratios.

Economic news and individual company reports:

New York Fed produces its rediscount rate from 3% to a new record low of 2 1/2 percent; expected to help business; indicates easy credit for some time to come.

US government bond prices reach new highs, but other bonds don't follow, even those considered safe such as municipals and high-grade railroads.

Broker's margin loans showed a large decrease of $211 million - bullish news helping to sustain the rally in the afternoon.

The market slump has produced many highly rated stocks with dividend yields over 5%, including some high-grade rails, GM (7.2%), Chrysler (11.2%). Most blue chips remain lower, however, including GE (2.5%) and AT&T (4.3%).

Total US rail freight traffic in April 34.8 billion net ton miles, down 9% from 1929.

Texas rail commission adopts policy requiring freight rates for all competing transportation services to be at the same level, including steam railways, electric railways, and motor truck lines.

Ford is expanding this year; spending over $30 million to construct six new branch plants and upgrade existing ones.

Sears Roebuck sales for four weeks ended June 18 will be down about 6% from last year.

National Biscuit expects second-quarter earnings will be slightly down from last year. World's largest user of sugar and flour. Plans to adopt a five-day workweek except in California where law prohibits it.


“'I bought a fine Rembrandt in Belgium.' 'Really. How many horsepower?'”

June 18, 2009

Thursday, June 19, 1930: Dow 218.84 -9.73 (4.3%)

Assorted historical stuff:

British House of Commons passes financial bill after a record long debate of 21 hours and 48 minutes. Chancellor Snowden defied “a bombardment of taunts and insults throughout the night.” Winston Churchill, head of the Conservative opposition, criticized the Chancellor for his “dictatorial methods.”

Pullman Company (passenger rail cars) purchases in the last year: 1,165,000 towels, 444,000 pillow slips, 387,000 sheets, 63,000 porter's jackets, 5,786,000 paper bags for women's hats. Launders 278 million items annually.

W.A. Jones addresses electric industry convention in San Francisco. He notes that 70% of the population now have electric service compared to only 8% in 1907. However still sees room for growth because of appliances. For example 94% of customers own electric irons, but only 33% washing machines and only 9.4% refrigerators.

House Ways and Means Committee debates whether to lower the minimum package size for Cuban imported cigars to 300 from the 3000 specified in the recently passed tariff. Domestic cigar manufacturers testify doing this would be ruinous unless cigar imports were limited.

Market commentary:

Front page above the fold editorial: “This is America. Piffling talkers would turn back the calendar to the nineties and destroy the economic progress of thirty years. Vicious rumors spread for selfish purposes; flippant predictions of a five-year slump in business; wholesale demands for the cutting of wages are unworthy of American intelligence. Credit is super-abundant. Business is no worse than three months ago. Twelve months of declining volume is behind us. Many adjustments have been all but completed. Engineering and marketing brains are as fertile as ever. Problems there have always been. To proclaim their insurmountability is childish.”

Bearish professionals operated aggressively, encouraged by the Dow's Tuesday drop below December resistance level. Volume heavy at 6.4 million shares, ticker fell more than an hour behind. Days lows were hit in the morning, some recovery in the afternoon with heavier volume. Many stop loss orders and margin calls triggered. Bad news included further weakness in copper (briefly dropped to 11 1/2 cents/pound), and reported curtailment in future steel production. One stock made a new yearly high; 424 made new lows.

Stocks down, money down, wheat down, rubber down, copper down, silver down, silk down, gasoline down, steel prices down” - but don't forget, “what goes down must come up.”

Three Dow averages hold above '29 panic lows, as do major stocks including US Steel, GM, GE.

Depression-proof” stocks (ones whose earnings hold up well in economic downturns) have so far gone down along with the rest of the market, including tobacco, dairy, chain store, amusement stocks.

Uncertainty about future earnings seems to be causing many investors to switch from stocks to corporate bonds.

Steel industry seems to be reducing production, in spite of good demand for steel pipe and structural steel. Caused by seasonal slackening in automotive and other lines; tariff is not thought to have had much effect. Immediate outlook is not good “as there is not a great amount of interest on the part of consumers in third-quarter needs.” Plan to maintain wages while cutting production capacity, and anticipate a fall upturn in demand. Efforts to maintain price stability have so far failed.

John F. Harris of Harris Upham & Co. compares the current selling hysteria to last summer's buying hysteria, and concludes “those who yield to it are controlled now by their fears as they were then by their hopes.”

AFL President William Green meets with President Hoover, says he believes the employment situation is beginning to improve.

Economic news and individual company reports:

Retail auto sales for first four months of 1930 were higher than any previous year but 1929; 20% down from 1929. However many car companies are suffering because Ford took a large chunk of market share.

Machine tool sales down 25% in May from April, at lowest level since November 1927. Business in June also very slow.

Heavy pressure on most commodity prices, including grains, cotton and metals. Almost all leading commodities at their 1930 lows. Organized efforts have been made to support some commodities by governments and private entities without success.

Thomas J. Watson, president of IBM, reports business is doing well and expects full 1930 results may be another record. Watson is currently sailing on the steamship Vulcania for a three-month trip to Europe, to help Walter T. Jones get settled in Paris as head of European operations. Foreign business is rapidly expanding and company now operates in more than 70 countries. First-quarter earnings $2.82 a share compared to $2.62 in 1929. Earnings later in the year are expected to be boosted by equipment for the U.S. Census.

Goldman Sachs hits a new record low of 21 3/8, well below the panic low of 32 from last fall.


The Silent Enemy, a silent film with synchronized Indian music relating a story of the struggles of the Ojibway Indians against hunger.”

June 17, 2009

Wednesday, June 18, 1930: Dow 228.57 -1.48 (0.6%)

Assorted historical stuff:

City of Chicago is now recovering from having no tax revenue for the past two years. This situation arose because the 1927 property tax assessment was invalidated due to political favoritism. It was found that individual property assessments ranged from 1% to over 100% of full value. City politicians “regarded, with reason, the old flexible manner of assessment as a splendid means of collecting votes, etc.” After some delay a reassessment was done, which should allow tax collections to resume. In spite of not having any tax revenue for the past two years Chicago is only carrying about $95 per capita of debt, compared to $245 for New York City.

Story describing the Norwegian whaling ship Kosmos. Ship is 22,000 tons, carries seven steam-powered hunting boats and an airplane to help locate the catch. Capacity of 6-8 whales per day; giant opening with hinged doors at the waterline permits whales to be floated right into the vessel's hold; factory reduces the catch to oil, fertilizer, bonemeal, canned meats, etc., right onboard the ship. Operates in the Ross Sea off the Antarctic - “Because of the growing scarcity of whales, hunters must go farther and farther from shore stations, necessitating long cruises and larger whaling ships.”

A.M. Markwart, VP/Engineering of PG&E, reports that remaining hydropower sites in California are economically unattractive. This is due to remoteness of sites, advances in production of steam generating plants, and cheapness of fuel. Anticipates future development for some time will be exclusively steam. Present system is mostly hydro - peak load supported is 2.04 GWatt, of which 1.34 GW is hydro and 0.7 GW is steam.

As previously announced, President Hoover signed the Smoot-Hawley tariff bill at 12:59 p.m.

Senator Glass introduces a bill amending regulation of banking and the Federal Reserve. Proposes removing the Secretary of the Treasury as a member of the Federal Reserve Board since he is exercising a “disproportionate if not dominant” influence over the Federal Reserve Board.

Tests begin soon on the Curtiss-Bleeckner helicopter now under development in Garden City.

The New York Hide Exchange declares a holiday on Saturday, July 5.

Market commentary:

Market started lower, many margin calls caused by the decline on Monday, attempted a rally in the mid-day, but bad news from U.S. Steel caused a wave of selling in the last half-hour. Volume was high on Monday (5.6M shares) and today. Ticker fell 40 minutes behind early but caught up later as volume petered out. Two stocks make new yearly highs, 330 new lows.

Dow closed below the “level of resistance established at 230.89 December 20 on the secondary reaction which followed the initial rebound from the October-November collapse.” This was considered bearish.

Dow Industrials have broken below the bottoms of last May and December but remain well above panic bottom of November. Railroads have gotten almost down to the November level; Utilities are in between but closer to the Industrials. The rally ending in April was probably overly optimistic, hoping for a revival of business at midyear; buyers then are probably selling in disgust now. If two or three of the averages break down below the November level, this may be a warning that the bear market begun last fall isn't over, “though it might nevertheless be near its end.” Also remember that major swings in the market usually go further than business conditions justify.

Maurice S. Benjamin of Benjamin, Hill, & Co. predicted two months ago that the market would have to undergo a severe pullback before reaching new highs. He then sailed for Europe. Following that correct call, he now says the decline is over and predicts a quick improvement in business, stock prices much higher by fall, and still higher by next spring.

Economists feel the current situation in commodity markets is starting to look like a bottom; a combination of underproduction and easy credit at low rates should work as usual to correct conditions.

Reported earnings comparisons will soon be with the end of 1929 and the first half of 1930, which should be more favorable. Many stocks should even earn more in 1930 than 1929, including tobacco, amusements, and public utilities. Even for those that don't the market has discounted lots of bad news - many companies are off 75% or more from their highs.

Economic news and individual company reports:

US Steel reduced production this week to 72% from 75% last week; industry is at 68% from 71% last week. Steel demand is not down much over the past five years, but industry built too much capacity.

Underwood (typewriters, adding machines) reports earnings for the start of 1930 below 1929 but improving every month since March. Dividend is still well covered.

Deutsche Lufthansa, founded four years ago to combine all the large air transport companies in Germany, is operating a large loss and will require continued subsidies.

Wright Aeronautical gets an order from the US Navy for 272 Cyclone engines, costing approximately $2 million. Engines are 9 cylinder, 575 horsepower.

Daimler-Benz reports better results in 1929 than 1928 but still unable to pay a dividend on the common – need profits to cover depreciation. Daimler is the second-largest German car company behind Opel.

Turkey grants a monopoly on manufacture of matches and lighters to Swedish Match Co. [see Ivar Krueger - the Swedish Match King], in return for a 25 year loan of $10 million at 6 1/2%.


“Her Sweetie – How long will it be until your sister makes her appearance?
Younger Sister – She's upstairs making it now.”

June 16, 2009

Tuesday, June 17, 1930: Dow 230.05. -14.20 (5.8%)

Assorted historical stuff:

President Hoover issues statement on the tariff bill; intends to sign it. Criticizes congressional control of tariffs, saying it is “always tainted with lobbying and logrolling.” Says tariffs should be set by an impartial panel of experts under presidential control. States that he intends to use the tariff commission to correct the problems with the bill. Says that foreign protests against the bill can be remedied by application to the commission.

Federal, state, and city construction work shows a steady increase under the current expansion program.

Miami's population grows from 29,571 in 1920 to 110,025 in 1930.

Argentina and Germany begin new radio service capable of transmitting photographs and documents.

Canadian government announces a program to develop the Alberta tar sands. Applicants must have the rights to a promising process for mining the oil sands. After receiving a permit experimental work must begin within 60 days and at least $15,000 must be spent within the first year.

Group of leading businessmen and sugar plantations in Hawaii form a $2.25 million company to recycle sugarcane waste (bagasse) into insulating wallboard.

April Canadian power output totaled 1645 GWH, compared to 1400 in 1929. Almost all of it was hydroelectric.

Rear Admiral Richard E. Byrd is returning this week from his Antarctic expedition; will address the Bond Club of New York at a special luncheon June 26.

Market commentary:

Sharp decline in the market with active stocks hitting new lows. Blamed on severe declines in commodity prices(wheat, cotton), followed by aggressive drives by bearish professionals. Many stop loss orders triggered. Severe declines in major industrials including US Steel, American Can, GE, Westinghouse, also in major utilities. Brief rally around two o'clock, but renewed pressure in the last hour. Two stocks made new yearly highs; 306 made new yearly lows.

Many leading companies have given back most of their gains off the 1929 panic low. Of 13 major companies only IT&T is below the 1929 low at 41 3/8, although US Steel, Union Carbide, and AT&T were close.

Many dividend paying stocks have declined to the point where their yields are quite high (over 5%) - the dividends seem to be considered unsafe due to falling earnings, even where the company has built up a substantial cash surplus on the balance sheet.

Assorted rumors going around concerning the level of short interest, what investment trusts are doing, and that “something is hanging over the market.” Rumors are generally unconfirmed, but Wall Street “is always willing to explain a sharp break, and at such times rumors fly thick and fast, being magnified as they are passed around the financial district.”

Economists predict it's unlikely that commodity prices will recover soon, but also say further declines are unlikely because prices are already at “abnormally low levels.”

Hoover's announcement on tariff favorably received due to removal of business uncertainty, and his announced intention to use his authority via the tariff commission to fix problems with the law.

Bearish professionals singled out high Price/Earnings stocks for attack, but were unsuccessful with National Biscuit. Supporters pointed out the stock has historically sold for 25 to 30 times earnings, and is benefiting from reduced commodity prices.

Harvard Economics Society says the recent market weakness reflects pessimism and uncertainty, but sees no change in the fundamentals, forecasts “an early improvement in business.”

Economic news and individual company reports:

Merchandise imports and exports in May hit a new low level for the year, reaching the lowest level since 1924. Surplus in May was $37 million compared to $24 million in April.

American Can (containers for canned foods) reports sales so far this year have been as good as 1929; earnings are slightly behind 1929 but for the full year may be a little better.

Elgin Watch reports profit for the four months April 30 down 50% from 1929.

American Airways announces an increase in air passenger rates to 7 cents a mile. Previously had reduced fares from 10 and 11 cents a mile to 5 1/2 cents in January. This resulted in increases of 300-400% in passengers carried, but even at full capacity this level of fares caused the company to operate at a severe loss.

US tobacco (snuff and smoking tobacco) reports business this year up to the record level of last year; net profit for the full-year is likely to exceed last year. Company has shown a gain in earnings every year since 1914.

Phillips Petroleum reports earnings for the first five months of 1930 up 16% over 1929, earnings for May up 44%.

Recent crude oil production numbers: California 603 thousand barrels a day, Venezuela 352,000 barrels a day.

Adam Opel (German auto) has dismissed 30% of its employees, leaving 5500 at the end of June.


“He – Do you smoke? She – No, I don't smoke. He – Do you drink? She – No, I don't drink. He – Do you neck? She – No, I don't neck. He – Well, what do you do? She – I tell lies.”

June 15, 2009

Monday, June 16, 1930: Dow 244.25 -5.44 (2.2%)

Assorted historical stuff:

President Hoover expected to sign the Smoot-Hawley tariff, also to issue a statement explaining why and expressing the intention to use the flexible clause of the bill to correct problems.

War Department awards contracts for new airplanes and engines totaling almost $6 million, for a total of 402 new airplanes with spare parts and 128 new engines with spare parts. Companies awarded include Douglas, Boeing Airplane, Thomas Morse Aircraft, Sikorsky Aviation, and Wright Aeronautical.

Trolley service on 6th Ave suspended for construction of the 6th Ave subway.

Market commentary:

Stocks were unnerved in the Saturday session by further weakness in commodities, including wheat, cotton and copper, and also possibly by bad trade news – exports in May $322M versus $385M in 1929; imports $285M versus $400M in 1929. Major industrials including Union Carbide, GE, and US Steel generally lower; IT&T hits new yearly low. Volume was lower than earlier in the week.

The trading community is probably being too pessimistic about the effects of the tariff. While it has its bad points, agitation over the bill has caused business uncertainty for more than a year, so the matter being settled should have an immediately beneficial effect. The threat of European reprisals is exaggerated. Every tariff revision in the past has also caused storms of protest, but trade has always increased to new records. Trade volume this year is good compared to every other year except the extraordinary one of 1929.

Market students have been encouraged by the general gloom for the past two weeks. This contrasts with the “new era” thinking of last summer when no end was seen to the rise in stock prices and margin debt was hitting a record every week. History says the current gloom is just as mistaken as last summer's unjustified optimism. Historically there has been no case in this country since 1900 when business failed to turn upward the year following a depression.

Martin J. Insull, president of middle West utilities company, says business is much better than the popular psychology. We forget that 1929 was an outstanding year, far above normal. Fluctuations, whether booms or busts, “are not so important in the long run, as they appear close at hand. The trend of business activity and prosperity is gradually higher year by year and this is more significant than the short-term changes.”

The Department of Commerce is criticized for sugarcoating a report on construction contracts in the first five months of the year. They emphasized a 35% increase ($152M) in public works and utilities while burying the fact that othe building contracts had shrunk by 32% ($641M).

Economic news and individual company reports:

Some commodity prices compared to a year ago: crude oil down to $2.50 a barrel from $4.10 a year ago; copper down to $.12 a pound from $.18; steel scrap down to $12 from $15; general commodity index down to 87 from 96.6.

Report of 29 chainstore companies including Sears Roebuck, A&P, Woolworth etc. shows sales in May up 3.9% over 1929, sales for the first five months of 1930 up 5%. These stores generally sell lower-priced articles. If reporting only same-store sales, there would probably be a slight decline.

Treasury is speeding up the authorized Federal building program to place as much work on the market as possible this year. Total authorized spending is $363 million outside D.C. and $190 million in the city of Washington.

New life insurance purchases for the month of May were down 4.7% from 1929, but the total for the first five months of 1930 was 1.3% higher than 1929.

Small investors (“from one to 10 or 50 shares”) seem to have come back into the market because of lower stock prices, after withdrawing last fall. The number of holders of General Motors stock increased from 117,788 last July to 218,413 before the end of January. US steel and Pennsylvania Railroad also showed substantial but smaller increases in number of shareholders.

Earnings of the great Northern Railway and the Northern Pacific are down badly for the first four months of the year. However, the first four months usually are only a small fraction of the total yearly earnings and dividends still appear covered.

Lee J. Shubert, president of the Shubert Theater group, predicts a substantial improvement for the second half of its fiscal year ended September 30. Says theater business is recovering from the initial impact of talking films.

AT&T Q2 earnings are running about the same as Q1, long-distance business is substantially increasing.

IT&T declined from a high of 62 to 48 for the week. Earnings for Q2 estimated at no better than the 0.57 earned in the first quarter.

Fox film Corp. plans to spend an additional $5 million to build Movietone City, the largest talking picture studio in the world. Located on 100 acres near Hollywood, 36 new buildings will be erected for a total of more than 75 permanent buildings by the beginning of next year.

FlintKote Co., which operates in the roofing business and also owns or controls more than 1000 patents in many other fields, reports that royalty income this year is up over last year, while the roofing business is down over last year but improving month-to-month.

Richfield Oil sales in China running ahead of last year.


The song and dance man, George M. Cohan's revival of his comedy first produced in 1923, with himself in the leading role, at the Fulton.”

Impressions of the week June 9-14, 1930

Once again June 15, 1930 was a Sunday, with no Journal to summarize, so I'm going to take the opportunity for a little editorial commentary and impressions of the past week.

[Edit: Eldon located an interesting article on the skyscraper-as-predictor theme here; it turns out one Andrew Lawrence had already come up with the Skyscraper Index back in 1999! You'll have to take my word that this was a case of independent invention, not plagiarism. The article is a much more complete presentation; my first-read impression is I think it's quite good, with a couple of quibbles:
- 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.]

The Skyscraper Index - One interesting item from this week concerned the feverish pace of real estate development in New York City and Wall Street at the time, particularly of skyscrapers. Along with many smaller skyscrapers, New York City at this around time put up four of the tallest buildings in the world, three of which held the record for some time. In chronological order, these were:

- 40 Wall Street, completed April 1930, 927 feet/ 283m.

- Chrysler Building, completed May 1930, 1,046 feet/ 319 m.

- Empire State Building, completed May 1931, 1,250 feet/ 381 m.

- American International Building (70 Pine Street), completed 1932, 952 feet/ 290m.

One fairly clear fact about these buildings is that they don't usually make a lot of economic sense; in fact they are often disasters from a business point of view. I am therefore developing a Crackpot Economic Theory saying that the construction of lots of them during a time period may be a useful indicator of the hubris and ego-driven recklessness that typically cause economic crashes. Contributions are welcome; for starters, consider the World Trade Center and Sears Tower in the early 1970's; the Petronas Towers in 1998; the New York Times Building and Bank of America Tower in 2007-2008; and the Burj Dubai and Almas Tower in 2009.

Smoot-Hawley Tariff - This seems to be the subject of a religious war among economists as to how serious a factor it was in making the Depression worse. I don't want to step too far into that battle, and I'm not advocating protectionism, but my admittedly limited reading is so far making me more skeptical about how important the tariff was as a factor:

- Tariffs were a common feature of trade at the time; newly enacted tariffs had always caused complaints and bad predictions but trade had still always increased in the past.

- Trade was already severely down before the tariff passed - that decline was probably due to the economic slowdown.

- As far as stock market moves can be attributed to particular factors (which is not very far), the market seems to be responding to other economic news such as business slowdown and continuing plunge in commodities more than the tariff. For example, on the two days when it became clear the tariff was to pass (Friday and Saturday), the market barely moved.

Company Review - Once again, a review of individual company reports:

Doing well: Movies (Fox, Technicolor), shoes (Florsheim), food (Canada Dry, A&P, American Ice, Wrigley), cigarettes (R.J. Reynolds), Scott Paper.

Doing fair to mixed: Westinghouse, W.T. Grant (chain stores), Western Union, IT&T, autos (Ford doing OK, others mostly suffering particularly higher-priced).

Doing poorly: Railroads, steel, Curtiss-Wright (aircraft).

June 14, 2009

Weekly Digest June 9-14, 1930: Dow 249.69 -14.24 (5.4%)

Assorted historical stuff:

Senate passes the Smoot-Hawley tariff 44-42; bill now goes to the House, where passage is very likely.

Thomas Edison on big government and big business: calls the US government the most inefficient big business in operation; favors high wages; criticizes mergers where “the vast size of the business tends to mismanagement;” urges Hoover to seek reelection.

Governor Roosevelt warned that municipal governments of New York are increasing debt two to three times as fast as the state – this will lead to unsound levels of debt or an unsustainable tax burden.

New York City increases salaries for city commissioners, judges, deputy tax commissioners, etc. Increases range from $2,500 to $10,000.

Editorial citing Josiah Stamp, “sound economist and active man of affairs.” Blames the worldwide downturn on insufficient gold supply (dollar was gold-backed), and consequent deflation. Estimates since mid-1920 purchasing power of gold is up more than 60%. As a result, U.S. National debt while being reduced from over $26B in 1919 to under $17B currently has remained roughly constant in purchasing power. Credits Secretary Mellon with determined policy of running surpluses to reduce this debt, without which debt would be $41B in 1920 dollars. Rise in value of gold has increased burden on debtor nations. Calls for cooperation for more effective use of gold stocks and price stabilization.

Oil producers in Oklahoma and California have agreed to curb production. This will help to deal with excessive oil supply, since they account for 50% of the nation's oil production. Producers in Texas (about 30% of production) may still be a problem.

Senate Lobby Investigating Committee accused of straying from original purpose and unconstitutionally seizing private papers and records. Regarding lobbyists, “They are parasites, fakers, and whatever other hard names of that ilk anybody can happen to think of.” But the committee has too much power to damage targets of their investigation with no restraint.

Lower Manhattan development is going great guns. “In the downtown financial district a dozen or more skyscrapers are in the process of construction, several have been recently completed, and numerous others are contemplated.” Major projects in the Wall Street area include the Irving Trust Company's 50-story tower at 1 Wall Street, the Bank of Manhattan's 70-story tower at 40 Wall Street, the New York Stock Exchange Annex, and the Bank of America building. Several large parcels have been assembled for future development including a full block containing 14 old buildings at Wall and Pearl Street, believed to be the first full block on Wall Street ever owned by an individual.

Most frequent air service in the United States is between Cleveland and Detroit (10 roundtrips a day).

German budget is seen running 500M mark deficit after being in balance when passed a few weeks ago; taxes running below estimates while estimated unemployed have risen from 1.2M to 1.6M.

Japan is suffering a severe economic slump. “Early in May leading shares of the Tokyo Stock exchange ... hit the lowest level since May 1908.” Five small banks were forced to close in April, which may have worsened the panic. Exports in the first 4 months of 1930 dropped 24% from 1929. The government is being asked to help the unemployed with a program of public works.

Unrest continues in India. The Simon commission counsels patience and gradualism. However, “it appears unlikely that the turbulent native elements” will be convinced.

Dr. Whitney of G.E. suggests using high-frequency radio tubes for home heating to produce a “fever heat” in the body. G.E. officials say “he has not conducted any experiments ... nor is the idea backed up by any fact.”

It's getting harder to get away from it all with “telephone, telegraph, cable, and radio in every conceivable place.”

Market commentary:

Leading economists and market observers are looking for clues on how long the current trade depression will continue. Since 1873 there have been thirteen periods of business depression. Ten of these had an average length of 15 months. The remaining three were much longer, but there were exceptional circumstances in each case that it is clear don't apply here. Credit is easy, inventories are not high, and the banking system was never sounder. Therefore the current depression should not last longer than 15 months. Since it began in July of 1929 in improvement is to be expected at the start of the fourth quarter.

YAEASHT (Yet Another Editorial Against the Smoot-Hawley Tariff): Hawley dismissed the threat of retaliatory tariffs since they would be unprofitable, but “a tariff war is no more effectively banned by the fact that it is unprofitable than any other kind of war.” World currently must pay the U.S. Over $1B annually in interest on debts, and also absorb a like amount in trade surplus – showing signs of difficulty doing so – this is likely to be made worse by throwing up barriers to their selling goods here.

A more optimistic story on the tariff predicts that it will pass but says it's a much better bill than generally thought and the talk of foreign reprisals is exaggerated. Also predicts ending uncertainty about the tariff should benefit business.

If you hold good stocks don't get discouraged about the recent slump. Every time since the Stock Exchange opened the good stocks have come back to make new highs, and it's safe to bet they will again, although you may have to wait a while.

There isn't much change in business conditions to account for the recent market slump.

Market has confounded observers by slumping when two weeks ago at least 75% of the Street was predicting a rally.

Market observers now predict range-bound trading within a 5-10 point range until the economic signs are clearer.

An increasing number of executives are expressing the opinion that the worst has been seen and that business is now bumping along the bottom ...”

Many businesses have cut costs without cutting wages. This should benefit earnings when business improves.

James C. Willson & Co. notes that for the first time since 1921, the dollar is fully backed by gold. Experience shows that when this happens a long and broad upswing in stock and commodity prices soon begins.

Economic news and individual company reports:

Inventories at large corporations are as low as they've been in years compared to consumption and production. This predicts better business when industry begins to stock up again. Companies have better balance sheets than in the depression nine years ago, so they won't need to borrow money to do so.

Of 34 representative railroads, only 3 report increased revenues and income for first 4 months of 1930; the remaining 31 report declines in revenue between 4.4% and 18.4%.

Auto production for Q1 1930 down 31% from 1929 but only 6% below 5-year average. Sales at retail down 17% but higher than any year but 1929.

Rubber at new record low, blamed on sympathy selling with stock market. Rubber tapping holiday in May.

Scott paper reports net income of 390,000 for the first five months of 1930 compared to 296,000 for 1929.

R.J. Reynolds tobacco Co. has started using radio advertising to support the Camel brand after Lucky strikes has been taking some market share. Strategy has been successful and earnings per share of over $4.00 are expected this year compared to $3.32 last year.

Gulf Steel first-quarter net income is down, said second-quarter may show a loss; may need to cut dividend if business is not improved by August.

Fox film reports earnings of $5.7M for the quarter ended April 26 compared with $3.9M in 1929.

Technicolor Corp. (color film processing for movies) has been forced to stop accepting new contracts since printing labs in Boston and Hollywood are already working at 24-hour capacity. They now employ 1100 technicians and have already increased capacity 700% in the past year.

Gillette safety razor company is marketing a new line of deluxe razors priced from $5 to $75 each. Blades made of “patented Kro-Man steel” to sell at 10 for $2.

New York Theater was much more interesting in 1930:

Change Your Luck, a musical comedy at the George M. Cohan Theatre. A few numbers are well done, but generally an “uneven, forced, and inchoate splurge.” The second act includes a “three-round slugging match, with gloves, seconds, and referee, between two young women from the chorus.” The men's dancing is generally better done, but the women's assignment is “mainly wiggling, in an attempt at some sort of compromise between the characteristic rhythms of Broadway and Harlem.”

Artists and Models: “The showgirls are not featured in the program of Artists and Models, but they are featured in fact ... they wear something at the waist and in more than one scene the rest is just a gesture in the form of gauze ... they parade as bridesmaids in costumes that would greatly enliven the usual real wedding ceremony or as widows who are so sad that they wear nothing to speak of, but their weeds and a pale blue handkerchief trailing from the left wrist.”

Saturday, June 14, 1930: Dow 249.69 +2.51 (1.0%)

Assorted historical stuff:

Senate passes the Smoot-Hawley tariff 44-42; bill now goes to the House, where passage is very likely.

Passenger traffic on the railroads has been declining for many years. The number of passengers carried last year was down to the level of 1906 when the population was much smaller. Cars and buses have taken up the difference.

Oil producers in Oklahoma and California have agreed to curb production. This will help to deal with excessive oil supply, since they account for 50% of the nation's oil production. Producers in Texas (about 30% of production) may still be a problem.

The Southern Pacific Railway starts a new policy allowing blind people to be accompanied by seeing eye dogs on its trains.

Union at Opel Works in Germany, owned by GM, asks government to intervene to prevent further layoffs. Charges that American methods can reduce the number of employees required by over 50%.

New York City increases salaries for city commissioners, judges, deputy tax commissioners, etc. Increases range from $2,500 to $10,000.

Market commentary:

Editorial grudgingly saying that while it would be preferable for the Smoot-Hawley tariff to magically disappear, it may be better to approve it (as now appears inevitable) than to deal with another year of uncertainty.

Bears attempted to suppress the market in the morning, but encountered “stubborn resistance,” and prices gradually went up for the rest of the session.

The recent slump has happened on thin volume. The future is uncertain, but it is clear that many stocks have gone down enough to attract investors.

If you hold good stocks don't get discouraged about the recent slump. Every time since the Stock Exchange opened the good stocks have come back to make new highs, and it's safe to bet they will again, although you may have to wait a while.

Two weeks ago market observers were mostly bullish and optimistic about future business improvement before fall. Now that the market has gone down 20 or 30 points, “they see nothing ahead but continued depression.”

There isn't much change in business conditions to account for the recent market slump.

Some market writers have advised buying stocks of companies that will have better earnings this year (“depression-proof stocks”). Curiously these stocks have gone down even more than the general market in the recent slump.

Economic news and individual company reports:

Railroad traffic has declined in 1930 in response to the business slump, but not as badly as in the previous depressions of 1921, 1908, and 1894.

Inventories at large corporations are as low as they've been in years compared to consumption and production. This predicts better business when industry begins to stock up again. Companies have better balance sheets than in the depression nine years ago, so they won't need to borrow money to do so.

Total building permits in 588 cities and towns across the US showed encouraging trend in May, down only 3% compared to the usual 12% seasonal decline. However permits were still 35% below the 1929 level.

Total auto output for the six months ending June 30 is estimated at around 2.4 million units, down from 3.4 in 1929 but slightly more than 1928. However more low-cost cars are being produced than previously, especially by Ford, which had a market share of 44.2% in May compared to 32.5% in May 1929. GM also increased market share; remaining car companies are generally suffering.

Fox film reports earnings of $5.7M for the quarter ended April 26 compared with $3.9M in 1929.

After drastic cost cuts Western Union expects to earn over $5 a share in the first six months of 1930 and $12 a share for the full year, compared to $15 a share for the full year 1929.

Good joke cleaned up for racism:

The passenger went for a ride in a plane. When he came down he said to the pilot “Thank you, Guv'nor for those two rides.”

“Two rides?” asked the aviator. “You've only had one.”

“No,” said the passenger, “two. My first and my last.”

Strangely prescient market related joke about a soon-to-be major scandal:

“A customer announced that he was selling Krueger & Toll short as he heard they had bought a lot of dresses at a higher figure and could not get rid of them. When told that Krueger & Toll had nothing to do with dresses, he said: 'Oh, I was thinking of Kroger.'”