July 18, 2009

Saturday, July 19, 1930: Dow 240.57 +1.50 (0.6%)

Assorted historical stuff:

White House says expenditures for fiscal year starting July 1 will be $4.203B, up $209M, or 5%, over previous year. Main increases are to speed up public works and for increased veterans relief. Cabinet directed to find cost savings to reduce expenditures below these estimates.

Pres. Von Hindenburg dissolves Reichstag and installs Chancellor Breuning as temporary dictator; new elections within 60 days, new Reichstag to meet within 30 days afterward. Action taken to enable economic reform program, after Reichstag continued opposition by revoking "tax reform dictatorship" given to Breuning. Fin. Min. Deitrich says high unemployment must be solved to avoid social breakdown, defends program: "A German able to consume so much beer and tobacco can stand higher taxes."

French Fin. Min. P. Reynaud calls for world cooperation, says high tariffs are outdated and futile.

Editorial against proposal for Farmer's Grain Corp. to support wheat prices by cutting production and effectively cornering the domestic wheat supply, then using the $0.42/bushel tariff on foreign wheat to raise domestic prices by the same amount.

AFL President W. Green says priority is to maintain current wages; points out current depression is first in which wage scale “has not been assaulted.”

United Mine Workers and anthracite coal mine operators agree to continue present wage scales until April 1936, and to settle all disputes by committee.

Over 75% of employees vote to join GE company-sponsored unemployment insurance plan; equal contributions by company and employees.

Market commentary:

Main trading stocks continued up; traders and banking interests buying. Some resistance to bad news, particularly in copper stocks. U.S. Steel, Westinghouse, GE, Consol. Gas strong, some trading favorites (Radio, J.I.Case) had action reminiscent of the Coolidge market. Oils and utilities strong. Banks and trusts down.

Increased public participation in the market is seen by the larger numbers of shareholders and smaller floating supply for major companies. This buying is for long-run investment; “It is a well informed public now, informed because the well managed corporations are liberal in dispensing information to their shareholders,” unlike the case 25 years ago when “many big industries believed secrecy was the better business policy.”

Some short covering and increase in brokers' loans; conservative observers advise taking some profits and waiting for technical reactions to buy.

E.J. Taber of National Grange says farm commodities close to bottom: "Just as soon as we can get business and financial America to realize that farm prices are at the bottom, there will be an upturn." Cooperation with Farm Board urged by Taber and E.H. Cunningham of Federal Reserve Board, although Cunningham has "no assurance as to what they have in mind as a solution of the farm problem."

Large department store sales said holding up well, particularly in New York area. Said to have adjusted to competition from chain stores. Most successful stores include R.H. Macy (now expanding to remainder of 34th St. block), May Dept. Stores, Best&Co.; more speculative stores include Federated, Bloomingdale, Filene, Gimbel Bros, Hahn. Trend is to decentralized management of local stores.

Bradstreet's Journal and Dun's review report slightly more cheerful opinion in many lines of trade, though "not translated as yet into much apparent activity."

Economic news and individual company reports:

May auto financing was $146.2M on 346,515 autos vs. $183.6M on 398,561 autos in 1929.

Wheat farmers in most of grain belt estimated to have production cost of $1.24/bushel, will get about $.68/bushel when sold.

Standard Oil of Calif. says it will no longer sell gasoline to price cutters; calls on refiners and marketers to cooperate with producers to maintain reasonable prices.

Sears, Roebuck sales for 4 weeks ended July 16 were $26M, down 14.9% from 1929; largest decrease this year.

GM shipments of cars and trucks in June were 87,595. This was 10,000 below sales, 35% below May, and 46% below June 1929.

West Rutland, Vermont Trust Co. closed following run started when director W.A. Thrall was found dead in barn from bullet wound.


A judge was reproving a man for deserting his wife. “Wife desertion is something that I must deal with severely, and I feel very strongly on this subject.” “But judge, you don't know that woman. I'm no deserter, I'm a refugee.”

+ The Boring Stuff:

Editorial: Opponents of London Naval Treaty are trying all means, including the pretense of improving it by introducing various amendments that would make it unworkable. Senator Johnson more honestly argues the treaty would make the US unable to protect foreign commerce, but rejecting it would lead to "the old race for armed supremacy."

Agriculture Dept. says cutting wheat production will result in higher prices; admits effect might be offset by increasing production elsewhere. Worldwide production of wheat has increased almost 60% in last 30 years; average annual increase in 1920's excluding Russia and China was 72M bushels. Suggests switching some wheat acreage to other crops or livestock where feasible.

Commodities mixed; grains generally higher, cotton up, but copper down to postwar low. Treasury bonds down, foreign bonds and convertibles up.

E.B. Reeser, pres. American Petroleum Institute, says oil oversupply situation is improving thanks to production and refining curtailment, although distributors continue to sell retail gasoline at unsustainably low prices.

Technical analysis: market is close to reclaiming half of ground lost in June break. A further advance (above 245 on the Dow) would be a strong indication the upswing is due to fundamental factors, not a technical rally.

S.W. Straus reports building permits in 578 main cities and towns were $1.039B in first half, down 49% from 1929; June was $181M, down 33%. Sees this as positive, in that previous excessive building is being absorbed. [Note this disagrees with increase reported July 14 - maybe doesn't include public construction?]

Polished plate glass production in June was 9.128M square feet vs. 12.278 in 1929.

New England Tel. & Tel. first half net $4.40/share vs. $5.34 in 1929.

Houston Oil and Pipe Line Q2 net $1.43/share vs. $1.20 in 1929.

US Pipe & Foundry first half earnings estimated over $1.75/share vs. $.59/share in 1929. Benefitting from low money rates stimulating public works, and somewhat from 5% tariff increase on imported pipe.

Hudson Motor Q2 net $.65/share vs. $1.45 a share in Q1. First-half 1929 net was $6.65/share. Car shipments in the first half 90,000 vs. 225,000 in 1929. Inventories now about five cars per dealer.

Motor Products Corp. first half net $3.05/share vs. $8.55/share in 1929.

Lehigh Valley Coal first half net loss $288,414 vs. profit of $305,049 in 1929.

J.I. Case (tractors) business said slowing after good start to year; June down 20% from 1929; first half up 13%.

Chesapeake Corp. (paper) net for first half $1.65/share vs. $2.08 in 1929.

Kendall Co. (hospital supplies) net for first half $148,640 vs. $554,070 in 1929.

Detroit Steel Products first half net loss $145,828 vs. profit of $469,425 in 1929.

General Baking net for 27 weeks ended July 5 was $2.6M vs. $4.1M in 1929.

July 17, 2009

Friday, July 18, 1930: Dow 239.07 +3.44 (1.5%)

Assorted historical stuff:

Editorial: Constantly increasing taxation is a burden on "every form of enterprise". It diverts money from productive uses to government functions which "though mostly indispensable, do not always require the scale of expenditure to which our public servants have become accustomed." Total taxation (including local) has risen from under $3B in 1913 to about $9B now; recently rising about $500M/year. This aggravates the current depression.

Fiat and GM negotiating for alliance, manufacture of GM cars in Italy.

New York Gov. Roosevelt says depression is increasing number of insane wards of the state; 1,700-1,900 increase now expected vs. estimated 1,000-1,200.

Shanghai put under martial law as precaution against "further outbreaks by Communists."

German Pres. Von Hindenburg decrees new taxes as part of financial reform. Budget to be balanced with combination of spending cuts, new “bachelor and spinster” tax, 5% across the board tax increase, and special “sacrifice levy” on income of civil servants.

Western Elec., RCA meet with German reps to negotiate talkie patent truce; W.E. now contracted to wire French studios at Billancourt for sound filming.

Movie house operator in Tehran fined for faking talking film by using phonograph manually operated to match silent film's speed.

Market commentary:

Market maintained uptrend, defying expectations of a technical pullback. After brief hesitation at open, strong buying began and uptrend persisted through day; most highs in the last hour. New rally highs for majors including Steel, American Can, Standard Oil NJ, AT&T. Some speculative issues had good rallies, attributed to bull pools (Vanadium, Wrigley, Auburn). Utilities and insurance strong. Banks and trusts mixed.

Federal Reserve faces tough problem in how long to continue easy money policy, since in time “this has always stimulated speculation to dangerous proportions.”

The "younger element in Wall Street" who think this is a bad depression haven't seen a serious industrial depression. Looking back at the Wall St. Journal from 1914, we see steel companies operating at 35% of capacity, all making losses, and equipment companies at 25%. It's a pretty mild depression when companies can still earn their dividends vs. making losses in the past, and when major stocks have increased their number of holders by 10%-50%.

P. Tomlinson in the Elks Magazine: "Now ... is the time when the wise and conservative investor can place his money in American industry at the greatest possible advantage. Not for many years have stocks and bonds been in a position where the average man can estimate their true worth as he can today."

Brokers getting many more inquiries about stocks. Conservative observers still don't advise buying on a large scale, but buying standard stocks on reactions (dips). Buying on dips is in evidence now and seems to be supporting the market.

Lammot du Pont, pres. E.I. du Pont de Nemours, sees fundamental conditions still sound and foundation for upturn secure in low commodity prices and interest rates. A.G. Baumbogger, first VP Montgomery Ward, sees general industrial business on the rise and all indications are that low point of the depression has passed.

Investment trusts [similar to mutual funds] quieter these days. In year-end reports, trusts described devastation caused by the Oct.-Nov. panic; "some of these remarks were rather apologetic in tone, while others [implied] that the showings of their companies, after all, were not so bad as some others." Midyear reports were mostly silent on the June mini-crash.

Economic news and individual company reports:

Wholesale prices in June down 2.3% from May, down 9.6% from June 1929.

Radio Corp. reported earning small profit for first half after large inventory loss in Q1. Broadcasting division now out of the red; "National Broadcasting Co. is probably going to be made into an important money maker in the future." RCA Photophone also doing well.

30 main NYSE-listed rails dividends up 9.2% in first half vs. 1929.

Wrigley selling for about $75, earned $2.82 in first half, dividend of $4. Expected to benefit from removal of tariff on chicle.

A.G. Spalding (sports equipment) earnings for first five months about 5% above 1929; selling for less than 8 times earnings, yielding 5.2%.


"'You have not printed any of my poems,' said the literary genius. 'No, not yet," replied the editor. 'Well, some of them have been printed in weekly papers," exclaimed the genius, "and I want you to understand that they will be read long after Shakespeare's are forgotten.' 'Quite so, but not before,' said the editor."

+ The Boring Stuff:

First contracts awarded for 1,000 mile 24-inch diameter nat. gas pipeline from Texas Panhandle through Oklahoma, Kansas, Nebraska, Iowa, Illinois to Chicago.

Commodities mixed; wheat, corn slightly lower, cotton up slightly, copper steady. Brokers' loans up $40M to $3.243B. Bonds trading quiet, prices steady. General uptrend in bond market seen in July; most of demand from bank and insurance companies, not individual investors.

Credit likely to remain easy for some time, but extremely low current rates seen unlikely to last (call money at 1.5%-2.5%). Rates for credit in the 3-6-month range have already begun to move up. This month seen as a low point for industrial activity; demand for credit anticipated to increase seasonally in August.

Better feeling seen in both trading and business circles, although business upturn not yet evident.

Midwest steel manufacturers see better outlook; prices have turned stable, consumer stocks are low, and higher automotive production anticipated.

C.M. Colby, pres. General Foods, discussed outlook while sailing on "Bremen" liner for two-month vacation abroad. Confident years results will be satisfactory; first half net about $2/share, equal to 1929 level. Bullish on Birdseye quick-freezing process. Based on talks with company field reps, sees gradual recovery under way, looks for marked improvement in public sentiment in fall.

First half total corp. financing was $4.4B, of which $3.87B was new (expansion, not refinancing); vs. $5.8B, $4.96B in 1929; $5.01B, $3.47B in 1928.

Livestock prices generally rose steadily from 1924 to 1929; average price paid per 100-pound rose from $7.36 to $11.24 [prices plunged in 1930 - see 7/11].

Western Union (telegraph) Q2 net $2.77/share vs. $3.81 in 1929, but up from $1.45 in Q1. Q2 improvement due to expense cuts more than improved business.

NY Railways and NY State Railways (street rails) business down from 1929, suffering operating losses.

S.S. Kresge Q2 net $0.70/share vs. $0.69 in 1929.

Sun Oil first half net $2.42/share vs. $2.68/share in 1929.

People's Gas, Light & Coke Co. Q2 net $2.96/share vs. $3.18 in 1929.

Cream of Wheat first half net $1.48/share vs. $1.43 in 1929.

Chesebrough Mfg. (Vaseline) stock traded after long period of inactivity; up 10 to 158.25. Earnings $13.22 in 1929 (up from $8.36 in 1925), dividend $6.50.

GM June dealer sales 97,440 units vs. 200,754 in 1929; first half 764,219 vs. 1,171,868. Auburn Auto shipped 1,116 cars in June vs. 1,800 in May and 3,144 in June 1929.

Ward Baking net for 15 weeks ended July 5 was $709,823 vs. $1,207,164 in 1929.

Waldorf Systems (restaurants) first half net $1.23/share vs. $1.13 in 1929.

Indiana Limestone first half sales $5.438M vs. $5.121M in 1929.

July 16, 2009

Thursday, July 17, 1930: Dow 235.63 +1.84 (0.8%)

Assorted historical stuff:

France proposes "United States of Europe" federation. Britain cool to the idea, but it's probably workable without them. However, German participation would be essential. German response "conciliatory in tone," but raises some big obstacles, indicating desire for revision of the World War peace treaties, "including, presumably, alteration of certain of her new boundaries and removal of the treaty restriction upon her military establishment."

German Pres. Von Hindenburg grants Chancellor Breuning dictatorial powers to enact economic program and to dissolve the Reichstag (parliament) if it attempts to obstruct. Legal experts question constitutionality of the last part.

World registration of automobiles was 35.1M at start of 1930, about 76% in the US (about two cars for every nine people in the US). This suggests a large market to be developed in the rest of the world since desire for cars is almost universal. "Even in Arabia, where the love for the horse is almost worship, the automobile is making its way and finding friends."

Construction begins on Boulder [later Hoover] Dam; Interior Sec. Wilbur predicts this will enable homes and industries for millions of people in Southwest.

New York City has 26 new hotels being built with 16,324 rooms, bringing total rooms to 123,607.

Trend to longer skirts apparent even in sports outfits.

Eddie Cantor to write a farce about investing for Universal, Selling at the Top.

Market commentary:

Some early continuation of downtrend late Tuesday; volume again dried up on declines. This encouraged bulls, and many sectors advanced in the afternoon. US Steel, nature industrials, and popular trading stocks rebounded well. Auto and oil stocks especially strong; banks, trusts, and insurance companies also higher.

Some traders believe uptrend established, are buying leading shares on dips. Others still cautious until "return of public buying on a larger and confident scale."

Editor: "We can feel for a certainty that business is scraping along the bottom along with most commodity prices, which should begin to firm up due to the marginal producers finding the going difficult and finally being eliminated ... The great American public is not so badly off as some people would like to have us believe."

GE target of much bearish propaganda, large amount of short-selling. First-half earnings were only 5% off peak level of 1929, and well above 1927-28.

Farm Board plans no further price stabilization operations, will keep previous purchases of 60M bushels wheat and 1M bales cotton off the market. Advises reducing production to domestic demand. Meeting of Kansas farmers not receptive to the advice - Governor Reed calls it “gospel of despair.”

Economic news and individual company reports:

Positive economic stats: dividend payments, new life insurance, and savings bank deposits are all up in the first half vs. 1929. Since the November panic big corporations have increased shareholders of record by 10% to 50%.

Some hopeful news seen from steel (some recovery in order levels, seasonal upturn anticipated), rail freight (percentage decline was smaller vs. 1929, though both were holiday weeks), and oil (drop in gasoline stocks).

France doing best of European countries; economy worsening in UK, Germany, Poland, Czechoslovakia, and Austria.

Nitrogen producing nations reach agreement to lower ammonium sulphate production by 50%, control production of all nitrogen products.

IBM sales seen up this year, doing better than other office equipment makers. Big fluctuations in stock price due to lack of sponsorship.

Bank earnings generally lower than last year, but better than expected. Capital positions seen generally good. New source of increased revenue is loans on securities (replacing brokers' loans), on which they can get 5.5%-6%. Average price/book for 25 leading local banks was 2.38 on June 30; average P/E was 23.03.

A&P files trademark suit alleging J. Henry Koenig "Eight Bells" coffee infringes on their "Eight O'clock" coffee brand.

Madison Square Garden sees better year; business normally slow until hockey and 6-day bicycle races late in year, but this year has a couple of big fights.

Montgomery Ward announces price reductions fully reflect lower commodity prices; also mails 100 million announcements of new easy installment plan.


"' How's public sentiment out there?' asked the candidate who was campaigning through a rural community. 'Still going strong.' answered the native. 'There was 16 cars parked in my lane last night.'"

+ The Boring Stuff:

Golf booming in the North- and Mid-West; Minnesota had 200 courses in 1929 and will add 30 this year; many cities maintain municipal courses.

Orlando 1930 population was 27,241, up from 9,283 in 1920.

US Bureau of Chemistry experimenting with paper made from corn stalk waste.

Colorado plant begins production of first self-service gasoline pump with coin slot and automated pump dispensing correct amount.

Commodities mostly lower with trading in narrow range; grains generally lower, cotton unchanged. Copper down to new post-1921 low; zinc up. Credit continued easy with call rates at 2%. Bonds generally dull, little changed.

Dow has now recovered almost 30 points from a low of 207.74 reached on June 25; this is almost 50% of the loss from May 29 to June 24, and many major stocks have already passed the halfway recovery. Technical market students now look for a period of correction to consolidate the gains.

Demand for stocks may be increased by lack of new issues since last fall.

US agricultural exports in May were lower than any month since August 1914; attributed to worsening unemployment and industrial depression abroad. No recovery seen so far in June.

US electric output for week ended July 12 was 1.565 GWHr, down 2.5% from 1929; largest weekly decrease so far this year. Households use up strongly but industrial use down. Output had been running ahead of 1929 until end of April.

National Retail Credit Assoc. reports bad debt losses for 24,000 retail stores doing total business of $5B was 3%.

World output of copper averaged 4,852 tons daily in June vs. 5,853 daily in all of 1929.

British unemployed July 7 were 1.934M, highest total since 1921.

Pennsylvania factory employment down 2.3% in June from May, and 6.1% from 1929; wage payments down 6% from May and almost 15% from 1929.

Machine tool orders down 7% in June from May; likely improvement seen in July.

Oil field operators in Texas recommend drastic production cut of 126,000 barrels/day from current 863,450 level.

New York building contracts for first half were $506M, down 14% from 1929. However, planned projects at end of June are up 21% from 1929.

Chase now includes seven separate large organizations, including Chase National Bank, Chase Securities Corp., Equitable Trust, and American Express.

Bethlehem Steel Q2 net $1.75-$2.00/share vs. $2.60 in Q1 and $4.17 in 1929. Current business slow; hopes for seasonal improvement in the fall.

Timken Roller Bearing first half net $2.54/share vs. $3.51 in 1929.

Mathieson Alkali Q2 net $0.81/share vs. $0.96 in 1929.

Alpha Portland Cement net for year ended June 30 was $1.78/share vs. $3.11 previous year.

Wrigley Q2 net $1.50/share vs. $1.49 in 1929. Canada Dry Q2 net $2.29/share vs. $.88 in Q1 and $2.18 in Q2 1929.

Congress Cigar Q2 net $1.11/share vs. $2.34 in 1929.

Sutherland Paper first half net $0.60 vs. $0.51 in 1929.

Duplan Silk (silk and rayon fabrics) reports net profit for year ended May 31 almost same as previous year in spite of plunge in raw silk prices.

Purity Bakeries net for 12 weeks ended July 12 was $1.45/share vs. $1.75/share in 1929.

July 15, 2009

Wednesday, July 16, 1930: Dow 233.79 -0.42 (0.2%)

Assorted historical stuff:

American Museum of Natural History produces The Bottom of the World, a film about expedition to the Antarctic; "The penguins, to which a large part of the film are devoted, are excellent camera subjects, and provide a natural humor in their likeness to human beings."

About 4.7 million people owe their living to the auto industry, 3.96M directly employed. Industry has gone from being insignificant 25 years ago to now essential to prosperity. Other important industries developed in that period: telephone, radio, electricity, electric refrigerator, airplane [true, but we've produced twitter!].

GE to build world's largest electric generator for Hudson Avenue station of Brooklyn Edison. To be rated at 160 MWatt, 16,500 Volts, 7,000 Amps.

Number of German mark-millionaires was 15,547 before the World War, decreased to 3,917 after the [hyper-]inflation period, but has since doubled.

Molly Picon, Yiddish comedienne from Second Ave.Theater, appears at the Palace with "a program of character studies and incidental songs." Result is disappointing; "work she does so successfully on the Yiddish stage cannot be adapted well to the English vaudeville circuit."

World registration of motorcycles 2.625M in 1929 vs. 2.506M in 1928.

Market commentary:

Major industrials hit new rally highs on increasing volume. Some setbacks in last hour, thought technical, due to "temporarily overbought position." Utilities and oils strong. Banks lower on profit taking.

Sentiment helped by some recovery in industrial activity from holiday shutdowns. "Important banking interests" encouraged in belief early July was low point of trade recession. Auto recovery now expected to lead to larger improvement as summer progresses.

Hopeful sign seen in low inventories carried by industry and retail; about as low as ever compared to volume of business. Retailers have been buying "hand to mouth" for months. This differs from the 1921 depression, when inventories were at record highs. This should add a large boost when the economy turns.

More bullish factors: Dow yield, allowing for probable dividend cuts, is 4.75% vs. 3.25% for commercial paper; a spread over 1% has been a reliable buying indicator. Also, generally low interest rates, and the passing of a year since business began to turn down.

Dresser & Escher say "American industry is in the healthiest condition it has been in years; inventories low, the cash position strong, operating efficiency everywhere developed as it has seldom been developed before." They note that stocks recently almost hit the panic low from last November; "What a chance for the man who hasn't lost his head to lay the foundation of an everlasting fortune."

US ship building one of few industries showing improvement; busiest since 1921; attributed to Jones-White bill granting ocean mail contracts based on construction of new vessels; government has granted low-interest loans to finance construction. Worldwide shipbuilding is declining.

Economic news and individual company reports:

Zenith trying to produce lower-priced radio than current line selling for $185-$495, not including tubes.

General Foods expects first-half earnings about $2/share, roughly the same as 1929. Now sells almost 80 products; Jell-O subsidiary introducing new lime flavor; also introducing Post's Whole Bran. Investigating quick freezing to ship food overseas.

United Aircraft [later became Boeing, United Technologies, and United Airlines] expects Q2 earnings substantially improved over Q1's $.39/share, but well below $1.52/share in Q2 1929. Boeing subsidiary doing well; recently developed the Monomail commercial plane, able to carry 6 passengers and 750 lbs.mail at 140mph.

Paramount Film rental revenue in US for quarter ended June 28 were 7% ahead of 1929; foreign 21% ahead.

American Chicle Co. (chewing gum) Q2 earnings $1.21/share vs. $0.95 in Q1 and $1.31 in Q2 1929.


"'Will you have a drink?' asked Sandy, noted for his thrift, of his guest, Angus McLean. 'Yuss,' said Angus, who tossed it off and set the glass down thoughtfully. ''That whuskey,' he observed, 'is just right.' 'Just right? What do you mean?' 'Well, if it were any better you wouldna give it to me and if it were any worse I couldna drink it.'"

+ The Boring Stuff:

Editorial: Farm Board must announce its plans regarding upcoming cotton crop. Last year was disastrous, with fluctuating prices leading to one broker cornering the market (in spite of a decline in consumption); price spike was followed by a plunge, with many ruined along the way; probably also led to more decline in cotton use. As Coolidge put it, "Business can stand anything better than uncertainty."

Commodities generally higher, including wheat and cotton. Bond market quiet with some profit taking, strength in some convertibles.

Technical observers highly encouraged by industrials ability to repeatedly hit new rally highs; expect possible small corrections due to "technical reaction," but see further uptrend to 240-250 on the Dow. Increased rumors of "bull pools" organized for particular stocks (Radio-Keith, Hahn Dept. Stores), drawing in traders who have been absent for some time or have been on the bear side.

Col. L.P. Ayres of Cleveland Trust sees recovery starting in August; good factors include plans to increase auto and steel production, strength in bond market. Disputes idea that deflation prevents recovery, noting 1925-27 prosperity in spite of deflation. Sees deflation caused by artificially stimulated overproduction and tight credit; situation should correct itself. Compares current to previous depressions: "what we are now going through is no unprecedented phenomenon. Recovery has always followed in the past rather promptly after the development of conditions very similar to those now prevailing."

Rally has so far been stronger in major issues; many low-priced stocks have not moved much.

Italy unemployed at end of June 322,287 vs. 367,183 end of May.

Rail freight loadings for week ended July 5 were 792,141 cars, down 144,707 from previous week due to July 4/5 holiday. Down 119,002 from 1929.

May revenues for 172 class 1 rails $463.1 vs. $538.6M in 1929; operating income $69.2M vs.$103.6M.

May US electric output 8,006 GWHr, 1% below May 1929.

Farm wage index down 2% in Q2 vs. usual 6% seasonal rise. Supply of farm labor 103.4% of normal July 1 vs. 92.3% in 1929.

Life insurance purchased in June was $1.144B, up 4.1% from 1929; first half was $6.657B, up 1.8% from 1929.

May US tire shipments 5.564M, up 2.5% from April but down 22.5% from 1929.

A&P annual sales are running at over a $1B annual rate, approaching level of US Steel.

US Steel ingot production at 63% vs.55% previous week and 99% year ago; independents at 52% vs. 42% and 91%; Total industry 57% vs. 48% and 64%.

North Amer. Aviation first half net $0.47/share vs. $0.58 in1929.

IT&T expects 1930 earnings a little over dividend requirement of $2; business suffering because of depression.

Western Electric sales for first-half $201.6M compared to $194.7M in 1929. Commonwealth Edison Q2 net $2.66/share vs. $2.79 in 1929.

White Sewing Machine earnings severely affected by poor collection on installment credit accounts, increased repossessions.

Colgate-Palmolive-Peet first half net $1.66/share vs. $1.36 in 1929. Kimberly-Clark Q2 net $1.66/share vs. $1.62 in 1929.

Campbell Wyant Foundry first half net $1.65/share vs. $3.05 in 1929. Bohn Aluminum & Brass first half net $1.95/share vs. $5.08 in 1929.

Grand Union first half sales $18.1M, up 14.5% from 1929; no increase in store count.

July 14, 2009

Tueday, July 15, 1930: Dow 234.21 +4.98 (2.2%)

Assorted historical stuff:

Association Against Prohibition Amendment estimates last year's cost at $959.9M; about 90% is lost Federal revenue, remainder lost local revenue and costs of enforcement. Finnish Education Min. P. Virkkunen calls prohibition in Finland "chief source of intemperance, as well as failure on economic grounds."

Survey of 100 Detroit drivers held for violating traffic rules finds "42 were classified as of inferior intelligence, 12 as definitely feeble-minded, one as insane, and three as physically handicapped." Also, 46 were impaired by alcoholism, and only 13 were completely clean.

Building and loans plan to raise $1B new assets in next year; released for home-buying, this should raise US percentage of homeowners.

Next Congressional session in December will, among several big items, include a major inquiry by Senator Glass concerning banking in general and the role of Federal Reserve credit in speculation; also, regulation of wire and wireless communication, railroads, and power companies.

Navy completion of aircraft program in next two years will leave it with 1,000 planes vs. 354 in 1926.

Reichstag rejects most of Fin. Min. Dietrich's proposed taxation program.

New York State plans to finance future road construction from current revenues rather than public borrowing.

Central Park horse riders are supplied by 20 stables with average of 50 horses each; charge $2-$4/hour per horse. Midnight rides after theater are popular. Probably only place in the country that stables are still doing well.

International phone service to Lithuania now available; 3-minute call is $35.25, each additional minute $11.75.

New York State paid $928.5M of Federal taxes for year ended June 30, of a total of $3.038B from all states.

Market commentary:

Bulls encouraged by recent rally and technical indicators of strength. Buy orders accumulated over the weekend, leading to an opening rally with new rally highs for many major stocks. Speculative issues were particularly active. Oils, food, amusement, communication, utilities, banks strong. Most stocks closed at daily highs.

Good signs seen in rise in life insurance sales and bank deposits vs. 1929.

Leading traders seen buying; "They are picking out stocks strong in intrinsic value, with potentialities of a quick comeback when business returns to normal."

J.C. Stone, member of Farm Board, believes wheat prices have bottomed, says Board has no plans for stabilizing this year's crop.

Netherlands Trading Society report on Holland: "The curve of the business cycle is still tending downward, without, however, having so far assumed severe proportions."

Economic news and individual company reports:

Auto industry successful in reducing inventories by drastically cutting production. Current stock is well under 400,000 units compared to 559,000 in April of 1929. This amounts to less than eight cars a dealer. Production in June estimated at 343,000 cars and trucks vs. 567,424 in June 1929; half of production was by Ford.

New cartels being formed to control zinc and bottle production.

Australian trade awful; in 9 months ended March 31, imports down $6.2M from 1929; exports down $166.8M; trade deficit now $177M. Total debt is $5.6B [vs. $2.3B GNP].

May freight traffic on class 1 rails was 36.6B net ton miles, down 12.8% from 1929 and down 6.8% from 1928.

95 public utilities total May revenues $195M vs. $198M in April and $189.8M in May 1929; earnings $86M vs. $89M and $82M.

GE first-half earnings $1.01/share vs. $1.07/share in 1929.

A&P first-half sales $548M, up 8% from 1929; June sales also up 8% from 1929. Remodeling stores to attract "that part of the public that patronizes better shopping districts and demands unusual varieties and costly delicacies."


“Applicant ... 'I may say I'm pretty smart. I won several prizes in cross-word and word-picture competitions lately.' Employer: 'Yes, but I want someone who can be smart during office hours.' Applicant: 'This was during office hours.'”

+ The Boring Stuff:

Editorial criticizing plan to relieve unemployment by reducing working hours, putting more people to work to produce the same amount of goods. This would increase costs of production, so ultimately decreasing wealth and increasing joblessness. Tries to get "something out of nothing, and no attempt to do that has ever yet been successful.

Editorial: Measuring the current state of business compared to 1929 may be too pessimistic since the first half of 1929 was "abnormally" active. However those who say production is only 4% behind the prosperous year of 1928 are being too optimistic, since they ignore increases in operating expenses and capital investment in the past two years. This causes earnings to decline more than revenue. Finally, price reductions are also taking a toll on earnings, but these are ultimately "the great corrective for depression" since they reduce production and increase consumption.

Commodities mixed; cotton slightly lower, wheat down early but rallied to close higher. Bonds started moderately active and stronger but slowed down later.

Editor: It's a good market for traders: “Isn't it safer to buy on the breaks and sell on the bulges now than it was last year when stocks were a great deal higher?”

Oil companies boosted by new hydrogenation process developed by Standard Oil NJ and IG Farben and to be shared with other oil companies.

New NYSE securities listed in June $784M vs. $1.140B in May and $1.862M in 1929; bonds $122M, $441M, and $304M; stocks $662M, $699M, and $1.557B.

Canada May business failures 166 with liabilities $2.601M vs. 194 with $5.025M in April and 183 with $2.295M in May 1929. Bell Canada reports telephone revenues down substantially so far in 1930, but notes recent improvement; outlook much more encouraging than a few months ago.

US and Canada newsprint shipments for first half were 1.938M tons vs. 2.015M tons in 1929.

June crude rubber consumption by US manufacturers 34,463 tons vs. 39,902 tons in May and 43,228 in June 1929.

Tin producers' announced actions, including production curtailment, unsuccessful so far in supporting prices.

American Rayon industry has curtailed production from predicted 162M pounds to under 80M. This should be well under American demand. However European overproduction is still possible, and silk is now so cheap it's competing with higher-grade Rayon.

Land O'Lakes Creameries, a large butter cooperative, announces new action to support butter prices.

AT&T first-half earnings $5.71/share versus $6.15/share in 1929. W.S. Gifford, president, says business activity for first half was below record level of 1929 but compared favorably with 1928; company plans to spend a record $700M on additional plant facilities in 1930.

Pennsylvania Railroad first 5 months revenues $242.9M, down 10.9%; operating income $38.2M, down 27.7%.

Western Union first-half net $4.22/share vs $7.44/share in 1929.

National Biscuit reports Q2 earnings $.80/share vs. $.68/share Q1 and $.81/share in 1929. United Biscuit Q2 $.98/share vs. $.89/share in 1929.

Federal Water Service net for year ended May 31 was $3.01/share vs. $2.85 in 1929. Detroit Edison net for year ended June 30 was $10.02/share vs. $11.02 in 1929.

Oklahoma Nat. Gas profit for year ended May 31 was $4.77M vs. $4.43 in 1929.

L.A. Young Spring & Wire first half earnings $2.62/share vs. $3.69/share in 1929.

Worthington Pump expects first half net about equal to 1929; helped by operating efficiency, pipeline demand.

Emil Klein (cigars) first half net $1.22/share vs. $1.21 in 1929.

Monday, July 14, 1930: Dow 229.23 +4.37 (1.9%)

Assorted historical stuff:

Editorial: Opinions differ on seriousness of the American Communist threat, but it's clear that Kremlin at least has ambitions in that direction. Stalin himself pronounced the American Party of decisive importance, probably because US society may offer a more attractive option for mass prosperity. We must tolerate American Communists “so long as they refrain from criminal acts or clearly treasonable utterances,” and rely on truth as a “mental antiseptic.”

World auto registrations total 35.127M, of which 26.653M are in the US.

Industrial cities in Ruhr region of Germany suffering from slag heaps (artificial hills of industrial waste) that can smolder for decades. At Essen, slag heap of Krupp's works has been burning continuously since 1914.

Italian taxpayers complaining about number of government employees under Mussolini; currently 514,878 and rapidly rising.

Australian total production in 1928-29 fiscal year was $2.275B, total govt. expenditures including local $1.190B. Govt. currently having severe problems with budget. Large meeting of business leaders protests government plan to “borrow enough to balance the budget, making repayments from future revenue.”

Association Against the Prohibition Amendment reports prohibition cost the US govt. $869.5M in lost revenue in 1929.

Luther Burbank invents "prunasimmonia", cross between prune and persimmon. Delectable fruit with tomato-like skin and "rich, golden yellow meat."

Prominent bookmaker John Walters dies, leaving estate of $2.6M.

Postmaster General recommends increase in first-class postage to 2.5 cents/ounce to balance budget.

Market commentary:

Bulls encouraged by drop in volume late Friday and first half hour Saturday (lack of forced liquidation). Buying picked up over remainder of two hour session. Strong gains in oil (major oil companies settled California price war), food (low commodity prices). New rally highs in major industrials, market generally positive. Banks, trusts and insurance cos. higher. Bond trading moderate; speculative issues fractionally lower, US Govt. slightly higher.

Important economists strongly believe current seasonal lull is low point of the industrial depression; some good news in week-over week freight increase and June rise in construction contracts. Drop in steel backlog not as bad as feared; oil curtailment making progress; increase in rail freight rates.

Conservative observers still advise remaining on sidelines until market has demonstrated ability to resist bears. Forecast another test this week; market ability to move through last June 30 highs on volume would be positive signal. Also cautious about second-quarter earnings reports.

$11B decline in NYSE stock values in June was sizeable, but only represented 3% of total estimated US wealth.

Some say business recovery won't come until fall so market won't move much until then; but the market "is a rather impatient sort of creature and isn't going to wait for things to get better before it acts."

Economic news and individual company reports:

Total US Internal Revenue for fiscal year ended June 30 was $3.038B vs. $2.939B in 1929; corp. income tax $1.264B, individual $1.147B, misc. $628M.

Industries with good first-half earnings include cigarettes, sulfur, can, baking/biscuit, oil, and chain stores.

Total dividend payments in first half are up vs. 1929, in spite of generally worse earnings and many individual dividend cuts. Total for a large, representative group of companies was $944.9M in H1 1930 vs. $906.2M in H1 1929.

50 of 52 major rails reported declines in loading for week ended June 28 vs. 1929.

June contracts for new construction in 37 states east of Rockies totalled $601M vs. $457M in May and $530M in June 1929. Of total, $251.9M was public works & utilities, $96.8M residential. Permits for 20 cities on the Pacific Coast were $16.3M vs. $19.3M in May and $22.3M in June 1929.

Cling Peach Control Committee announces plan to restrict production to 13M cases, “and thus prevent a catastrophe to the industry.”

Surprisingly Political Joke:

"Teacher - Johnny, what's the difference between a battle and a massacre? Johnny - a battle is where whole lot of whites kill a few Indians, and a massacre is where a lot of Indians kill a few whites."

+ The Boring Stuff:

Editorial: Senator Capper's proposal to support the wheat market by having the Farm Board buy 100M bushels will be very expensive ($25M-$30M annually for storage alone), and won't work. “There is only one way to cure inflation whether in commodity or security markets, and that is by deflation.” Agriculture will eventually be more stable if we stop all intervention in the market and allow a complete adjustment to take place.

Investment buying has come in to support stocks over past 10 days in spite of little good business news, determined bear attacks, and lack of bank support for stocks. This investment buying is encouraging, as is strength in the bond market. Many experts also expect an early fall improvement in trade. Q2 earnings reports expected to be unfavorable, but this is largely discounted already in stock prices.

Technical chartists are more bullish based on recent Dow action. Considered encouraging that in the June break Dow held above five-year trendine at 208. Also encouraging that Dow is now able to rise above previous rally highs.

Short covering in recent sessions has substantially reduced the short interest.

Commodities generally lower over past week. Wheat broke to record low Friday about $.86/bushel; Farm Board announced no further price support operations. Record lows also seen in silk and sugar. Cotton fluctuated. Most bond prices moved higher in week, including rails, municipals, foreigns, and convertibles. Foreign markets past week: London stronger, Berlin weak, Paris dull.

Cost of proposed “express highway” between Brooklyn and Queens estimated at $40M.

Otis Elevator net for first half $1.49/share vs. $1.78 in 1929.

Eaton Spring & Axle first half net was $1.386M vs. $2.060M in 1929.

First National Stores (New England chain store) sales for 5 weeks ended June 28 up 10.1% over 1929; 13 weeks up 10.7%; about half of gain from new stores. Q2 earnings about $1.28/share vs. $1.42 in 1929. Annual sales about $120M.

American Toll Bridge first half revenues were $668,600 vs. $592,100 in 1929; operating expenses down substantially from 1929.

Continental Baking net for 10 weeks ended June 21 was $1.314M vs. $1.588M in 1929.

International Cement net for Q2 was $1.91/share vs. $1.34/share Q1 and $1.86/share Q2 1929.

Liquid Carbonic (carbonated drinks, industrial carbon dioxide) expects earnings for year ended Sept. 30 about $6.50/share vs. $5.67/share in 1929.

BMT (NY city mass transit) earnings improve ($7.60 for year ended June 30 vs. $6.52 in 1929), but future is clouded by structure of contracts with city and negotiations for possible unification with the city's new Eighth Ave. subway.

July 13, 2009

The Weekly Blather July 13, 1930

July 13, 1930 was a Sunday with no Journal, so again a little editorial commentary.

Inflation vs. Deflation II - This Time It's Personal

One of the more interesting current economic debates concerns whether the future holds inflation or deflation. On the inflation side we have a vast array of Orthodox Economists; arguing for deflation we have a few Lone Crackpots blogging feverishly from their wood-paneled basements. (Note: I'm exaggerating for comic effect here - quite a few O.E.'s now say deflation is a concern, although a couple of years ago the last statement would have been pretty accurate). Normally, I'd just set the odds at about 60-40 in favor of the L.C.'s and move on, but there are a couple of complicating factors. One one hand, we have the inconvenient truth that for the past couple of years the Lone Crackpots have been absolutely nailing things, whereas the Orthodox Economists have been lost at sea even more than usual. On the other, we have no less a personage than Buffett coming firmly down on the inflation side:

Well, I don't worry about deflation at all. We won't see deflation in any significant amount in your lifetime, which is more relevant than my lifetime.

So, I was driven to think about this issue using my own brain, and summarize some of the issues based on my extremely rudimentary understanding of economics. To begin with, we clearly have a number of conflicting events of titanic scale going on at the same time.

On the deflationary side:

Reverse Wealth Effect: Equity and real estate markets have taken drastic haircuts, on the order of 40%-50% off the peak in many places. This represents a huge amount of wealth that many people thought they had a couple of years ago and is now gone. This must affect future spending by those people.

Demographics: A big bulge of the population is approaching retirement years; this should increase effect of the above, since many have fallen below what they calculated as a requirement for retirement, so will be saving to catch up.

Un- and under-employment and fears of same: This likely will reduce ability and readiness to spend.

Credit Crunch: Availability of credit to entities not backed by governments remains tight; this reverses the previous pattern of borrowing for consumption; both credit card and home equity availability has been cut back.

Reduction of the Bezzle: A smaller effect, but worth mentioning - times like these tend to expose financial scams (Madoff, Stanford); as Keynes observed, embezzlement is inflationary until discovered because both the criminal and victim think they have the money. Discovery of the crime is therefore deflationary.

And on the inflationary side:

Massive rescues and backstops of financial institutions: In some quarters this may be thought of as the biggest inflationary factor because of the eye-popping number of trillions involved. I'm more with the L.C. crowd in thinking this will have little inflationary effect - given the huge amounts of rotting assets still owned by the banks, and the public crucifixion they know they're in for if they return for more money, the most likely fate of those trillions is to wind up in virtual Scrooge McDuck-sized piles in the banks' electronic vaults.

Other deficit spending: This should have some effect on demand, but not as large as generally thought. Infrastructure spending takes time to happen, while tax cuts will probably mostly be saved for the reasons above.

Demand by countries moving up the living-standard ladder: I think this is the most significant current inflationary effect, though not as much discussed. Unlike in 1930, we currently have a big population in countries that have built up large reserves and savings (ex. the BRIC countries - Brazil, Russia, India, China). This population would probably be desirous of moving up the living-standard ladder, and their governments would have the means to kickstart this if they choose to. I believe this is the largest current source of potential demand.

Sadly, my conclusion from looking at all this is that given the large element of chaos in the economic system, there is simply no possible way to know which of these massive effects will dominate. So, I wouldn't be shocked if we got deflation, high inflation, or one followed by the other. While this may be disappointingly indecisive, it does lead to a practical conclusion - that I shouldn't be investing in things that get killed either under high inflation (ex. the long bond), or under deflation (ex. the typical leveraged commodity producer). (Your mileage may vary and do your own due diligence, of course).

Why, then, does the consensus seem to be for inflation? I think people may be affected by two biases:

Recent experience bias: Recent, meaning “last 60-70 years” - for that period, the thing to worry about almost universally has been inflation, which seemingly could be ignited with the greatest of ease. The disturbing recent counterexample of Japan, which has been unsuccessful in igniting inflation in spite of trying for the past 20 years, doesn't yet seem to have affected this bias.

Convincing thought experiment bias: It can easily be seen that a really determined government can ignite inflation at will; for example, Congress could pass a law making Publisher's Clearinghouse sweepstakes checks into legal tender. So, it's easy to conclude that the government will simply do whatever it takes to avoid deflation.

However, isn't there a practical problem here? The Publisher's Clearinghouse Act would certainly create high inflation, the only problem being the currency would shortly afterward turn into confetti. What if it turns out that a really massive stimulus beyond that already enacted is necessary to counter the huge deflationary factors above? Wouldn't even the serious contemplation of such an action cause a firestorm both politically and in the bond market, due to fears of the currency becoming worthless, with really painful immediate consequences?

I think the idea of the US igniting inflation in this way might turn out to be analogous to gradually amputating your own finger with a cheese grater - it's certainly possible in theory, but the immediate agony resulting from starting the operation would as a practical matter prevent its completion. Or, as Yogi Berra profoundly put it, “in theory, theory and practice are the same, but in practice they're different.”

July 12, 2009

Favorites of the week July 7-12, 1930

No Journal was published July 13, 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 12:

[Note: I'm starting to see how the overcapacity problem might have developed.] 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”

July 11:

[Note: Strangely familiar department 1.] 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.”

[Note: Strangely familiar department 2.] 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.

[Note: If only t'were so department.] 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.

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.

[Note: Theater was much more interesting then department.] 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.”

July 10:

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.

[Note: Movies were much more interesting then department.] 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.”

July 9:

[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! Addendum: Thanks to Eldon for finding this story online - the text is here; or download in a variety of reader formats here.] 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."

[Note: Sheer genius department.]
“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”

July 8:

[Note: Amazingly high number considering US has about 250M registered cars and trucks now vs 27M then - US 2006 number was 42,642.] US car accident deaths in 1929 hit a new high of 33,060, including 81 on Independence Day.

[Note: Am I the only one who thought of C. Montgomery Burns when reading this?] 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."

July 7:

[Note: How is it that modern machinery makes things take twice as long to build?] 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].

[Note: Hopefully not soon to be strangely familiar department.] At least 45 Florida towns and cities in default on bonds; committee recommends austerity, state sales tax on nonessentials.

[Note: This company is still around as Conwood; one of their brands is the oldest US trademark in use, having been registered on Oct. 25, 1870, the first day the USPTO granted trademarks.] American Snuff has one brand that's been a leader for 148 years.