June 27, 2009

Saturday, June 28, 1930: Dow 218.78 -1.80 (0.8%)

Assorted historical stuff:

President Hoover agrees to formation of Commission with Congress and Cabinet members to examine war profiteering; also signs universal draft resolution to insure equal sacrifice for all in wartime.

Antitrust laws including the Sherman act criticized by Martin Woll, VP of the American Federation of Labor (AFL). Says they prevent stabilization of industries such as textiles with too much capacity, resulting in severe overproduction. “Competition is what the Sherman law was meant to secure, and here we have it. But it is ruinous competition with attending wage difficulties and depression.”

German Chancellor Bruening appoints new Finance Minister Dietrich, anticipated to have difficult job. Rumored that Bruening may ask President Von Hindenburg for dictatorial powers, perhaps after making one more try to get the Reichstag to pass financial reforms.

E.D. Sullivan says racketeering is “national industry” with $3B of revenue from bootlegging alone, “furnishing easy living to 6,000,000 Americans”; calls liaison between politician and gangster “greatest menace of century.”

96% of the population of Manhattan, and 80% of Chicago, live in apartments.

Scaffolding has been removed from the tower of the Chysler building, allowing unobstructed view of the world's tallest structure.

Market commentary:

Aggressive selling of rails on recent bad earnings news; selling spread to industrials, leading to substantial declines in Steel, American Can, and other majors. However, volume was low and most stocks resisted pressure. In late afternoon, short-covering and odd-lot buying became apparent and many stocks had good rebounds from earlier lows. Banks and insurance companies gained.

Survey of Illinois Manufacturers Association finds slow but sure recovery in business, expects improvement in second half of 1930 with profits for year as large as 1928, and further improvement in 1931. Many survey responders expect tariff to improve business conditions.

Brokerage letters have taken to quoting poetry, particularly Kipling's “If” [If you can keep your head ...]

Winthorp, Mitchell says easy money is starting to improve bond market, should spread to corporate bonds, preferreds, and then common stocks. Over $1B of new savings accumulated every month by insurance companies, banks, etc; this balance must be invested somewhere.

Drop in margin loans should be positive for market; investors are less vulnerable than in November panic.

Economic news and individual company reports:

Gasoline stocks have been declining seasonally in May and June, but still are too high at 50.5M barrels. Refineries are now operating between 65% and 85% of capacity; if they don't cut operations, inventories at the end of 1930 will be even higher than the huge level at the start of 1930, resulting in lower prices.

Childs (restaurant chain) earnings for first half 1930 up approx. 100% over 1929. Sales had suffered over the past 6 years when management eliminated most meats, printed calorie counts for menu items, and changed slogan from “The Nation's Host from Coast to Coast” to “Watch Your Step - Get Vegetable Wise.” Present management took over in March 1929 and reversed these policies.

American Tobacco (makers of Lucky Strike) earnings so far this year have more than doubled over 1929. Earnings for 1930 are expected to exceed the $30.6M level it showed in 1911, when it was broken up by Supreme Court decision, and forced to divest subsidiaries including R.J. Reynolds, Ligget & Myers, Lorillard, British American, MacAndrews & Forbes, American Snuff, etc.

Technicolor is target of bear attacks amid rumors of lost contracts and competitive color film processes. Stock has declined from $70 to $25 over a period of weeks. Company denies rumors, says full capacity is sold out well into 1931, current year earnings estimated at $5.

George V. MacKinnon, president of Stetson Co., elected president of the Hat Institute for the coming year.


“A nearsighted man lost his hat in a strong wind. He gave chase. A woman screamed from a nearby farmhouse: 'What are you doing there?' 'Getting my hat,' he replied. 'Your hat,' exclaimed the woman. 'That's our little black hen you're chasing.'”

+ The Boring Stuff:

Scientists have come up with two new tools for finding underground mineral deposits: using the torsion balance to detect small variations in gravity, and using the seismograph to measure the shock in response to a blast of dynamite.

Indications of increasing short interest in the market as it has declined. Shorting has spread to rails, which are usually left alone by bears. Some industrials said to be so heavily shorted a corner may be possible.

US textile making areas including New England generally pleased with the tariff.

Silver brokers say price seems to be stabilizing, though still close to record low at 34 1/8 cents/ounce. Should help China, which has been suffering since currency is silver-backed.

Rubber producers try to agree on a 25% reduction of output through the industry.

Tin producers starting agreed 2-month halt of mining, to be followed by 20% reduction from 1929 rate.

Zinc down to 4.2 cents/pound, new yearly low.

Pines Winterfront (auto parts) earnings for year ended April 30 were $768,458, up 38% over previous year. Selling detachable radiator front to low-priced car owners, expects this to offset decline in business from auto makers. Successful new Finger Tip Control product - combines starter, light, and horn control in center of steering wheel, adopted by Willys-Knight, Marmon, and other auto makers.

Southern Cal. Edison May earnings $1.64M vs. $1.70M in 1929.

Allied Chemical expects first 6 months 1930 earnings equal to 1929.

Abbot Labs earnings for first 5 months 1930 a little above 1929 in spite of January 1929 being unusually good because of flu epidemic.

May sales of New York city department stores up 5% over 1929. Chain store sales also slightly higher. Wholesale sales down 14%.

Sears-Roebuck now says 1930 net income won't reach 1929 levels.

June 26, 2009

Friday, June 27, 1930: Dow 220.58 +5.00 (2.3%)

Assorted historical stuff:

Congressional subcommittee praises strategy of accelerating public works projects to moderate unemployment in business slowdowns, emphasizes good psychological effect of doing this quickly.

Treasury Sec. Mellon strongly criticizes a resolution by Congressman McFadden to prevent U.S. banks from buying German annuity bonds. Says government should not manage private businesses, “whether bank or barnyard,” also that investment in foreign bonds helps trade and should be encouraged.

Billionth ton of steel produced in US. First steel produced in US in 1810; last half-billion tons produced over past 12 years.

San Francisco-Tokyo dirigible (airship) service to be started in 1931 by Japanese company. Trip will take 68 hours.

I.R.T. (New York subways and el lines) is having some financial trouble even though revenues are up. Problems include structure of contracts with city, competition with new lines the city is building, and orders from the Transit Commission to buy a bunch of new cars they don't have the money for.

Severin, the renowned French mime, has died. Performed for many years in prewar Paris, best known for Pierrot character. Career ended after the World War, as “Comedy was no longer finely and delicately etched; it was painted with a broad brush.” Severin's death recalls the tragic case of Marcelline, the great American circus mime who headlined for years at the Hippodrome. When movies ended his career, he comitted suicide - in full costume and makeup.

Market commentary:

Stock rally continued from yesterday afternoon. Market opened firm, bears attempted attacks early, particularly on US Steel based on recent drop in steel product prices. Attack quickly failed, Steel gradually gained, and gains spread through other leading industrials, many of which had large gains from recent lows. Stocks with good gains included GE, Westinghouse, Allied Chem, many utilities, banks, and insurance companies. Large scale short covering in afternoon.

Once again, commodities moved together with stocks; sharp rallies in wheat and cotton in spite of news of good crops. Other commodities mixed.

Market observers see some hopeful signs: buying support is now coming out for stocks when they approach recent lows, and volume has been low in response to bear operations. Anticipate a possible quiet period rather than strong rally - this is typical of the end of bear markets.

Conservative observers warn clients against buying into the rally, advise those long the market to sell when market turns weak again. One experienced observer criticizes the excess of optimistic market talk, says market won't improve until fundamental business conditions do.

Central Trust of Illinois says economy seems to be recently improving from end of 1929 and first months of 1930. Employment and imports seem to be trending up recently. Union Trust of Cleveland also says the long-term outlook is improving and some indicators are pointing up. Philip Wagoner, president of Underwood (office equipment) is also seeing good month-to-month improvement.

First threatened boycotts of American goods in response to the tariff - Switzerland (cars), Argentina (all American products).

Economic news and individual company reports:

Major tin producers announce agreement to stop all production for two months, then restrict to 20% below 1929 levels.

Japanese silk industry suffering from large supply held in storage because of government support of producers. Price outlook poor.

Federal units for stabilizing grain and cotton prices announce they intend to keep their holdings of wheat and cotton off the market to support prices and avoid competition with farmers and cotton growers.

Coca Cola estimates earnings for second quarter $4.50M compared to $3.94M in 1929. Says depression is having little effect on operations. Trying to increase sales in foreign markets; export sales were up 32% in 1929 and 82% in 1928. Now sold in 76 countries, up from 30 in 1926.

Liquid Carbonic (soda fountains and carbon dioxide) earnings for 6 months ended March 31 were $0.85 vs. $0.82 in 1929. Business improved by increase in carbonated beverage consumption during Prohibition.


“Miss Screecher - 'Would you advise me to cultivate my voice?' Suffered - 'Yes, and please plant it deep.'”

+ The Boring Stuff:

President Hoover vetoes Veteran's relief bill as expected, repeating that it is unfair and wasteful, and would lead to a tax increase. House Republicans agree to sustain veto and pass substitute bill acceptable to Hoover.

Admiral Byrd addresses Bond Club concerning his Antarctic expedition, praises role of aviation in filming and mapping thousands of miles of territory, remarkable advances in aviation in past two years.

Census reports unemployed in April 574,647 or 2% of total population, in an area about a quarter of the country. Area is thought to be representative of the country as a whole; if accurate, this would give a much lower unemployment level than other current estimates.

Call rates [rates charged to brokers/dealers] dropped to 1.5% from 2%, attracting some buying to dividend stocks.

Foreign currencies generally slightly higher, pound at $4.86, Canadian dollar slightly below par.

Retail store employment in April 1930 was 388,424 compared to 387,034 in April 1929.

First 35 railways reporting results for May had earnings down 29.7% from 1929, revenue down 12.7%.

Erie Railroad has started high speed gas-electric locomotive operation; purchased 10 locomotive units capable of hauling 5 coaches at 65mph.

Dow Chemical earnings for year ended May 31 were $4.08/share vs. $3.53/share in 1929.

Hudson Motors estimates earnings for second quarter $0.50-$0.60/share compared to $3.79 in 1929.

Grand Union Stores sales in 24 weeks ended June 14 were $16.7M compared to $14.5M in 1929; store count is unchanged.

Anaconda Copper joins several other copper producers in cutting dividend by 50%. Copper prices have declined, but chairman says production is coming into line with consumption and inventories in consumer hands are very low, so copper prices should respond dramatically to business improvement.

E.F. Hutton notes that US Steel common is yielding almost as much as preferred, even though dividends are still well covered and the common has the possible upside of stock appreciation. Feels this situation is unlikely to continue.

June 25, 2009

Thursday, June 26, 1930: Dow 215.58 +3.74 (1.8%)

Assorted historical stuff:

Editorial: Some have criticized the “failure” of President Hoover's prosperity conferences from last November, and been frustrated that the predictions of early recovery then were wrong. In hindsight it's easy to see the optimism then was mistaken and the downturn was worse than expected, but this was impossible to predict at the time. Also, the conferences did some good - they reduced the panic and pessimism of the time, and helped keep employment and wages from plunging as they otherwise would have. Some now say we should have “plunged headlong into general liquidation,” but would we have been better off with two or three times as many unemployed over the winter? We shouldn't allow frustration with the delayed recovery to upset our nerve.

Washington officials will be looking carefully at whether the record-low 2.5% discount rate will revive business. So far easy money hasn't affected the credit picture much, with demand for commercial credit continuing down. However, the lower rates and longer duration now in effect should give a fairer test. Also hoped that easy credit together with lower commodity prices will encourage businesses to restock.

The US oil pipeline system now is a total of 95,000 miles in length, ranging from 2 to 16 inches in diameter. About 2.5 million barrels of oil flow through it daily, or 70% of the world's production. The first oil pipeline was built in 1861; it was made of wood, 2 inches wide, and 4 miles long. Pumping charges for that pipeline were $1, compared to current charge of $0.50/barrel for 300 miles.

Over 20 million homes, or 70% of homes in the US, have electric service. The average home used 516 KWHr in the year ended March 31, 1930, at a cost of 6.08 cents/KWHr. Price of electricity has gone down more than almost any other expense since 1914.

Total German unemployed 1,858,000 on June 15, compared to 940,000 a year ago.

Henry W. Thornton, president Canadian National Railways, says conflicts of industry over trade are a threat to world peace; sees the fundamental obstacle to peace as “our hereditary contentious psychology, perhaps generally dormant but always explosive.”

Senate authorizes $1.5M to acquire for Library of Congress the Vollbehr collection of incunabula [early printing], including a Gutenberg bible.

Market commentary:

Heavy selling early, taking major stocks to new lows for the current decline. A sharp rally in the late afternoon, possibly due to short-covering, resulted in a gain for industrials. Rails didn't recover as well, ending at 125.03, lowest level since March 1927. Steel and rail freight news continued bad. Commodities still unsettled, but wheat and cotton steadier. Government denied rumors that the Federal Farm Board would be ended [helped support commodity prices].

Some traders believe the Dow Rails average closing below the 1929 low indicated bear market isn't over. Many important bankers disagree, feeling it's close to a bottom; Col. Ayres of Cleveland Trust anticipates “an abrupt and consequential upward movement of stocks and commodity prices ... by Labor Day.” Bullish factors include lack of public participation in the Spring rally, low margin positions, and high short interest.

Some market observers are distressed by lack of support by “big interests,” as seen in sharp declines for leading stocks on low volume. Stocks have gone down regardless of quality or ability to maintain earnings during downturn.

Old-Timer says he's not sure if stocks will go up or down from here, but anyone buying good stocks at this level will do well in the long run. “We get few opportunities like the present to buy things below intrinsic worth.”

Economic news and individual company reports:

Steel demand weak entering usual summer slowdown, but getting some support from structural and pipe steel, both higher than last year. Large projects include highway, subway, and pipeline construction. Industry mildly optimistic, sees low in mid-July and upturn in August.

Total value of 1930 US grain crops estimated at $3.331B, down from $4.071B in 1929.

American Tobacco reports record earnings for first five months of 1930, more than double previous year. Attributed to heavy newspaper advertising. Plans stock split and special dividend.


'Some of us thought stocks had scraped bottom on Thursday of last week,' remarked the Room Wit, 'but it happened that they scraped too hard and went through.'”

+ The Boring Stuff:

Conventional wisdom is that stock market moves anticipate business conditions, so stocks should go up soon if predictions of a fall improvement in business are true. Skeptics note that the market kept moving up last fall even though business started turning down in July.

Most individual railway stocks now selling below 1929 lows, including some of the stronger ones whose dividends aren't in danger.

South Carolina sued for anti-chain store tax - claimed to be unconstitutional.

Total building operations in May $169.7M, down 6.1% from April.

Chain store sales are holding up well, but stock prices are at yearly lows. Example 1: Great A&P Tea, selling at $185 or 15.7 times 1929 earnings of $11.77, yield 2.7% (down from a 1929 high of $494). Example 2: First National Stores, selling at $47 or 11.5 times 1929 earnings, yield 5.3% (down from a 1929 high of $90). Sales for both of these are up so far in 1930.

Archer-Daniels-Midland profit for quarter ended May 31 is $0.52/share compared to $0.51/share in 1929.

American Water Works & Electric income for year ended May 31 $3.84/share, vs. $3.92 in 1929.

US Smelting, Refining & Mining reports net income first 5 months of 1930 is $1.12/share vs. $2.19/share in 1929. Quarterly dividend cut from $0.875 to $0.25.

Atlantic Gulf & West Indies Steamship reports earnings first 4 months of 1930 of $5.07/share vs. $7.20/share in 1929.

American Ice profits in May $603,688 vs. $521,358 in 1929.

June 24, 2009

Wednesday, June 25, 1930: Dow 211.84 -7.74 (3.5%)

Assorted historical stuff:

Editorial defending World War veteran's relief bill. Expected Hoover veto may be overriden by Congress, but the bill has already been much improved to reduce unfairness and waste. Defends admittedly large spending soon to approach $1B, considering promises to recruits made in 1917 and number of disabled veterans not yet cared for. While some waste remains it's not the worst example considering the $500M spent on wheat and cotton support, etc. Hoover remains unconvinced; sympathetic, but claims the government already takes care of most disability cases from the war and the new bill mainly would apply to men who were not disabled in the war but in civilian life afterward: “It is a sad thing for our government to set standards of subterfuge to our people.” Bill passes 66-6 in Senate.

Australia facing large deficits; blamed on past expenditures on “non-reproductive public works” including unprofitable railroads, and on declining commodity prices. Anticipates painful adjustment to the situation.

Simon Commission recommends eventual autonomy for India under British safeguards; for the time being, British Governors will retain sweeping powers.

Oregon voters in November will decide on a Constitutional amendment outlawing manufacture, sale, or possession of cigarettes.

Electric eye system installed to detect dangerous gases in the Holland Tunnel under the Hudson. Triggers an electric circuit in supervisors office half a mile away, whereupon supervisor can turn a switch and speed up suction fans.

Market commentary:

Bears were in action again, this time concentrating on the rails. Encouraged by the Monday Dow Rails close of 128.88, very close to the Nov. panic low of 128.07, and also by bad earnings reports and freight traffic, bears attacked important rails and got a Dow Rails close of 126, lowest since March 1927. Commodities also under pressure; wheat at new postwar low. Industrials attempted morning rally, but gradually lost ground as the fall in rails intensified. Good news from US Steel (production at 71%, higher than expected) failed to rally market. Banks and insurance stocks down sharply in afternoon.

Some current stock prices as percentage of their 1929 highs: Krueger 17%, Chrysler 18%, Montgomery Ward 21%, IT&T 27%, GM 42%, Woolworth 49%, US Steel 58%.

Market observers becoming reluctant to give opinions, even the usually outspoken ones. Caution urged. Trying to pick a bottom can be disastrous.

Banks have a disturbingly high proportion of deposits tied up in securities and loans on stock or bond collateral. Proportion is 65% for all member banks of Federal Reserve system vs. 56% a year ago, and 80% for New York banks.

Congress will adjourn in about a week - this might help market sentiment.

One broker's opinion: “When this economic and market readjustment has been completed, it will merely be represented by a small curve downward in our steadily mounting curve of prosperity, consumption, production and efficiency ...”

Economic news and individual company reports:

Index of economic production down 2% in May, roughly equal to April increase.

Income tax and customs receipts higher than expected so far in June, raising prospects of an increased surplus; income tax receipts through June 21 are $497M vs. Treasury estimate of $500M for all of June.

RCA-Victor adding 7,000 workers for total of 20,000; to produce 9,000 radios/day.

Howard Heinz, president H.J. Heinz Co., reports worldwide business ahead of last year, attributed to strategy of increasing advertising during depressions.


“Mrs. Hoskinson - 'I have found out one thing about that Mrs. Newcome. Whoever she is, she has certainly never moved in good society.' Mr. Hoskinson - 'How do you know that?' Mrs. Hoskinson - 'She shakes hands as if she meant it.'”

+ The Boring Stuff:

Population of New York City estimated between 6.891M and 6.991M.

Number of people killed in rail accidents decreased from 72 in 1923 to 19 in in 1929; number injured decreased from 1,560 to 390.

Current record depth for a producing oil well off the Gulf Coast is 7,439 feet.

Buffalo becomes largest flour milling center in the world, producing 9.485 million barrels in year ended July 31. Takes over from Minneapolis after a 50 year run.

Rumors of extreme depression are exaggerated; business isn't good but even with 3 million unemployed there are 7 times that many still working and making good wages. Savings deposits continue to increase, and appetite for bond issues continues good.

Retail food prices on May 15 were down a little under 0.75% from April and a little over 2% from 1929; wholesale price index was down 1.75% from April and 7% from 1929.

First 12 rails reporting May operating income down 27.9% compared to 1929, revenue down 13.5%.

Movie company earnings have slumped in May and June. This may be a return to normal seasonal pattern, which didn't happen last year after introduction of sound films. Earnings still expected satisfactory for year, but not as high as more optimistic estimates.

City Ice & Fuel (ice to homes and railcars, coal) reports May EBITDA $896,291 compared to $759,479 in 1929; first six months expected to set earnings record. Historically not that effected by business depressions.

International Shoe for six months ended May 31 earned $1.75/share compared to $1.68 in 1929.

Exchange Buffet (restaurant chain) earns $2.20/share for year ended April 30, compares to $2.03/share previous year.

A&P stock price continues to struggle due to pessimism toward chains store group and lack of interest. Shares can move 5 to 10 points on odd-lot trades.

June 23, 2009

Tuesday, June 24, 1930: Dow 219.58 +4.28 (2.0%)

Assorted historical stuff:

J. Westerfield of the NY Stock Exchange lectures civics clubs of Yonkers on the causes of the current business recession. Says the effort to attribute it to any single cause is superficial; criticizes sanguine statements of “new era” economists that “the vast amount of reliable statistical information had practically abolished the old-time evils of large inventories and overproduction.” Concludes that an illusion grew popular that “paper profits in ... quoted values for real estate, commodities, securities, and other forms of property increased fortunes and thereby spending power.”

Senator Glass is heading a subcommittee considering extensive changes to banking regulations. Among the changes considered are restricting speculative loans by banks to brokers and stock exchange members, removing the Secretary of the Treasury as a member of the Federal Reserve Board because of undue influence, making it easier for banks to expand nationwide, etc. Anticipated the committee will have meetings all of next year's session and submit recommendations December 1931.

Congressman Fiorello La Guardia (Republican, NY) objects strongly to revisions of the Wagner bill to relieve unemployment by planned public works. Urges passage of the bill in its original form and the establishment of a national employment agency.

Navy Department asks for bids for construction of aircraft carrier number 4, a 13,800 ton ship. Total cost not to exceed $19M; $4.05M appropriated to start construction.

The new Price Brothers skyscraper, tallest building in Quebec, now in full use - all 17 floors occupied.

French scientist to test device for converting warmth of Gulf Stream into electricity.

Census indicates New York City contains “300,000 unemployed and 100,000 drifters.”

New York State had 156 dead from industrial accidents in May, down from a 5-year average of 169.

Market commentary:

Morning trading began with some margin liquidation following Saturday's sharp decline. Bears sensed opportunity to drive stock prices close to panic lows of last November, and launched aggressive attacks against major industrials, particularly US Steel. After two attacks failed to force Steel below its November panic low of 150, a rally began that spread to the rest of the market, including major industrials and utilities.

Some of the recent weakness in commodities may be due to operators who are holding positions in commodities and stocks together, particularly popular speculative commodities like wheat and cotton. When forced to raise funds to cover margin calls, they may be liquidating commodity positions.

Current speculative sentiment is bearish, but the conditions are there for a strong bull market in the future. While commodity price decline is serious, many are selling for record lows or below cost of production, which can't continue forever. Inventories are low. Wages have not gone down with deflation, leaving workers with more buying power. Businesses generally have good balance sheets and are operating efficiently; those that need to borrow can do so cheaply.

Warning against following rallies until the market demonstrates the ability to hold gains.

France denies any possible immediate reprisals for Smoot-Hawley tariff.

Economic news and individual company reports:

US income tax receipts for June 1-20 total $470.7M, down from $499.5M in 1929.

Ford plans major expansions in US, Paris, and Stockholm factories; planning to order Dutch boats to use as transports on the Mississippi and Amazon.

Paramount (movies) is selling at $55 a share, with a dividend of $4 for a 7% yield. Expected to earn $2.75-$3 in first half of 1930, and seasonally higher in second half.


“'Lost Sheep.' An English parson and his family unknowingly take up residence in a former house of prostitution, with farcical complications and a few awkward innuendos; well acted although scarcely worth the effort.”

+ The Boring Stuff:

President Hoover expected to veto
proposed $180M World War veterans pension bill, uncertain if Congress will override. If passed then to maintain a budget surplus, the 1% income tax cut for 1929 will have to be reversed and other taxes may need to be raised. Secretary Mellon would strongly like to avoid raising taxes in the current business depression.

Market sentiment was helped by some strength in commodities (wheat, cotton) which also rallied after early weakness, and by a more positive feeling about the economic outlook. Sugar, however, hit 1.26 cents, a new low dating back to the Civil War.

Increasing amount of short interest, particularly on the part of “small outsiders” who may be new to the short side. May cause a scramble for cover when the market turns. Not much buying interest by the general public.

Canadian stocks have declined below last November panic lows; many leading companies yielding 5% or more. Business conditions are being hurt by declines in exports, particularly wheat, and decline in construction. Some improvement in mineral exports.

New York State construction contracts awarded in May $109.6M vs. $78.8M in April and $95.9M in 1929.

Census Bureau reports 4.36% of Chicago's total population unemployed; translates to about a 9.5% unemployment rate.

Swedish Aero-transport has compiled a remarkable safety record since starting operations in 1924. It has carried 61,200 passengers, 35,800 tons of freight, and 100 tons of mail with no injury to passengers or damage to goods.

Record volume of air mail this year - total of 2.4 million pounds for the first four months of 1930, up 21.6% over 1929. Largest carrier is United Aircraft & Transport [this included what later became Boeing, United Technologies, and United Airlines]. Payment of air mail rates at a loss by government acts as a subsidy to passenger air traffic which is generally operating at a loss.

B&O Railroad has maintained its shop work force at close to 100% so far in 1930, resulting in a large surplus of working cars and locomotives. Plans to close the shops for three weeks as an alternative to laying off large numbers of workers for indefinite period.

McKeesport Tin Plate (tin cans) estimated to earn between $9 and $10 a share this year compared to $8 in 1929.

June 22, 2009

Administrative note:

Some readers have mentioned that the number of items I include each day is kind of overwhelming, and also that it's confusing to see the same items in the weekly digests and the daily summaries. I do realize that the daily summaries get kind of long - I try to do them in a pretty unfiltered way, to give a representative sample of reading the whole paper (I'm doing this mostly for my own education). On the other hand, the non-hardcore Depression buffs among you shouldn't have to wade through a bunch of boring items like company reports to get to the more interesting stuff - that was the idea behind the weekly digest. I now think a better way to do things might be to separate the boring stuff out day by day, and let you click on an expand link if you want to see it. So we'll try it that way for now ...

Monday, June 23, 1930: Dow 215.30 -6.62 (3.0%)

Assorted historical stuff:

A.M. Creighton, manufacturer and banker, returns from a 32,000 mile tour of the Pacific begun from San Francisco in January. Stops included Bali, Java, Australia, Singapore, Bangkok, Indochina, China, Japan, and Hawaii. Found conditions everywhere depressed, particularly in commodity producing countries due to price declines, overcapacity, and fall in silver. Tariff is causing uneasiness. Found American cars, music, and movies everywhere. Many places had live interpreters of sound movies into the native tongue.

Experimental showing of sound movie on a moving train by the Chicago, St. Paul Railway. Experiment successful but some refinements are needed before movies become a regular part of railroad travel.

Contracts awarded for brick to be used for the new Waldorf Astoria Hotel on Park Avenue. Approximately 3 million face bricks custom designed to match Indiana limestone, and 8 million ordinary bricks.

Market commentary:

Col. Ayres, VP Cleveland Trust, predicts an abrupt recovery in stock and commodity prices by Labor Day due to current consumption exceeding production. Distinguishes between two types of depression, “V”-shaped and “U”-shaped.

Reduction of the rediscount rate to 2 1/2 percent is considered beneficial in several ways. It indicates credit will be easy for some time; should benefit many industries including farming, building, and construction, and make bond issues easier for corporations resulting in lower unemployment.

Stocks continued down, with big declines in the large trading stocks. Bears encouraged by the failure to hold Thursday's rally after good news, and further breaks in the commodity market (wheat, corn, cotton). US Steel hit a new yearly low, followed shortly by Bethlehem Steel, Union Carbide, and American Can. Some rallying on the close on short covering. Volume not very heavy.

Commerce Secretary Lamont denies tariff will hurt trade. Notes that 80% of imports are duty-free or will have duty reduced or unchanged under the new tariff. Says flexible clause of tariff can be used to address remaining complaints of foreign countries. Notes that trade has increased for many years in spite of previous tariff increases. Treasury Secretary Mellon also has defended the tariff, and being the third richest man in the world he would certainly be opposed to it if he thought it was damaging to business.

Economic news and individual company reports:

US merchandise exports in May fell to $322 million, lowest for any month since July 1924. Imports fell to $285M, lowest since August 1924. Attributed to general decline in business and commodity deflation.

Metro-Goldwyn-Mayer production plans for upcoming year include 50 feature films, 60 comedy/novelty shorts, and 104 Hearst Metrotone newsreels.

Ford Motor Company has found it's practical to salvage materials from antiquated cars; currently has 120 men dismantling the old cars at a rate of 375 every 16 hours, plans to expand the operation.

Goldman Sachs continues to hit new record lows, now selling at less than one sixth its 1929 high.

Growers and packers are uniting to try and cope with a large oversupply of cling peaches. Number of cases has increased from 1.5 million in 1910 to almost 15 million in 1928. Similar glut conditions in the raisin grape industry.

Heard on the Street:

“'Things are getting back to normal,' remarked the head of a Broadway house. 'Again the main topic of discussion among our customers is the 18th amendment.'” [Prohibition]

+ The Boring Stuff

Commerce Department reports a reduction of $561M in net capital exports from the US during 1929. This includes money spent abroad for tourist travel, investments abroad, payments of debt abroad, etc. One major result was an inflow of gold of $307M, or about 3% of total world gold stock. This may be causing problems by reducing money supply in the rest of the world; it would be good to smooth out these major fluctuations in US capital exports.

Many stock buyers are waiting for commodity prices to stop declining. Q2 earnings are also expected to be poor. Therefore we can expect bears to launch another attack on the Dow Jones panic low of 198.69 reached last Nov. 13. Based on the history of previous bear markets, however, it's likely this level will not be substantially broken, if at all. Also further declines are expected to be dull and low volume as is typical of the tail end of bear markets.

Last Friday marked the anniversary of the low from the panic of 1921 when the Dow 20 Industrials hit 64.90 and 20 rails hit 65.52. A couple of months later the greatest bull market in this country's history began.

German market has declined severely, now below 1929 low. Most stocks yield 6%-9%. Attributed to Wall Street decline and German government crisis.

Fall in the price of silver is affecting exchange rates for countries such as China whose currency is silver-backed.

Youngstown Sheet & Tube (steel) expects Q2 net about $2 a share compared to $1.92 in Q1 and $5.90 in Q2 1929.

Youngstown district average activity for steel companies declines this week to 63% of capacity from 65% last week.

Sears, Roebuck sales for four weeks ended June 18 were down 7.4% from 1929; sales for the year to June 18 were down 3.3%.

Economy Grocery Stores expects earnings for the year ended June 30 to exceed the record level of $2.72/share the previous year.

Wesson Oil reports earnings of $.65 a share for the quarter ended May 31 compared to $.40 a share in 1929.

Douglas Aircraft is operating at full capacity unlike most aircraft manufacturers, mainly due to military and foreign government orders.

Otis elevator expects business for the first six months of 1930 about 10% below 1929; business being helped by large buildings with fleets of elevators, renovation of old buildings, and servicing business.

Impressions of the week June 16-21, 1930

June 22, 1930 was a Sunday with no Journal to summarize, so once again I'm going to drop the mask of objectivity and make with a little editorial commentary and impressions of the past week.

Do the Country Shuffle - If there was a single item that made me sit up from my normally slumped position this week, it was the first one in the Market Commentary from Saturday:

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.

Now let's see, a country that has a big creditor position, a production capacity too big for its own people to absorb, and that therefore is loaning money to other countries to get recycled back into a trade surplus... might that remind you of any country today? (Hint: A Inch). Now, I'm ashamed to admit that until I saw that item it hadn't occurred to me that while the current situation might bear some resemblance to 1930, the countries might have to be shuffled around to really make things correspond - the flash of insight was blinding! Well, if China now is us then, then who then are we now? Let's see ... proud owner of the world's reserve currency franchise ... running sizable merchandise trade deficits ... I think I got it! (Hint: Baring Attire). OK, but then who now is Germany then? Let's see ... huge outstanding debts, postponing dealing with them as long as possible through a series of temporary gimmicks, government reaching a state of deadlock... got it! (Hint: Facial Iron)

Hmm ... that isn't exactly encouraging when it comes to what happens next ... although, on the bright side, at least in the case of California the consequences of having a strange looking Austrian in charge haven't been anywhere near as drastic this time ...

The Tariff Revisited - As expected, I got some adverse reaction to my opinion last week that the tariff didn't seem to have been a major factor in the decline so far. Let me clarify a couple of things. I'm not in favor of protectionism, nor do I think the tariff was a good idea - it probably wound up doing some damage. All I said was that in my personal, constitutionally protected opinion, it didn't seem to have been that much of a factor in the decline so far (I'm not excluding the possibility that it later did become more damaging). To review, I think this because:

- The trade crash already appeared to be well in progress before the tariff passed - in fact, this trade crash is even more remarkable given anticipation of the tariff, since we would normally expect a big bump in imports before the tariff was passed as importers stocked up as much as possible to avoid the raised duties.

- Tariffs were not exactly unknown at the time; many were already in effect around the world; as Mellon says this past week, previous tariff raises had also caused “gloomy prophecies”, but trade had nevertheless always increased in the past. It's also not the case that the tariff was hugely more punitive than previous ones - if I may cheat slightly and use an item from tomorrow, 80% of imports were duty-free or had duties reduced or unchanged under the tariff, and Hoover had made his intention clear to use the flexibility provision to address complaints about the remaining items.

- My final point was that the stock market declines seemed to be happening more in response to bad business news and commodity price declines than to the progress of the tariff bill. This is, of course, a subjective judgement and I invite the readers to come to their own conclusions.

Regarding this last point, however, I can't restrain myself from responding to one analysis that I was pointed to about the tariff's impact. This was by none other than the late supply side guru Jude Wanniski: http://polyconomics.com/ssu/ssu-010713.htm

Now, when I referred last week to a religious war among economists, I didn't expect to have to take on one of the Grand Ayatollah's himself, and without even a couple of warmup bouts with tomato cans. However, I will not shrink from my duty. Let me at least do a few pushups to warm up ... ninety nine ... a hundred ...

OK, here goes. With all due respect, this is one of the most bizarre and stupid analyses I've ever seen. A point-by-point refutation would be way too long, but here's a few of the high points. Mr. Wanniski starts right out with a whopper:

The most common explanation of the crash is that the market was overpriced, the victim of heedless speculators who had somehow lost their grip on reality in the mad rush for quick profits. But that explanation has never quite satisfied, either empirically or logically. There is no real sense in which the market can be 'underpriced' or 'overpriced.'”

And here i've wasted all these years listening to suckers like Buffett or Soros who claim that the market has been known, on occasion, to go stark raving bonkers. Yes, it's all clear now. The market didn't crash because hot stocks like A&P were selling for 40-50 times earnings or more, and the most reliable measure of market valuation as a whole, the PE10, hit a peak over 30 not to be equalled until 2000 (see figure 1.3 in http://press.princeton.edu/chapters/s7922.pdf ). It didn't crash because traders were, if I may be excused for using a technical term, leveraged out the wazoo, with margin debt setting new records every week. It didn't crash because business started to decline. No, Mr. Market is always cool and rational:

The market places a value on each company listed on its exchange, based on its calculations of that company's future income. ... If one accepts this rational model of stock market behavior, it's logical to believe that the market at its 1929 peak was exactly where it should have been, and that the crash resulted from some stupendous error ...”

So, what did cause the crash? What rational cause was there to reduce the valuation of all US industry by approximately 50% in around 3 weeks starting on Black Thursday, October 24? Clearly, the only explanation is:

On Thursday, October 24, the anti-tariff forces suffer another setback; casein tariffs are raised 87%.”

Hmm ... casein. Well, it is one of the more commercially important milk-derived protein byproducts, but still, a 50% haircut for the value of the entire US industrial base does seem a little ... what's the word ... demented? To be fair, I guess Mr. Wanniski is arguing that it wasn't the casein tariff itself but that the market somehow at that moment realized that the anti-tariff forces were beaten and tariff passage was inevitable (although Smoot-Hawley didn't in fact pass for another nine months after much further sound and fury). But lets examine this a bit further. By Mr. Wanniski's theory, the mere realization by the market that tariffs were probably to be raised at some future time justified that 50% haircut. Now let's fast forward to Friday the 13th of June, 1930. Until that point, despite Mr. Wanniski's version of events, it appears that there still was some doubt about passage of the Smoot-Hawley tariff, since it still didn't have the votes to pass in the Senate (this is probably why there was an editorial against it roughly every other page in the WSJ). It's an item from that day that's really the final nail in the coffin:

Passage of the Smoot-Hawley tariff seems likely. With Senator David Reed, declaring his support, the bill is likely to pass in the Senate by two votes, and then to be adopted by the House. President Hoover is likely to sign in order to end “business uncertainty surrounding tariff consideration”; it's feared that a narrow defeat or veto would simply lead to the reintroduction of the issue at the next session of Congress. Senator Reed says the bill has been improved more than generally appreciated; his action followed meetings with Secretary Mellon and President Hoover.

This switch by Senator Reed and another Senator is what gave the tariff a majority - and, since he announced it after conferring with Hoover, it's clear that a veto is also not to be expected. So what was the market's response to this? If the mere probability of a tariff bill nine months later was enough for a 50% haircut, surely the inevitability of one in a few days would cause a cataclysm! Dow on Friday ... drumroll please ... up 2.51 points (1.0%).

I will skip the company review this week due to being worn out from wrestling with Mr. Wanniski, but I hope to have an expanded version next week. Until then ...

June 21, 2009

Weekly Digest June 16-21, 1930: Dow 221.97 -27.72 (11.1%)

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.”

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

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.

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.

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.

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

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.

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

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.

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.”

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.

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

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

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.”

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: “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.”

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.

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.

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

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.

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.”

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.

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.

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.

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.”

Front page above the fold editorial: “A Turn of the Tide Near” ... “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.”

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.

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.

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.

Economic news and individual company reports:

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.

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.

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.

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.

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

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.

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.

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%).

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.

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

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.

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.

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.

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.

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.


“' 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.'”

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

“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.”