Favorites of the week June 30-July 4, 1930

No Journal was published July 5 or 6, 1930. Once again, a collection of my favorite items of the week. These aren't a representative selection but just the ones that made me smile or take notice.

July 4:

Researchers for the state of California find that girls are more intelligent than boys of the same age. About 10% more boys than girls are developmentally disabled; about 4% more girls than boys skip one or more grades; girls found able to study better than boys, and to be "more mature mentally." [Note: Disturbingly Familiar Item 1]

Fiat announces plan to increase output, while an Italian tariff of 100% on autos is proposed. Market not sure what to make of it; no shares traded on the Curb Exchange.. “There has been talk from time to time that a big American automobile company was seeking control of Fiat.” [Note: I swear I didn't make that one up.]

July 3:

$250,000 order placed with American Hardware Corp. for gold-plated doorknobs to be used in Waldorf-Astoria.

Eventual recovery from depression is ensured by US population growth, as seen in the recent census. 25 years ago steel capacity of 15 million tons a year was considered too high; now three times as much steel is produced annually. Similar increases have occurred in the consumption of many other products. [Note: Disturbingly Familiar Item 2]

July 2:

Bill Robinson [Bojangles], Harlem's greatest tap dancer, appearing in the Palace Theatre. Has been performing for 32 years. Famous for inventing new steps, such as the stair dance. So many performers are now imitating the stair dance that he's now doing his own imitation of himself doing it.

At a recent large corporation's stockholder meeting, the secretary was annoyed to find two men with no proxy forms. "Whom do you represent?" the secretary asked. "The short interest," the gentlemen replied.

July 1:

Editorial: D.M. Marvin, economist for Royal Bank of Canada, says present depression caused by tight credit; points out that in spite of low rediscount rate many banks are not lending due to poor balance sheets; total credit extended by the Fed. Reserve banks fell from $1.621B last Oct. to $937M in June. Proposes Fed. Reserve banks inject $500M of reserve credit by purchasing government securities. Idea is worth considering, but must be done with care to avoid inflation. [Note: Disturbingly Familiar Item 3, particularly the part in italics.]

The Big Fight - story about gambling rings trying to fix a championship boxing match; adapted from the 1928 stage play starring Jack Dempsey. Best scenes are “the gambler's conferences and the training of the fighters.” Climactic fight is unrealistic; film has too much “repetition of 'fight picture' devices, now hackneyed.” [Note: Thank God they didn't live to see Rocky.]

June 30:

Frances Perkins, NY State industrial commissioner, says Commerce Sec. Lamont is distorting unemployment figures by using percentage of total population instead of wage earners (only 40% of population). [Note: Disturbingly Familiar Item 4]

AT&T applies to Federal Radio Commission for another radio frequency to handle trans-oceanic calls. Complains that during a recent stock slump had 100 calls requested but only able to handle 29. [Note: 27 of them were from James Cramer, Sr.]

P.E. Crowley, pres. NY Central railroad: “I cannot believe that this country of ours, with its great and resourceful population ... can long remain in a state of depression, business or otherwise. I believe ... that we have turned the corner; that we will slowly but surely go forward to at least as great prosperity as has ever before been attained.” [Note: Disturbingly Familiar Item 5]

Colgate-Palmolive charged with deceptive advertising for using “naptha” in soap brand names, deceiving public into believing that said soap “contained sufficient naptha to be effective as a cleansing ingredient.”

First National Bank of Farmland, Ind. closes after cashier embezzles $12,000. [Note: May sound low, but this was approximately $12B in today's dollars. Note 2: That last note was a joke! The correct number is probably something in the $120,000-$200,000 range.]

Friday, July 4, 1930: Dow 222.46 -2.79 (1.2%)

Assorted historical stuff:

Independence Day editorial criticizing post-World War isolationism as a distorted concept of independence; calls for a middle ground “somewhere between the extremes of complete isolation and unreserved internationalism.”

House and Senate pass resolution urging speedup of authorized public works to relieve unemployment. Treasury announces $87.5M contracts to be awarded before end of the year.

Researchers for the state of California find that girls are more intelligent than boys of the same age. About 10% more boys than girls are developmentally disabled; about 4% more girls than boys skip one or more grades; girls found able to study better than boys, and to be "more mature mentally."

Film advertising and publicity directors pledge to join filmmakers in observing the Hays code, including “respect for the clergy and the law, avoidance of ... the mention of specific details of crime, and the featuring of nudity or the use of liquor in American life.” Also, censoring is not to be mentioned in ad campaigns.

Ira E. Robinson chairman of Federal Radio Commission, accuses "radio trust" of seeking to monopolize the airwaves, posing "the greatest danger to the fundamentals of American Government." Calls upon broadcasters to recognize that licenses obligate them as public servants. Also condemns excessive commercials.

Market commentary:

Final session before three-day holiday weekend began very sluggish; leading stocks failed to respond to bullish news of a decrease in brokers loans (down $197M to $3.219B in week ended July 2). Bears then resumed operations in afternoon and activity picked up, with many leading industrial and utility shares shares closing substantially lower. Banks slightly lower.

Gillette Safety Razor plunged to lowest level since 1925 on concerns of increasing competition, good report from competitor AutoStrop Safety Razor. Other bear targets with large price declines included Air Reduction, May Department Stores, duPont, and Timken Roller.

Dr. T. Grayson, dean of Wharton, advocates unemployment insurance; says current tariff system is “suicidal as well as ridiculous.”

Current depression doesn't appear that serious: number of shareholders of major corporations continues to grow; gasoline demand is up; Treasury is running a surplus; mass transit and auto traffic continues high; dividend and interest payments will not be far off record 1929 levels. Prevailing opinion is that “stocks cannot be forced much below current levels.”

H.H. Allen, economist, says history indicates we're in for two or more decades of price decline. Calls on business to adjust. Says that declining commodity prices don't inevitably cause depression, and normal profits are as possible in periods of declining prices as in rising.

Economic news and individual company reports:

Total imports in May $284.6M vs. $400.1M in 1929; exports in May $312M versus $385M in 1929.

Fiat announces plan to increase output, while an Italian tariff of 100% on autos is proposed. Market not sure what to make of it; no shares traded on the Curb Exchange.. “There has been talk from time to time that a big American automobile company was seeking control of Fiat.”

American Chicle (chewing gum, brands including Chiclets, Dentyne, Black Jack, Beeman's) reports net earnings for first five months 1930 were $811,000, slightly higher than 1929. Expects record earnings for the full year. Stock currently sells for approximately 10 times 1929 earnings, dividend yield of 7.1%.

Chicago plumbers union following several months of negotiations receives wage increase of 7.5 cents/hour to $1.70/hour.

Chrysler announces 10% cut in salaries. Cut is being made to share the burden with hourly labor, which has already suffered a substantial reduction in working hours. Cut is being applied uniformly to all salaried employees from Mr. Chrysler on down.

Play:

“The Last Mile - Mutiny in a prison death-house treated in the mood of modern war literature.”

+ The Boring Stuff:

Editorial praising the current year's Federal surplus of $184M, but noting that some revenues such as income tax and customs duties may decline this year. Calls for restraint regarding any new large expenditures such as pension bills or Farm Board [helped to support agricultural prices].

Changes in food consumption habits since the end of the World War: more dairy, citrus fruit, vegetables, vegetable oils, sugar; about the same potatoes and eggs; less cereals, poultry, other fruit.

William Boyce Thompson will filed; estate valued at over $85M; founder of Newmont Mining and Boyce Thompson Institute for Plant Research. Vast collection of minerals, carved stones, and curios left to the American Museum of Natural History. Quote from Henry Alloway's obit for Thompson: "Genuineness of pathos has this week stirred assembly of High Finance eminents at the grave side of this man whose career's deeds, motifs, have brillianted tradition's veritably revivified field of the cloth of gold."

Commodity trading mostly dull, little price change; wheat lower after good crop news. Foreign currencies generally higher, thought to be delayed reaction to low US rates.

Census survey finds only 2% of the general population unemployed (defined as having no job at time of the Census in April, though able to work and looking for a job). Survey covers about one fourth of the population, or 29.3M people. Wide variation found between localities; highest was Nevada at 4.5%. Commerce Sec. Lamont says these figures appear to be representative of the country as a whole and indicate "much less unemployment then was generally estimated."

New bond offerings in first half 1930 were $3.29B vs. $1.91B in 1929; offerings in June $525.4M vs. $630.9M in May. June total was smallest for year except February, but far above any month in first half 1929. Utility, rail, and foreign borrowings all up considerably over 1929.

May US auto exports $31.6M vs. $37.4M in April and $45.3M in May 1929. First five months exports $173M vs. $299.4M in 1929.

Chicago construction contracts awarded in year up to June 28 were $65.2M vs. $220.1M in 1929.

New York construction contracts awarded in June $80.3M vs. $84.8M in 1929.

Department of Agriculture says that drastic reductions in wheat acreage must be made in order for production to be profitable over the next several years. Sees worldwide increase in production without corresponding increase in demand. Calls for organization of producers into "units for collective action."

Baldwin Locomotive reports sales first 6 months 1930 were $17.5M vs. $8.6M in 1929; unfilled orders July 1 were $14.8M vs. $14.1M in 1929; new business booked was $9.4M vs. $17.4M in 1929.

Paramount (movies) expects first half earnings of $2.85/share vs. $2.28/share in 1929.

Packard announces record June shipments of 4,300 cars vs. 4,150 in 1929. Follows $400 price cut on all standard models.

Swiss American Electric earnings for year ended April 30 were $4.66/share vs. $4.63 in 1929.

Island Creek Coal second-quarter earnings estimated slightly under $500,000 vs. $669,498 in 1929.

Ritter Dental Mfg. expects first half sales down 7% from 1929, earnings down 20%.

Thursday, July 3, 1930: Dow 225.25 +2.22 (1.0%)

Assorted historical stuff:

Editorial: Governor Roosevelt praised for restraint in his speech concerning public help for the aged. New York State has passed a law providing cash payments to dependents aged 70 or more; Roosevelt admits fault with the law in not requiring contributions from the beneficiaries. Even if called a pension this will almost inevitably turn into a dole system. One only has to look at England to see "the appalling economic and social corrosion that results from indiscriminate state alms." Best solution would be an insurance system also protecting against unemployment, with cost divided between worker and industry, preferably without contribution from the state. Many corporations have already begun to build such a system. One argument for private plans is that "employees generally have more faith in their management than in that of governmental pension systems - and for good reasons."

International Chamber of Commerce meeting in Paris blames much of worldwide economic downturn on gold hoarding by central banks, particularly US and France [many currencies were gold-based].

J.J. Tynan, VP Bethlehem Steel, plans air ferry service between Battery and Staten Island.

$250,000 order placed with American Hardware Corp. for gold-plated doorknobs to be used in Waldorf-Astoria.

Westinghouse Electric organizes Westinghouse X-Ray Co. for "the development of x-ray and electro-medical apparatus."

Toronto hosts a convention for 10,000 Shriners by turning the Canadian National Railway's yard into a temporary city.

Market commentary:

Market very dull; morning attack on Steel because of yesterday's bad news ran out of steam; prices generally moved up and closed at highs. Experts pointed out steel curtailment was not far from normal seasonal patterns, and often marked a bottom on production. Share volume 1.227M shares, smallest for a regular session since June 1928. Industrials and utilities up, rails slightly higher. Banks and trusts up on half-year earnings reports showing banks to be "in far better shape than had been feared". Commodities mixed, generally steady.

Some observers feel a new test will be made by the bears next week and the response will indicate the near-future market.

J.M. Kern, Pres. St. Louis-San Francisco Railroad, believes trade has reached its low point and looks for a gradual improvement in the second half of the year.

N.L. Amster, director Rock Island Railway, returns from trip to Germany, France, Czecho-Slovakia, reports business on the upswing in all countries visited. Regarding the tariff, “Although a few exporters registered some complaint ... none of them felt that the question was very grave”, or that it would substantially affect trade.

Eventual recovery from depression is ensured by population growth, as seen in the recent census. 25 years ago steel capacity of 15 million tons a year was considered too high; now three times as much steel is produced annually. Similar increases have occurred in the consumption of many other products.

Economic news and individual company reports:

Miscellaneous taxes collected in 1929 included $450M tobacco tax, $77M stamp tax, and $62M estate tax.

Gasoline consumption first 5 months of 1930 up 12.6% over 1929; May consumption up 5.3% over 1929.

GE and Westinghouse to market branded radio sets. GE line will include "Highboy" and "Lowboy" consoles, ranging from $140-$200. GE stock currently selling at 69, yield 2.3%, earnings for the quarter ended March 31 were $0.50 vs. $0.48 in 1929, earnings for second-quarter expected slightly higher.

Autostrop Safety Razor estimates first-half 1930 earnings will be up more than 56% over 1929. No recent developments in the lawsuit against Gillette.

Technicolor remains target of heavy pressure, declining three points to 31 1/8. Officials continued to deny rumors of new competitive color film processes.

Italy doubles auto import duties.

Joke:

"'A shoulder strap is an important little article, isn't it?' 'Yes, it's the only thing that keeps an attraction from becoming a sensation.'"

+ The Boring Stuff:

President Hoover denies intervening in investigation of the New York Stock Exchange; newspaper story may have been caused by the postponement until next fall of hearings on Senator Glass' proposed general financial investigation.

Standard Oil and PG&E have collaborated to build one of the most technically challenging gas pipelines, a 200-mile line from Kettleman Hills to San Francisco. Most of the line is made with 26-inch diameter pipe, the largest yet used for pipeline. Each 40-foot section weighs 3,400 pounds; for the first time, electric arc welding was used to join sections; thanks to new techniques, a small group of welders was able to join up to a mile a day. New coating process developed for sections of the line with corrosive soil; accordion-like joints used for large angles to allow some flexing.

Several trade reviews believe businesses close to a bottom; sharp rebound not anticipated, but low consumer inventories should cause a good seasonal increase in demand in the fall.

Liquidation starting at the end of May took the Dow down 80 points from spring peak of 294.07. Caused by renewed decline in business instead of the expected upturn; market has now faced reality and likely to trade technically until autumn business conditions become clear.

Short interest is reduced but still large. Bad earnings reports for the second quarter may not have much effect since traders have already been selling short on that basis for several weeks.

Agriculture Sec. Hyde claims tariff will increase net income per farm by $102 based on 1928 production, and assuming rate increases are completely effective.

Raw cotton exports $154M for the first quarter of 1930, down from $208.8M in 1929 and $291M in 1927. Attributed mainly to foreign cotton mills buying cheaper cotton from other countries, rather than business recession or decline in the price of cotton.

Machine tool market dull; little hope for upturn until after the summer.

Municipal bond issues for the first half of 1930 totaled $749M vs. $700M in 1929.

Alaska total mineral production $16.066M in 1929 vs. $14.061M in 1928.

Madison Square Garden earnings per year ended May 31 $1.26/share vs. $1.51 in 1929.

Scott Paper reports sales for first 6M of 1930 were $4.421M vs. $ 3.912M in 1929; profits expected about $2.75 vs. $2.29 in 1929. Sales in June exceeded $1 million for the first time, attributed to special sales and advertising effort.

Interstate Department Stores expects earnings for first half about the same as 1929.

Van Camp Packing (food packing) sales for 5 months ended May 31 were $9.428M vs. $9.391M in 1929.

Wednesday, July 2, 1930: Dow 223.03 -3.31 (1.5%)

Assorted historical stuff:

NY Governor Roosevelt addresses the National Governor's Conference. Ventures the opinion that all governors should visit every state in the union before holding office; relays a remark by President Roosevelt [Theodore] to that effect regarding senators and congressmen.

Editorial skeptical of oil industry claims to have curtailed excess production. Coolidge formed the Oil Conservation Board six years ago to serve a resource vital to national defense and to "all industry and to private life as we live it." Notes that while production now matches refinery demand, stocks of gasoline in storage have risen dramatically over past year. Stricter measures may be necessary to ensure overproduction is ended.

France pleased with success of $350M German loan bond issue; product of years of diplomacy; feels it makes German obligations more secure by switching the creditors from foreign powers to “private citizens of all nationalities.”

Broadway theater operators will implement new plan July 21 to curb scalping by ticket brokers.

Bill Robinson [Bojangles], Harlem's greatest tap dancer, appearing in the Palace Theatre. Has been performing for 32 years. Famous for inventing new steps, such as the stair dance. So many performers are now imitating the stair dance that he's now doing his own imitation of himself doing it.

Philippine people have suffered unfortunate consequences from American high-power installment salesman. "One may now see, in or about $50 shacks, such things as $500 radios, $700 pianos, $200 phonographs, and even $1000 automobiles."

Market commentary:

Stocks continued rally in the morning but ran into resistance after reaching new highs in the first 3-4 hours. Bad news from Steel changed the general market direction. Bears renewed attacks - much of yesterday's rally attributed to short covering. Substantial short interest remains; bears expected to renew efforts after unfavorable second-quarter earning reports.

Airplane industry is having birth pains as the automotive industry did 25 years ago. However auto industry is now "one of the great pillars of prosperity;" it's having an off year, but production 25 years from now will be much greater than 1929. By that time the airplane industry may also reach maturity, with large employment and earnings.

Market decline has been worldwide, but an improvement in the US should spread. "Business all over the world in recent years has contracted a habit of moving in sympathy with the course of business in the United States. And there is good reason."

Many broker's letters say it's a good time to buy stocks as long-term investments, particularly quality rails, many of which are yielding 6%-7%.

Economic news and individual company reports:

U.S. Treasury surplus for fiscal year ended June 30 was $184M. Receipts were $4.178B vs. $4.033B in 1929; expenditures $3.994B vs. $3.848B in 1929. Public debt was reduced by $746M due to surplus and $554M of "sinking fund" operations charged to ordinary receipts. Original estimate of surplus before start of fiscal year was $225M; 1% tax cut last fall reduced this estimate to $145M.

Senate may direct the Secretary of Agriculture to investigate the multiyear decline in cotton prices. Resolution would budget $125,000 to investigate "the cause of the decline, the amount of short selling, and by whom."

California potential oil output estimated more than 1.1 million barrels daily; current production restricted to about 600,000 barrels, slightly over quota.

Car company shipments in June: Graham-Paige 3,190 vs. 5,989 in 1929; Reo 1,027 vs. 3,042; Buick 4,135 vs. 14,665.

Stock Market Jokes:

At a recent large corporation's stockholder meeting, the secretary was annoyed to find two men with no proxy forms. "Whom do you represent?" the secretary asked. "The short interest," the gentlemen replied.

"Many big operators who leave on vacation vowing not to look at a stock market quotation ... usually find what they are not looking for."

+ The Boring Stuff:

Editorial: the US will receive long-term German annuities totaling $755M to settle World War claims. Suggests the US could give up these claims to help with European reconstruction. This would not be charity, but a practical matter of helping our country's export markets.

French economy holding up well so far (index of industrial production 144 in April vs. 139 average for 1929, full employment). Public mood, however, is pessimistic, and stock market is down.

California population 5.642M, up 65% from 1920.

Returns on retail sales estimated at 7%-8% of sales or about $3B; returns on installment credit 12%, open credit 9.9%, cash sales 5.2%; highest returns on credit sales for musical instruments, over 15%.

Wheat, cotton up; other commodities dull, mostly down. Government and corporate bonds generally higher; sharp rally in Bolivian bonds following revolution.

Railroad freight car loadings for week ended June 21 were 920,859, down 149,015 from 1929, down 66,501 from 1928, and down 5,234 from the previous week.

Steel industry production for the past week was around 64% of capacity vs. 66% previous week, 93.5% a year ago, and 72% in 1929. Holiday shutdown may cause a reduction to 48% next week.

A large steel producer believes production may decline a little but 60% of capacity should be the bottom.

Total gasoline in storage at the end of May 54.046M barrels, vs. 54.435M end of April and 44.648 end of May 1929.

June commercial failures 2,026 down from 2,179 in May but up 15% over June 1929. Total liabilities, however, were $63.1M, highest of the year and double 1929 level.

Walter Chrysler reports Dodge acquisition and integration has gone well. Company now is positioned well at all price levels, has developed good cooperation with employees, and is financially strong enough to weather a severe depression.

United Fruit earnings for 6 months ended June 30 estimated at $10.1M vs. $9.3M previous year. Selling at 12.8 times 1929 earnings, yielding 4.5%.

Warner Bros. (movies) expected to earn $5.50/share in the year ended August 31 compared to $5.23 previous year.

Globe-Wernicke (office furniture) sales for year ended May 31 $6.4M vs. $5.8M previous year; earnings $7.26/share vs. $8.42. High backlog of orders into the summer and fall.

Utilities: North American Co. expects earnings for year ended June 30 slightly above 1929. Consol. Gas & Elec. of Baltimore reports earnings for year ended May 31 was $6.22/share vs. $5.83/share in 1929.

Kress (chain store) announces 50 cent special preferred stock dividend; sales for five months ending May were $25.1 million up 5% from 1929.

Montgomery Ward June sales up 9.2% over 1929.

Savage Arms (firearms) expects first half 1930 earnings to be below dividend requirement of $1.00, vs. $1.38 in 1929.

Tuesday, July 1, 1930: Dow 226.34 +7.22 (3.3%)

Assorted historical stuff:

New York Governor Roosevelt calls for system of unemployment insurance; says 90% of unemployment is not the fault of the worker, but cautions against insurance becoming “a mere dole which encourages idleness;” says line must be drawn against any person who refuses to accept an offered position.

Bolivian revolution inspired by students victorious; council of six army chiefs takes over; plans economic council to deal with crisis.

Canada has third largest railway mileage in the world, including two transcontinental railroads.

Trading volume on the NYSE set records for June (76.6M shares) and for Q2 (265.7M). June regular daily volume ranged from 1.7M to 6.4M; Saturday volume from 0.6M to 2.2M.

Market commentary:

Bulls encouraged by evaporating volume in Saturday's session in response to price declines. “Creeping” rally developed, possibly partly due to technical factors (after large scale liquidation the past two weeks, shorts had to bid against themselves to cover). New highs for the current rally in US Steel, GE, American Can, Westinghouse. Good gains in Kodak, Foster Wheeler, some utilities. Banks and trusts higher. Commodity trading dull, mostly down slightly.

Editorial: D.M. Marvin, economist for Royal Bank of Canada, says present depression caused by tight credit; points out that in spite of low rediscount rate many banks are not lending due to poor balance sheets; total credit extended by the Fed. Reserve banks fell from $1.621B last Oct. to $937M in June. Proposes Fed. Reserve banks inject $500M of reserve credit by purchasing government securities. Idea is worth considering, but must be done with care to avoid inflation.

City Bank of NY criticizes blind optimism about an upturn earlier in the year, but also cautions against excessive pessimism. Based on history, depressions usually turn around sometime in the year following their start; consumption hasn't fallen as much as production, leading to eventual rebalancing. Believes depression caused not by gold or credit shortage but by unbalanced production, leading to commodity price declines.

Labor Secretary Davis says business is definitely turning up in the East, predicts reasonable prosperity within the next year. “People have learned once again that only work produces wealth.”

Inventories at major corporations are low as they've been in years - this should lead to heavy buying when business turns up.

Railroad news has been bad, but managements are optimistic and yields have become attractive[5%-7%], leading to some investment buying. (P. Crowley of NY Central: business has turned the corner, E.N. Brown of Rock Island: freight traffic has hit its low).

Advertisement for Clement, Curtis, & Co. (broker): “Stocks at high levels look safe but are dangerous; at low levels they look dangerous but are safe.”

Economic news and individual company reports:

L.K. Boysen, Pres. Mortgage Bankers Assoc., says Chicago is badly overbuilt with 17.7% of office space vacant. Blames excessive loans on bad appraisals, inadequate foreclosure laws. Says some bond houses are “keeping their investors in ignorance of the defaults by advancing the payment of principal and interest out of other funds.”

Survey of 418 companies from variety of sectors shows 173 with increased dividends for 1930 vs. 139 decreased.

Gasoline consumption for April in 42 states was 919M gallons compared to 807M in March and 805M in April 1929.

GM sales so far this year down about 1/3 compared to 1929. If pattern of first Q repeats, profits for first half will also be down about 1/3 to $100M or $2.15-$2.20/share. Full year's dividend requirement is $3/share.

Movie:

The Big Fight - story about gambling rings trying to fix a championship boxing match; adapted from the 1928 stage play starring Jack Dempsey. Best scenes are “the gambler's conferences and the training of the fighters.” Climactic fight is unrealistic; film has too much “repetition of 'fight picture' devices, now hackneyed.”

+ The Boring Stuff:

Federal government now employs 587,665 people, not including military, legislative, judicial, and DC government employees.

High yields might offer speculators the opportunity to do a carry-type trade, borrowing from brokers at 3.5%-4% and buying stocks yielding 6%-7%.

C.W. Young of Young & Ottley (investment firm) says investors who “have waited ten years to buy America on the bargain counter” will get the chance this summer. Blames current depression on political delay in passing the tariff, damaging business morale. Predicts a point in the next few months where stocks will more than discount all bad news and so be good buys.

Technical-style analysis: Two of the three Dow averages have held above the November panic lows, and all three now seem range-bound. If industrials or utilities break through the November lows, this would confirm a further big decline; otherwise trading in a range would probably indicate accumulation before the next leg up. Strictly speaking, a period of range-bound trading could be accumulation [bullish] or distribution [bearish], but if it were distribution this would indicate further economic trouble ahead; since production has been fairly stable the past few months, “such an assumption at this time would be merely borrowing trouble.”

US exports for Q1 1930 were 20% below 1929 but only 4% below the 1924-1928 average. Attributed to business recession and commodity price fall.

Mexico says it will counteract tariff by establishing local packing and canning industry and marketing products in other countries.

May meatpacking sales down 3% from April and 11% from May 1929.

Dupont estimates net for second Q at $1.31/share vs. $1.44 in 1929.

Continental Baking earnings improving from early part of 1930 but remain down from 1929; total H1 earnings down about 25% from 1929.

Foster/Wheeler (engineering/power) estimates first 6 months 1930 earnings up 20% over 1929; all plants operating at capacity.

UGI (gas/electric utility) net for year ended May 31 was $35.8M, up 23% over previous year; operating revenues up 7.6%.

McKeesport (tin plate for canning) earnings for H1 seen ahead of 1929. Benefiting from new markets for canned food and lower raw material costs.

Liquid Carbonic (Carbon Dioxide, soda fountains) earnings for 8 months ended May 31 were $823,521 vs. $671,562 in 1929. Sales up 10%.

Curtis Mfg. (pneumatic machines) net for year ended May 31 $3.62/share vs. $3.86 previous year.

Monday, June 30, 1930: Dow 219.12 +0.34 (0.2%)

Assorted historical stuff:

Frances Perkins, NY State industrial commissioner, says Commerce Sec. Lamont is distorting unemployment figures by using percentage of total population instead of wage earners (only 40% of population).

German financial program includes cut in public employee salaries of 2.5%, income tax hike of 5%, and bachelor surtax of 20% of income tax. Approval of Reichstag not assured.

Indian imports of cloth in April 165M yards, down from 215M yards in 1929; decline attributed to Gandhi boycott.

Louis Guenther, publisher of Financial World, returns from trip to Asia. Says Japan is in grip of similar depression to US, China far worse. Labor problems in Japan caused by practice of paying large part of pay in bonuses, then recently having to stop said bonuses. Chinese political situation unsettled in spite of great natural wealth.

Colgate-Palmolive charged with deceptive advertising for using “naptha” in soap brand names, deceiving public into believing that said soap “contained sufficient naptha to be effective as a cleansing ingredient.”

World annual electricity production estimated at 300,000 GW-hours, of which US produces 70%, Germany 11%, Canada 6%.

AT&T applies to Federal Radio Commission for another radio frequency to handle trans-oceanic calls. Complains that during a recent stock slump had 100 calls requested but only able to handle 29.

Market commentary:

Saturday session very dull - total volume 586,500 shares, lowest since July 1928. Some bad news in car and steel production, but apparently news was priced in already. Little forced liquidation seen. Bears seen maintaining their positions, renewed attacks feared; observers recommend remaining on sidelines. Other observers point out that many who wait for the turn don't see it until stocks are at new highs.

Old market rules haven't applied in the past year: normally a dull market shouldn't be sold but past month had heavy liquidation following a dull May; normally market anticipates business conditions but this didn't happen for multi-month rallies starting July 1929 and last February.

P.E. Crowley, pres. NY Central railroad: “I cannot believe that this country of ours, with its great and resourceful population ... can long remain in a state of depression, business or otherwise. I believe ... that we have turned the corner; that we will slowly but surely go forward to at least as great prosperity as has ever before been attained.”

Guaranty Trust reports that, after mild upturn last month, business is now trending slightly lower again. Seasonal recovery is probable in August, although it may be irregular and some factors are working against it, including continued decline in commodities.

Economic news and individual company reports:

Treasury again expected to close fiscal year ending June 30 with larger than expected surplus, probably over $200M, not including “sinking fund” operations used in-year to reduce debt by over $500M. Total public debt reduction for year expected $600M-$700M. Income tax slightly over estimate, customs duties slightly under.

E.B. Reeser, Pres. Amer. Petroleum Inst., hopeful program of curtailing oil drilling to reduce excess production and stabilize prices is working out. Oil drilling down sharply in Texas, bringing it almost in line with the program; Oklahoma, Kansas, and California are already in line.

Representatives for Western Electric and RCA are meeting in Paris to resolve a patent war concerning sound films with Klangsfilm-Tobis of Germany. Dispute has thus far prevented exhibition of talkies in Germany, except for Warner Brothers which bought 20% of Klangsfilm for $10M to gain access.

First National Bank of Farmland, Ind. closes after cashier embezzles $12,000.

Musical:

“Strike Up The Band - A Gershwin musical comedy, satirical of war, grade A milk and other subjects, further enlivened by the capers of Clark & McCullough.”

+ The Boring Stuff:

Editorial concerning “yellow dog” contracts in which employees agreed not to join unions. John J. Parker was rejected as Supreme Court justice because he had upheld the legality of such contracts. Editorial points out this is in agreement with Supreme Court interpretation of the constitution as described by the same Senate Judiciary Committee that recommended against Parker's nomination; therefore “Judge Parker was rejected because he failed ... to overrule the Supreme Court and amend the constitution all by himself.”

Florida League of Municipalities proposes plan to introduce a sales tax. Plan is designed to relieve burden on property owners now paying 80% of local taxes, and to help municipalities pay off defaulted bonds and meet obligations.

Indiana Supreme Court upholds Indianapolis law prohibiting advertising billboards within 500 feet of city parks or boulevards.

Total assessed value of New York State real estate for 1930 is $28.2B, up from $26.7B in 1929.

Paris and London stock markets also up over past week. Berlin continues down.

Business opinion more cheerful - no fundamental news, and seasonal business slowdown in progress, but confident of rebound in fall. Market students now expect a more sustained rally in near future, though bottom may not yet have been reached - bullish factors include: two up days in a row; $500M reduction in brokers loans past 2 weeks; recent large decline has discounted much of the expected bad news; low call and discount rates; coming influx of cash from Q2 dividend and interest payments; and high stock dividend yields. Optimism is, however, guarded due to expected bad Q2 earnings reports.

Rails over-ordered equipment in 1929, anticipating increased 1930 traffic; they then cooperated with Hoover's Business Conference and didn't cancel delivery; as a result, most have all equipment needed until well into 1931.

Rail stocks have been particularly beaten up, possibly due to failure of business to pick up so far in second quarter. Dow Rails average recently declined below November panic low; of 21 representative rails, 11 now yield over 6% and 5 over 7%.

Department stores (658 in 269 cities) report sales for May down 2% from 1929, sales for year through May down 3%.

Paul Shoup, pres. Amer. Electric Rail. Assoc.: Street railways still move 75% of all people in and out of urban centers, but are having financial problems due to city taxes, mandates to repair road damage mostly caused by cars, provide street lights, etc. Many are having problems borrowing money for needed capital spending; this is endangering an essential public service. Public ownership, if desired, should be undertaken by fair buyout of a functioning business, rather than out of necessity after starving out the private operators.

Youngstown district steel operations for largest 6 companies down to 55.5% of capacity from 63% last week; depressed by lower automotive demand.

Airplane inventory considered excessive; 1,468 planes for sale on Apr. 15 compared to 1,596 Jan. 15 and 1,143 last Oct. 15.

Production curtailment by cotton mills making progress toward reducing inventories.

US-sponsored Cotton Stabilization Corp. taking over 1 million bales from state cooperatives; market remains nervous about ultimate fate of all that cotton.

Golden State Milk Products earnings for year ended Feb 28 were $2.30/share vs. $1.74/share previous year.

Gilmore Oil net for year ended Mar. 31 was $2.31/share vs. $1.71/share previous year.

Nevada-California Elec. net for year ended May 21 was $1.019M vs. $0.976M previous year.

International Shoe net income for first half up 4% though sales down 13%; attributed to manufacturing efficiencies.

Packard (car maker) estimates Q2 earnings $3M vs. $2.7M in Q1. Sales stimulated by $400 price cut. Production for first half estimated 17,000 cars vs. 27,000 in 1929.

Company Review June 29, 1930

June 29, 1930 was a Sunday with no Journal to summarize, so again a little editorial commentary. This week I'm going to do an expanded company by company review, based on June company reports. None of this is intended as investment advice - always do your own due diligence before buying anything. Also, floss regularly and call your mother (it's been a while)!

Nevertheless, one of the reasons I'm doing this is to try and get a feel for what kind of companies hold up better in this type of a downturn, so I'm going to sum up my own rough and incomplete thoughts so far. (Note: if you want to look up the items on any particular company, there's a search box on the bottom right of the blog web page).

+ Long, Boring Company By Company Analysis and Summary Follows:

Companies holding up well (defined as earnings up or stable):

Anything food related - this makes some sense to me; presumably the last thing you cut is food. Also, some of these may have benefited from falling commodity prices. Many examples, including Coca Cola, Liquid Carbonic, Canada Dry, A&P, American Ice, American Can, Wrigley, National Dairy, biscuit companies, Economy Grocery, Wesson Oil, McKeesport Tin Plate, City Ice & Fuel, Heinz, ADM.

Utilities - similar to food, also electric was probably still in the growth phase. Examples: American Water Works & Electric, Southern Cal. Edison.

Other basics - similar to food? Scott Paper, Abbott Labs.

Movies - cheap pleasure? Columbia Pictures, Fox, Metro-Goldwyn-Mayer, Paramount, Technicolor.

Cigarettes - ditto? R.J. Reynolds, US Tobacco, American Tobacco.

Shoes - not quite sure why, but it seems pretty consistent. Brown Shoe, Melville Shoe, Florsheim, International Shoe.

“High tech” of the day - a little surprising, possibly these were still in the growth phase or could demonstrate business cost savings - IBM, AT&T, Westinghouse, Underwood, retail radios (RCA-Victor).

Restaurant chains - surprising. Childs, Exchange Buffet.

Chemical companies - surprising, possibly benefit from cheaper raw materials? Allied Chemical, Dow Chemical.

Oil - gasoline usage still going up? Richfield, Phillips

Probably a special case, but maybe recession causes more car owners to buy parts: Pines-Winterfront (auto parts).

Companies doing fair to middling (defined as earnings down but not by too much):

Chain and department stores - maybe offered bargain shopping? Sears-Roebuck, Montgomery-Ward, Woolworth, W.T. Grant.

Lower priced cars, particularly Ford.

Probably special cases: Otis Elevator, Douglas Aircraft.

Companies doing poorly (defined as earnings substantially down or losing money):

Airlines (so what else is new): American Airways, Lufthansa.

Luxuries: higher priced cars, Elgin Watch, Atlantic Gulf & West Indies Steamship.

Most commodities - capital intensive, too much capacity. Steel, copper, coal, cotton, rubber, etc.

Freight and trade related: Railroads, truck.

Aircraft - overproduction. Curtiss-Wright

This may start to give a feel for what businesses are affected more. However, even if you are able to figure out the companies less affected by the downturn, this isn't necessarily a license to print money; a couple of interesting items from June:

June 26: 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.

June 14: 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.

This is surprising, particularly for believers in an efficient market - it seems that in a panic stocks may get sold indiscriminately, regardless of how badly the underlying business is affected. Or, as Charlie Munger put it, when the cops raid the brothel, they take all the girls, even the good ones. A few examples of stocks that were hammered even though the business was doing well: Paramount, Technicolor, chain stores. Clearly you can't just blindly go out and buy the stocks.

So, it might be a good idea before buying a company stock to require not only that the business is

(1) resistant to the downturn, but

(2) that the stock market valuation is already really cheap.

And, I'm going to cheat a little and benefit from investor's experience in the full Depression - another requirement that might help is that

(3) the company is unleveraged (depressions can kill leveraged companies in a variety of ways), and valuation is at least partly backed by easily realizable assets, preferably cash.

If all three of these requirements are followed, I personally believe that, as Ben Graham put it, “the results should be quite satisfactory.”

Favorites of the week June 23-28, 1930

I'm no longer going to do a full digest of the week, since I'm now separating out the boring stuff day-by-day. However, I can't resist doing a collection of my favorite items of the week. These aren't a representative selection but just the ones that made me smile or take notice.

June 28:

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

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.

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.”

June 27:

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.

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.

June 26:

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.”

June 25:

Market observers becoming reluctant to give opinions, even the usually outspoken ones. Caution urged. Trying to pick a bottom can be disastrous. [Note: this day was, of course, a bottom]

June 24:

J. Westerfield of the NY Stock Exchange lectures civics clubs of Yonkers on the causes of the current business recession. ... 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.”

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

June 23:

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.

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