July 11, 2009

Saturday, July 12, 1930: Dow 224.86 -2.53 (1.1%)

Assorted historical stuff:

Editorial: Influential groups in Great Britain now moving toward tariffs, including unions and Conservative Stanley Baldwin (he has “come out for 'safeguarding,' a pussyfooting synonym for protection”). Free-traders can't even hope for a tariff cease-fire now; reduced to hoping for creation of several large trading blocs that may subdue extreme nationalism, and that may eventually merge into a world with fair trade relations.

UPI - prominent German industrialist says proposed British tariff wall might further damage German economy, already dealing with 3M unemployed, budget deficit of 485M marks, and annual reparation payments of 2B marks. Says tariff would cause European retaliation but trusts in British common sense to avoid.

US has the world's only known deposit of helium, meaning world's airship operators will need to come to us or use highly dangerous inflammable gas, “because of which smoking must be prohibited in or near the huge gas bags.”

IBM begins mailing out automatically calculated and printed dividend checks to shareholders.

P.W. Bridgman, Harvard physicist, creates machine capable of record-setting pressure of 600,000psi (40,827 atmosphere) - can hard-boil an egg in ice water.

Steel and brickwork completed for Hotel Edison at 228 W 47 St.; Herbert J. Krapp, architect.

Market commentary:

Recent rally continued in morning hours; new highs on current rally by US Steel, American Can, Consolidated Gas, AT&T, other majors. Rally petered out later in session on profit-taking. Market also came under pressure from commodity news: wheat plunged to new post-1914 low below 86 cents/bushel, cotton off sharply. Volume turned lower on the decline, many stocks trading in a narrow range. Construction stocks under particular pressure. Banks and trusts lower.

Conservative observers still cautious, although many now believe market has established resistance level likely to hold.

In spite of current overcapacity in steel (production at 60% of capacity), the industry leaders including US Steel, Bethlehem, etc. are still investing in expansion. “It would be a poor country if the big industrial leaders threw up their hands and quit on every little depression”

Auto industry pessimists should realize that with 27M cars on the road, “replacements alone guarantee a fair rate of activity for the industry.”

Tobey & Kirk surveys large number of bankers and corporate officials throughout the country. Reports current business conditions below normal almost everywhere, but increasing confidence in the immediate future; widespread expectation of early fall upturn.

Getting up against stop[-loss]-orders has made half the gray hairs on Wall Street.”

Many investment trusts [similar to mutual funds] selling well below total asset values. Biggest discount - Goldman Sachs Trading Corp. selling at about 50%.

Economic news and individual company reports:

Refineries said to be making progress in cutting production to reduce excessive gasoline stockpiles. Situation still unsettled in California - uncontrolled price cutting, with retail gas selling anywhere between 8 and 16 cents/gallon on the Pacific Coast. Oklahoma oil operators meeting to decide on additional 20% production cut to match refinery curtailment; Pennsylvania oil cut to $2.10/barrel from $2.25 due to local overproduction.

NY State Industrial Commissioner Frances Perkins reports number of employed factory workers in state down 2% in June from May, 14% from Oct. 1929. Decrease larger than usual seasonal pattern, large May-June layoffs in metal, textile, and clothing industries.

Class 1 railroads as of mid-April had a total of 1,572,566 employees, down 5.6% from 1929.

Manhattan building plans filed in first half totalled $80.8M for 362 buildings vs. $419.8M for 654 buildings in 1929.

Air mail sent in June averaged 27,226 pounds/day vs. 26,425 in 1929.

Woolworth and National Dairy earnings reported holding up well in spite of lower sales volume. [lower raw material prices?]

Joke:

“First New-Englander: So you had an operation on your nose? Second New-Englander: Yes, it was getting so I could hardly talk through it.”

+ The Boring Stuff:


Drastic fall in the price of silver has caused problems for countries that hold much of their savings in that form, including China, India, and Mexico.

G.M. Walker, economist, says silver decline is an effect, not a cause, of Chinese and Mexican economic problems; instability in those countries has required them to import large quantities of food, resulting in large-scale silver sales.

Investment grade bonds generally stronger, particularly foreign and rail; US government slightly lower.

Recent increased optimism may be due to “the rise in the market itself.” Much of the nations' wealth is in securities. 10 million or more shareholders may find it “hard to work up enthusiasm when what they own is shrinking day after day.”

Dun's Review: no significant change seen in business conditions, restricted demand and price declines still dominating; but hopes for upturn after the normal seasonally slow summer period.

Total listed shares value June 2 was $75B, with $4.75B brokers' loans (6.3%); total at start of July $63.9B, loans $3.7B (5.8%). Ratio July 1929 was 9.2%.

Board of Grain reports increased wheat exports last 2 weeks of June, but still expects a large carryover from this year's crop in US and Canada. This year's grain crops expected substantially larger in both countries in spite of efforts to reduce acreage planted.

US sugar consumption for first half estimated at 2.86M long tons, down 5% from 1929.

Locomotive shipments up in first half (419 vs. 319), but orders way down (269 vs. 521, very few in June). Operations later in the year expected sharply lower.

British imports in June were 83.4M pounds vs. 91M in May and 91.5M in June 1929; exports were 42.8M vs. 51.0M in May and 49.9M in June 1929.

Montgomery Ward extends easy payment installment plan to all purchases over $25 except groceries.

White Rock Mineral Springs (mineral water and soft drinks) first half profits $2.38/share vs. $2.08/share in 1929.

July 10, 2009

Friday, July 11, 1930: Dow 227.39 +5.35 (2.4%)

Assorted historical stuff:

Sears-Roebuck fall/winter catalog to be mailed; over 1,100 pages, 46,000 items, more pages in color; will have average price cuts about 10%.

E.W. Beatty, pres. Canadian Pacific Rwy., advises curbing immigration from US and Europe to relieve unemployment.

Editorial: Farmers are complaining about tobacco taxes. However, acreage and prices paid have both been steadily increasing the past few years, suggesting the industry isn't exactly hurting. Also, the tax collected $450M [over 10% of total taxes] last year, which would have to be replaced. Sales taxes are fair because they tax proportional to use; “there can be no 'injustice' if the tax is reasonable in proportion to the value of the article.”

About $200M annually spent on industrial research by companies listed on the NYSE.

Front page of a San Francisco newspaper transmitted to Schenectady, NY by “telephoto.”

Daniel Guggenheim to support work of R.H. Goddard on designing rockets able to reach upper atmosphere.

New York City metropolitan area population 11.005M, up 2.395M from 1920.

Market commentary:

Stocks advanced for a third day in a row for the first time since end of May. Bears attempted attack on major stocks in first hour, but volume immediately dried up after small declines. A powerful rally then started in major industrials, rails, and utilities. US Steel rallied in spite of lower unfilled orders; rails possibly helped by rise in freight rates. Banks, trusts, and insurance companies also higher. Active short covering came in to help fuel the rally; many highs hit in the last hour.

Investment trusts [similar to mutual funds] faced with some hard questions after being heavily invested before the market breaks both in October and June. Now developing “more thorough appreciation of the task of handling the large amounts of money entrusted to them” and realizing “the essentiality of constant study of conditions, general as well as particular.”

A subscriber suggests one cause of the current downturn may be a bubble in construction; level is 100%-150% above prewar vs. 50%-60% for general business.

Rumors of big bankers and industrial heads getting together to “relieve the people of the pessimism which now engulfs them.”

Rumors of “bull pools” being formed by “prominent operators” to bid up particular stocks including Standard Oil of New Jersey, and Vanadium.

During the depression, industrialists have been cutting costs and increasing efficiency. This will increase profit margins when the recovery comes.

F.H. Medart points out that depression years of 1921 and 1930 both added up to unlucky 13; therefore, after 1930 there should be clear sailing until 2029.

Economic news and individual company reports:

German economy suffering; unemployment up, exports expected to decline due to world depression. Continued deflation blamed on “the fact that international income and the investment of capital have lagged behind the increase in production.”

Japan discussing ways to build a domestic auto industry - may help lighten impact of London Naval Treaty on shipyards. Current Japanese auto market is almost insignificant; domestic production is about 400 cars/year.

Combined earnings for 20 major aviation companies in 1929 were $7.5M, but all of it was by United Aircraft [later became Boeing, United Technologies, and United Airlines]; remaining 19 companies had $800,000 loss. Earnings considerably worse so far in 1930.

Montgomery-Ward says that in spite of just announced price reductions profit margins are being maintained thanks to lower inventory prices paid. Also defends easy payment installment plan, says experience over many years has been “thoroughly satisfactory and our bad debt losses negligible.”

IBM reports June sales highest of any month in 1930; sales in May were record. Q1 earnings were 13% over 1929 Q1.

Ford of Germany sales for first half up 55% over 1929. Ford also building new plants in Milan, Italy and near Mexico City.

Musical:

Who Cares, a revue by the Satirists, Inc. Numbers include “The Hunting Ballet,” in which a troupe of 12 “grinning and prancing” men impersonate ballet girls; “While good-naturedly funny, it [acknowledges] the excellence of the original.” Also “Thisishota,” a parody of Lysistrata, and “So This Is Television.”

+ The Boring Stuff:


Editorial: Some in Congress are demanding to see private communications about the London Naval Treaty negotiated this year. Hoover has refused on grounds the executive must keep these communications confidential [executive privilege]. Senators who have seen the letters say there's nothing sinister to be found. Opponents are using this as a distraction to delay or defeat treaty, hoping to find “a blazing indiscretion on the part of some incautious diplomat.”

Sentiment improved by run of 3 up days, but conservative observers still advise caution; suspect rally mainly technical/short covering and new bear attacks may follow. No strong rally expected in near future.

Commodities and foreign currency mixed. Foreign and corporate bonds higher including weaker issues; US government bonds lower.

Cattle, sheep, and lamb have had unprecedented price declines in the past year; Farm Board not involved in livestock.

Street bullish on oil; crude oil production and gasoline refining has been cut about 10% from last year; gasoline consumption still rising though at a slower pace.

Some support from brokers for automotive companies in spite of bad reports; several leaders are selling below book value; good reports on new models. Companies showing strength include GM, Studebaker, Chrysler, Auburn, Nash.

Merrill, Lynch says chain store sales declines for June due to lower commodity prices and discontinuing loss leaders. Expects profits to hold up better than sales.

Japan's economy in free-fall; many factors including government cuts, falling commodities, Chinese instability. Trade for first 5 months of 1930 down 35% from 1929. Many efforts to stabilize prices in silk (most important export) and other industries by coordinating production cuts and removing supply. Government rejects calls for borrowing and public works, calls for industry to “get down to bedrock.”

Total office, house, and store building permitted in 215 cities in June was $152.8M, down 12.2% from May and 30.1% from 1929.

Total auto exports first 5 months $173M vs. $299.4M in 1929, $213.9M in 1928. May exports $31.6M vs. $45.3M, $49M in 1928.

US Steel unfilled orders 3.968M tons, down 91.1M tons from May and vs. 4.257M on June 30, 1929. Decline not as bad as worst forecasts. Upturn expected in fall, but won't be apparent until August 15 at the earliest.

Electrical equipment exports for May $11.653M, up $244,810 over 1929; first 5 months $60.278M, up $1.513M.

Grape growers in California voting on industy plan to remove surplus from market.

Britain and Argentina refuse to accept American certificates that apples are free of fruitfly; apple growers say this all but closes export markets.

Gillette Q2 earnings $1.20/share vs. $0.95/share in Q1 and $1.84/share in 1929.

Auburn Automobile net for quarter ended May 31 was $4.25/share, down from $8.05 in 1929 but up from $0.53 in previous quarter. Nash Motors net for 6M ended May 31 was $1.36 vs. $3.93 in 1929; lowest level since 1924; dividend cut to $1/quarter.

Underwood (typewriters, office equipment) Q2 earnings $1.33/share vs. $1.89/share in Q1 and $1.94/share in 1929.

Continental Can sales for first half greater than 1929; assuming normal crops, expects full year equal to 1929.

Crown-Zellerbach (paper) net for year ended April 30 was $1.43/share vs. $1.72 in 1929.

Middle West Utilities electricity output so far in 1930 up over 1929; expects full-year earnings higher than 1929.

July 9, 2009

Thursday, July 10, 1930: Dow 222.04 +2.96 (1.4%)

Assorted historical stuff:

P.K. Schuyler, pres. Federal Bridge Co., says automotive demand for roads and bridges has far exceeded capacity of government construction. "Traffic moves along the existing highways at a good speed for some five or 10 miles, then when the highway enters a congested area there is a considerable delay encountered, particularly on Sundays and holidays." Cars are now dependably capable of 60 to 80 miles per hour, "yet these speeds can be used only at infrequent intervals." Calls for more private construction, particularly of toll bridges.

Farm Board declares wheat price can't be stabilized without cuts in acreage planted; Gov. Reed of Kansas bitterly denounces administration policies, saying they "subordinate agriculture to industry." Farmers in Texas reported dumping millions of bushels of quality wheat in fields to avoid more losses on storage charges. Prices in Texas down to $.65 a bushel, well below production cost. Even large growers with cost about $.50 a bushel are not selling; everyone waiting for Grain Stabilization Corp. to support prices.

Port of New York Authority calls for proposals for construction of Manhattan approach to the Hudson River Bridge [later G.W. Bridge].

Cecille B. DeMille to make his first comedy with music, Madam Satan. Production features “a masked ball aboard a Zeppelin, and the breakup in mid-air of the giant airship, with the descent to earth of the passengers via parachutes.”

Man found guilty of “selling” liquor in exchange for stock tips - although no cash exchanged, defendant gained “measurable benefit.”

Florida population about 1.5M vs. 968,470 in 1920.

Market commentary:

Major stocks hit new highs for the current rally; attributed to optimism on business conditions. Current seasonal slowdown hoped to be low point of the depression; market also considered technically stronger due to recent liquidation. Also some news of increasing construction activity in June and higher freight traffic for week ended June 28. Strength in major industrials, rails and utilities.

Action during day was not heavy but notable for lack of bear operations. Conservative observers still consider the market range bound and advise avoiding positions until it breaks out on either side.

Manufacturers said to be very cautious about preparing for fall and winter demand due to business uncertainty and unemployment.

PaineWebber says low interest rates are a strong force for business revival. Anticipates rally first in bond prices, than in investment stocks, then secondary stocks. Bond price rally is therefore the first signal of the general recovery.

National City Co. says Bond market outlook is good - fewer new issues and wide spread between rates on short-term paper and high-grade bonds.

Increased Italian import duties on cars not seen having a major effect on American companies; total market is $1.25M/year.

Economic news and individual company reports:

June auto production in US and Canada was about 343,000 cars and trucks vs. 441,826 in May and 567,424 in 1929. Auto executives believe conservative policy is bringing production in line with demand; dealer stocks are now about one month's sales.

Total class 1 railroads operating income for the first five months of 1930 was $307.7M vs. $457M in 1929.

Total electric production in the week ended June 28 by companies representing 70% of the industry was down 1.8% from 1929.

G.B. Everitt, pres. Montgomery Ward, announces general price cuts to "practically a prewar basis." Also new easy payment plan on orders of $25 or more.

United Fruit said to be helped by banana demand "larger than even the most optimistic projections", offsetting weakness in sugar.

Jokes:

“'Do you always look under your bed before you say your prayers?' asked the flapper's niece. 'No, darling ... first I say my prayers.'”

+ The Boring Stuff:


US Bureau of Mines studies shale oil as a possible substitute for petroleum in wartime. US is known to contain enormous reserves of shale from which oil can be extracted. Oil was found undesirable because it doesn't meet current requirements for oil products. However, when need for substitute becomes greater shale oil may become more viable. "With a greater demand, requirements can be dropped or modified and refining methods can be developed ... the world is now using fuels that not many years ago were considered impossible or impracticable."

Editorial: Farm Board appeal to cotton farmers to reduce acreage has failed. Desired reduction was at least 10%; actual acreage planted down only 2.7%. Cotton price has already declined from $.20 a pound last July to $.13 a pound currently. Surplus in storage is larger than last year, anticipated cotton crop is larger, and world demand is down almost 15%. Farm Board owes us an explanation of just how it plans to market all that cotton.

Book Publishers' Research Inst. reports average of 3,720 copies sold per book. Average publisher profit on $2.50 book 6.75 cents, author royalty 32 cents.

Commodities generally firmer; wheat and corn up sharply. Foreign currency irregular; France said to be accumulating gold foreign far in excess of needs; French bankers fear inflation as a result. Bonds generally higher, continuing past week's strength. Some strength also seen in convertible issues.

Rail revenues expected down this year, but may be able to maintain earnings by safely reducing maintenance expenditures. Recent series of prosperous years have allowed rails to make many improvements and modernizations that should decrease required maintenance in the future. Possible problem in declining passenger revenue - $29M decline in first four months of 1930 was equal to the decline for all of 1929 vs. 1928; rails must maintain schedules even when traffic declines.

Rail shares helped by anticipated gains in freight traffic in future weeks for crop transport, and rate increase allowed by Interstate Commerce Commission.

Steel demand hasn't yet recovered from summer slowdown; industry unsure how long it will take. Automotive, railroad car, and farm equipment business very slow; pipe, and tinplate strong; structural has been stronger but weak recently. July average production expected around 60%.

Tire companies are suffering. Competition very strong for new car business; retail replacement market first estimated at 50M for 1930, may not reach 45M. Price cut on June 5 has not stimulated sales. Best showings by General Tire & Rubber (makes high-end retail tire) and Goodyear.

US Steel unfilled orders to be announced today may decline below 4M tons; only two of the past 18 months have had unfilled orders below that total.

AT&T net income for the first half expected about $5.80/share vs. $6.17 in 1929.

Gen. Amer. Tank Car (refrigerated tank cars) expects earnings for first half well above 1929 level.

Walgreen June sales $4.3M, up 10 percent over 1929; six month sales $25.9M, up 23.5%. First National Stores sales for five weeks to June 28 $10.7M, up 10.1% over 1929; 26 week sales $55.6M, up 22%. Hahn Department Stores sales for February through May down 2.78% from 1929.

Nash Motors net income for quarter ended May 31 was $0.71/share vs. $2.42 in 1929.

Consolidated Laundries profit for 24 weeks ended June 14 was $0.90/share vs. $0.75 in 1929.

July 8, 2009

Wednesday, July 9, 1930: Dow 219.08 +0.75 (0.3%)

Assorted historical stuff:

[A brief note: The next item is one of my favorites. A common observation by people who like the blog is that lots of it could have been written today. Well, here's a review in the 1930 Journal ... of an 1830 book ... about events in 1720 ... and it still could have been written today!]

Washington Irving's book “The Great Mississipi Bubble” republished by Random House. "The story was written about a hundred years ago and the actual event occurred more than two hundred years ago, but the narrative ... will interest many who witnessed the recent debacle of stock prices." A couple of quotes from the book: The boom - "Every now and then the world is visited by one of those delusive seasons when the 'credit system,' as it is called, expands to full luxuriance; the broad way to certain and sudden wealth lies plain and open ... "; The bust - "a panic succeeds, and the whole superstructure built upon credit and reared by speculation crumbles to the ground, leaving scarce a wreck behind."

Public opinion now appears less keen on antitrust enforcement. Government used to get very upset about "Gary dinners" where steel industry met to allegedly fix prices, but steel industry survived depressions better then - no drastic price or wage cuts were necessary. Cooperation may be necessary to ensure prosperity.

After four years of relative labor peace, coal miners and mine operators are at odds on a new labor agreement. Main issue is maintaining employment as amount of coal sold shrinks. Mine workers union leader [John L.] Lewis says "he believes in cooperation, but not as a one-way street."

Iceland engineering program plans to heat entire city of ReykjavĂ­k using hot water from underground volcanic springs.

Pennsylvania Rail. begins experimental car transport service. Passenger must buy three tickets on which to check the car, plus an excess baggage charge of $45.

Pan American Airways carries 29,805 passengers in the year ended July 1; no accidents reported.

Market commentary:

Day's market action suggests bad news has been discounted. Expected slump in steel output was reported, and bears launched repeated drives on major stocks in the morning. However, volume dried up on declines. Stocks turned up in afternoon on higher volume, helped by stronger commodities and rise in rail freight rates.

Treasury Secretary Mellon is putting his money where his mouth is - his companies have announced new construction plans involving nine figure expenditures. Gulf oil alone is spending over $50M for new pipelines and refineries.

Professional bears seen continuing their activities; some observers recommend waiting for the market "to indicate its next important move."

R.H. Bean, exec. secretary American Acceptance Council, criticizes earlier complacency, but now optimistic: "The worst of the storm is undoubtedly behind us, and the casualty list is amazingly small for such a violent disturbance in industry and finance."

Some observers believe stocks are currently good long term buys although an absolute bottom may not have been reached. Cite a signal that has been very reliable for the past 30 years - stock yields going higher than rates on commercial paper. All 8 cases of this signal for the past 30 years have been good buy points, though in 5 of the cases of market declined a little more (average 7%). Average advance from the buy signal was 42%.

Editorial - British manifesto calling for a tariff wall around the Empire is a wakeup call, since half US exports go to countries within it.Time for President to use flexible provision of tariff to fix problems before British and European unhappiness leads to concrete action.

Economic news and individual company reports:

US freight loadings for week ended June 28 were 936, 848 cars, up 15,989 over previous week but down 159,721 from 1929.

New York leads all states with merchandise exports of $955M for 1929.

Building plans filed in New York for June totaled $34.8M down 6% from 1929.

American Cigar expects 1930 earnings lower due to heavy promotional effort to establish the new Cremo cigar as one of the leading 5-cent brands.

Great stock market-related rhyme:

“In stocks of wood no longer should one bear incarceration, but hand and foot are many put 'in stocks' for long duration.

At each 'new low' as the markets go locked up in stocks securely - for a long time yet some folks will sweat bound hand and foot most surely. - Gordon Price”

+ The Boring Stuff:


Wheat corn, and cotton down in morning trading but rallied sharply, closing with good gains. Other commodities steady to slightly lower. Investment bonds higher, advance to record prices for the year. Foreign currency steady at high levels.

Drop in brokers loans from last October's peak of $6.8B to current $3.2B is more remarkable considering over $10B of new securities have been listed on the New York Stock Exchange in the past 10 months.

Drop in brokers loans may be overstating liquidation since loans by banks based on securities have been rising. Over the past month, total loans on securities have only gone down by $462M, compared to brokers' loans reported decline of $803M. May still be seen as indication that stocks are passing from weak to strong hands assuming that stock buyers who use bank credit are more conservative than brokers' margin customers.

Auto industry is now essential to many others including steel, oil, rubber etc. Current output has fallen off but still is better than past years except for the record 1929. Should rapidly recover when the current depression is over.

Steel ingot production down to 48% of capacity from 64% previous week, due to curtailment over July 4 holiday.

Machine tool market demand reported "almost negligible".

Consol. Gas & Elec. of Baltimore earnings for year ended May 31 were $6.22/share vs. $5.83/share in 1929. American Water Works & Electric earnings per year ended May 31 $3.84/share vs. $3.92 in 1929.

Vacuum Oil reports sales and earnings for first four months of year at record level. California Union Oil first half sales $44.5M, up $1.5M from 1929; net income $1.20/share vs. $1.72 in 1929.

Burroughs Adding Machine first half sales about 10% below 1929, earnings expected somewhat below 1929. Underwood first half net about $3.50/share vs. $4.57 in 1929. NCR first half earnings about $1.19/share vs. $2.77 in 1929.

Woolworth June sales $20.7M, down 12.2% from 1929; 6 month sales $131.3M, down 3.3%. Kress June sales $5.2M, up 6.9% over 1929; 6M sales $30.3M, up 5.4%. J.C. Penney June sales $15.8M, down 7.4% from 1929; 6M sales $86.5M, up 4.1%.

General Mills expects earnings for year ended May 31 better than the $4.57/share in previous year. Milling industry has been able to use grain exchanges to hedge against fluctuations in grain prices.

Canada Dry reports June sales higher than 1929.

Melville Shoe reports first-half sales up 1.5% over 1929.

Borg-Warner (car components) operating income for first quarter $1.7M vs. $2.2M in 1929.

July 7, 2009

Tuesday, July 8, 1930: Dow 218.33 -4.13 (1.9%)

Assorted historical stuff:

Hoover urges passage of London Naval Treaty, accuses opponents of misinformation. "We must naturally expect opposition from those groups who believe in unrestricted military strength as an objective of the American nation."

Suspension bridge to be built across San Francisco Bay at cost of $30M.

US car accident deaths in 1929 hit a new high of 33,060, including 81 on Independence Day.

John D. Rockefeller celebrates 91st birthday. Plans to breakfast, work for about an hour, then play nine holes of golf with a few neighbors. After lunch and rest, plans usual afternoon drive through Westchester hills. "I am in the best of health, surrounded by dear friends and have naught but good will toward all."

S.P. Gilbert, supervisor of German reparation payments, issues final report critical of German finances. Says that while tax revenues have gone up satisfactorily, expenditures have ballooned out of control. In spite of this acknowledges Germany has restored its credit and reconstructed the economy, and is confident they can get things in order. German reaction mixed; admits some of the criticism is valid, but tactless since reparation-related supervision of German economy is now ended.

Chilean government forming council to study nationalization of "all public services, industry, commerce, banking, and other fields of business."

Market commentary:

Market opened with many sell orders, prices declining through the morning with higher volume than last week. Attributed to bad business news (lower freight loadings, increase in business failures, Chrysler salary cut), anticipated bad second-quarter earnings reports, and lower commodity prices. Some buying appeared and declines slowed in afternoon on lower volume.

Commodities generally lower, wheat and cotton sharply down. Index of commodity prices at lowest point in 15 years. Bonds generally steady.

Survey of 163 sales and tech representatives for cement unit of US Steel. On construction prospects for next year, 124 said better/no change, 39 worse. On employment, 35 better/53 worse/72 no change. On tariff passage, 28 pleased, 18 resentful, 108 indifferent.

Winthrop, Mitchell believes market is in much better condition after recent liquidation, believes stocks "getting near rock bottom levels", would buy many major stocks on further selling. They may go a little lower, but not worth trying to pick a bottom: "The long pull prospect of large profits is too good to be concerned about 5 or 10 point dips, which later will be regarded as only minor setbacks in a major upturn."

National Association of Credit Men reports late May and early June collections held up well, less seasonal softness than usual. Regarding tariff, inclined to believe that "getting the tariff matter settled, even if the results are not satisfactory to everybody, will have a stabilizing and generally bracing effect on American business."

Many companies have been using accumulated surpluses to pay unearned dividends in the hope of business pickup.

Economic news and individual company reports:

NY State income tax collected $78M, only $2M below record 1929 level.

NY State Securities Bureau recovered $1.5M from bucket shops (fraudulent brokers) in first half of 1930. Money to be distributed to victims; total losses estimated $33M.

Freight car orders for first half were 30,443 vs. 59,129 in 1929; locomotive orders 289 vs. 521; passenger car 516 vs. 839.

Reynolds Metal expects operating profit for first half equal to 1929. Half of business is metal foil, used in many food-related and other industries (other half is temperature control devices). Sizeable portion of foil output is used to produce 300-400 million Eskimo Pie [ice cream] wrappers/year. Management diversifying, has come up with aluminum foil-based wallpaper. Hasn't caught on yet, but "nevertheless serves as an indication of the progressiveness of management."

Joke:

"First Executive - Did you enjoy your vacation. Second -- Yeh, but there's nothing like the feeling of a good desk under your feet again."

+ The Boring Stuff:


China considering adoption of gold standard [currency is now backed by silver, which has declined along with other commodities]. Embargo announced on shipments of gold out of China; number of gold bars in Shanghai has decreased from 30,000 five months ago to only a few at present. Some concern that Chinese gold standard might cause world shortage of gold, with resulting deflation in gold standard countries.

Editorial pointing to Brazil considering destruction of 4.5 million bags of coffee to reduce unmanageable surplus. US plan for agricultural commodities is similar to Brazil's and can be expected to lead to similar result. Current plan has resulted an accumulation of large surplus at higher than current prices; now plan is to restrict production, but both approaches likely to lead to the Brazilian conundrum. "Wealth does not lie in producing commodities and then destroying them."

Cost of running Federal prisons was $8.2M in 1930 fiscal year compared to $3.4M in 1925.

Number of foreign students at Columbia - 899; NYU - 786; University of California - 651; USC - 452. West Coast foreign students are mainly Asian.

Canadian employment index June 1 was 116.5 vs. 111.4 in May and 122.2 in 1929. Best showing of any June 1 except 1929. Canadian Bank of Commerce expects summer business upturn. Strength in tourism, mining, wheat.

Big drop in brokers' loans seen as passing of stocks from weak hands (marginal traders) to strong (investors). Many brokers believe last week was year's low for stocks.

Hearst Consolidated Publications having public offering. Company to own 11 publications with total paid daily circulation of 2,563,426, board headed by William R. Hearst. 20% of stock in the offering is reserved for employees and officers.

New York Air Brake (rail equipment) first-half earnings expected $1.80/share vs. $2.14 for 1929. Second half expected worse.

Chrysler car shipments in June 28,407, 33% below 1929. May shipments were 40,644.

Willys-Overland produced about 58,000 cars in first half of 1930 vs. about 200,000 in 1929.

Corn Products Refining earnings for first-half expected about $2.25/share vs. $2.36/share in 1929.

Federal Bake Shops first half sales $2.26M vs. $2.19M in 1929.

American Ice expects June income above 1929 level.

W.T. Grant (chain store) reports June sales up 1.7% over 1929; 6 month sales up 11.6%. Kresge down 9.3% for June, down 0.3% for 6M.

July 6, 2009

Monday, July 7, 1930: Dow 222.46 (no trading July 4-6)

Assorted historical stuff:

Editorial defending London treaty being debated in Senate [limited naval buildup among US, UK, Japan, France, Italy]. Treaty is an honest effort to relieve the world of “the oppressive burdens of competitive armament.” Opposition is not to flaws in the treaty but to any limitation at all; “That is a plea for armament without limit short of national bankruptcy.” Unthinkable that the US should stand in the way of measure to help lift world out of present depression.

Col. W.A. Starrett, President of Starrett Corp. (construction), travels to England as delegate of President Hoover, presents film of construction of Bank of Manhattan building in less than a year [70 story, 927 foot skyscraper at 40 Wall St].

Lewis Stone, film actor, obtains restraining order preventing oil drilling in the surf off Venice Beach (Los Angeles, California).

Commercial Solvents Corp. files patent infringement suit concerning Weizmann's [later Israeli president] patent for producing acetone using bacteria.

Great Britain continues copying American customs - London Times begins publishing crossword puzzles, “an American innovation which developed into a craze which is now almost gone.”

Market commentary:

Brokers' loans close to a record low as fraction of stock value; should be bullish; market caps of Std. Oil NJ + GM now greater than total of all brokers' loans.

Finch, Wilson, & Co.: “We believe that many stocks are now selling far below their real value and that purchases can now be made with a minimum of risk and a maximum of confidence of higher prices later.”

Wall Street offices deserted over the holiday weekend, a marked contrast to last year when extra holidays were needed to give office staff a chance to catch up.

Many observers believe Bears will attempt another market test in the near future. Response should be important to future sentiment.

Some complaints of unavailable credit for business and agriculture, in spite of low rates and high supply of funds at banks. Blamed on risks of particular loans.

Editorial criticizing Dept. of Agriculture's forecast that wheat prices will be lower over the next 7 years. Suspicious this fits into Farm Board plan to reduce wheat acreage; says this is doomed to fail since foreign growers will take up slack and farmers will convert to other crops, with resulting pressure on those. Compares plan to “taking a part of the load from one end of the wagon and piling it on the other end.” No alternative plan suggested.

Minnesota Gov. Christianson calls Farm Board a failure, says wheat problem can only be addressed by drastic production cut or keeping surplus off the market. Says main cause of problem is reduction in foreign demand due to problems selling their industrial products, and debt and reparation obligations.

Economic news and individual company reports:

Leading British financial figures call for a tariff wall around the Empire, with duties on foreign imports and free trade within the Empire.

Continuation of the 1% cut in income tax rates enacted in 1929 to help business looks more likely; prospects helped by the likely adoption of a compromise veteran's relief bill that will only cost $30M-$50M/year compared to the original $181M-$400M.

Great majority of retail outlets offer some form of credit; of 35,000 outlets surveyed, 75% offered open credit, 18.7% installment, 20% cash only.

At least 45 Florida towns and cities in default on bonds; committee recommends austerity, state sales tax on nonessentials.

Sugar prices now at post-Civil War low of 1.22 cents/pound, production cost estimated 1.72-1.97 cents. Big overproduction still expected this year.

Chase National Bank deposits as of June 30 were $2.065B, first bank in the world to pass $2B in deposits.

Hershey expects first half sales $21M vs. $20.5M in 1929; earnings over $4.70/share vs. $4.69. Wider profit margin and higher earnings expected in second half due to lower commodity prices. Currently selling for 11.7 time 1929 earnings, yielding 5.5%.

American Snuff has one brand that's been a leader for 148 years.

Joke:

“'Mr. Booley is certainly well read. He repeated an exquisite quotation last night.' 'What was it?' 'I can't give you the exact words, but he said he'd rather be a something or other in a something else.'”

+ The Boring Stuff:


About 44% of California natural gas production in 1930 was wasted (blown into the air), due to lack of practical storage. Wastage is being reduced somewhat by production curtailment and pumping some surplus gas back underground.

In the past year, oil companies have begun using pipelines on a large scale to transport gasoline instead of tank cars and river barges; this allows refineries located far from cities to be competitive with those close by.

Recent markets dullness taken as evidence that forced liquidation has been exhausted, and the market is now largely taking into account the admittedly unfavorable current business conditions. Many shareholders said reluctant to sell since shares have “declined to levels which in many instances represent intrinsic value.”

Commodities over past week generally ended little changed. Cotton trading slump continues in England. Investment bond prices generally higher in past week, volume light.

Many investment trusts now selling well below liquidating value, after selling well above in 1929. Lehman Corp. selling for $71.50, liquidating value $88.97.

New construction started in 37 states east of Rockies was $2.638B in the first half vs. $3.016B in 1929.

Total Florida building contracts awarded in May were $13.2M vs. $3.9M in April and $5.4M in May 1929.

Railroad locomotive shipments for first half were 419 vs. 319 in 1929.

North­west farm income for May estimated down 19% from 1929.

United Light & Power net for year ended May 31 was $2.37/share vs. $1.76 previous year.

Rainier Paper & Pulp net for year ended April 30 was $479,623 vs. $486,607 previous year.

Allis-Chalmers (farm and industrial equipment) expects net for first half to be over 15% above 1929 level; orders booked in first half were $29.5M, a gain of $1.5M over 1929.

The Weekly Blather July 6, 1930

July 6, 1930 was a Sunday with no Journal, so again a little editorial commentary.

Another couple of surprises about 1930 - these were unexpected based on my previous reading about the Depression.

Availability of good economic and company information: Previously, I tended to think of this period as a kind of Dark Age when it came to investor and managerial access to information. It's therefore surprising to read the Journal day-by-day and realize that economic stats usually seem to be available very promptly - I may be wrong about this, but some seem to come out quicker than they do now, and there are usually good preliminary estimates of the important stuff. When it comes to company information, it's true that things aren't as standardized as they are now (quarterly reports with full financials), but many companies seem to be reporting more quickly than they do today, and often you also get good preliminary estimates toward the end of quarters (possibly prohibited now due to quiet period rules). So, those of you counting on superior computerized information/statistics to save us today might be barking up the wrong tree.

Overcapacity everywhere. One of the things that jumps out at me the most is that every day there seem to be three or four stories about different industries trying to cut production down to match demand using desperate measures such as industrywide cooperatives, production holidays and curtailment, and buying and segregating surplus. Now, I understand how this would happen after the economy had spiralled down to a really serious extent, but as measured by most stats this really hadn't happened yet at this point. So, it's an interesting question to me how this chronic problem of overcapacity in many industries at once developed. Some of it can be explained by government action (ex. the Farm Board for agricultural commodities), but it happened in many industies that weren't government-”supported,” such as steel and livestock.