A
few steps down. The Dow and other indices took a few
steps down this week. But so far it is a good thing in
that the uptrend is still in place so it could set the
stage for a renewed rally to higher highs. This rally is
now over 2 months long so spending more time
consolidating or going lower would not be a bad thing
unless it changes the mood of the market. From the drop
last Autumn when we had such volatile times most rallies
were sold and dips found few buyers. For the last months
instead we have buys on the pullbacks. If they get
burned a few times they will not be so anxious to buy
back. Sell in May and go away works many years but we
have also had some nice summer rallies. I do not think
this rally will continue much into the summer but do
expect one more push up when this pullback is over.
Europe this week announced that the economy
there is worsening for the fourth quarter in
a row. The US Consumer
Price Index was flat, industrial
production fell 0.5% and
foreclosure filings in the U.S.
rose to a record for the second consecutive month as banks increased efforts to seize homes from
delinquent borrowers. A
total of 342,038 properties received a
default or auction notice or were seized
last month.
It was options expiration
week so that may have had an affect on the
market so Monday we start over in that
department. Momentum has slowed as some of
out break outs that triggered had decent
intra day gains and we could see the profit
taking as there is some fear to hold. Some
other stocks that broke out long ago though
continue to rise.
Initial claims for
unemployment benefits rose to 637,000 for the week ended
May 9th, up 32,000 from the previous week's revised
figure of 605,000. Economists expected claims to
increase to 610,000 from the originally reported figure
of 601,000 for the previous week The
4-week moving average for initial claims, a statistic
that flattens out week-to-week fluctuations, increased
6,000 to a level of 630,500. The number of people
receiving ongoing unemployment help, a statistic known
as continuing claims, increased 202,000 to a level of
6.56 million in the week ended May 2nd.
.
Retail sales edged down 0.4% month-over-month in April
following an upwardly revised 1.3% decline in March.
Economists had estimated retail sales to have remained
unchanged in April Sales, excluding autos, fell
0.5% in April, adding to the upwardly revised 1.2%
decline in the previous month. Sales at gasoline station sales
slipped 2.3% compared to a 3.2% drop witnessed in the
previous month.
.
Import prices rose 1.6% month-over-month
in April compared to a revised 0.2% growth in the
previous month. The increase reflected a 15.4% increase
in petroleum import prices. On a year-over-year basis,
import prices were down 16.3% Export prices rose at a
0.5% rate in April compared to a 0.7% decline in March.
Agricultural export prices climbed 3.6% compared to a
0.3% decline in export prices of non-agricultural
commodities. On a year-over-year basis, export prices
declined 6.8%.
.
March U.S. business inventories fell 1.0 percent
compared with February 2009 as businesses continued to
lower their production levels to match a fall in
consumer demand.
The 1.0 percent drop was less than the revised 1.4
percent fall for February and slightly above economists’
forecasts. Economists polled by Bloomberg LP had
expected domestic business inventories to decrease 1.1
percent.
.
The move up in oil prices is not because
of demand as demand is at its weakest level in
two decades and oil inventory in big consuming nations
continues to swell to its fattest level also in two
decades. Crude oil inventories, excluding
those in the Strategic Petroleum Reserve, came in at
370.7 million barrels last week.
.
Consumer prices
remained unchanged in April compared to the previous
month following a 0.1% decline in March. Core consumer
prices, excluding food and energy, rose 0.3%, faster
than the 0.2% increase in the previous month. The
consensus estimates call for an unchanged reading for
the consumer price index and a 0.1% rise in the core
consumer price index that excludes food and energy
Transportation prices and cost of recreation fell by
0.4% each, while food prices were down 0.2%.
.
While the stock market is up sharply since early March,
the economy as well as corporate earnings continue to
suffer. Today's chart helps provide some perspective as
to the magnitude of the current economic decline.
Today's chart illustrates that 12-month, as-reported S&P
500 earnings have declined over 90% over the past 20
months (with over 90% of S&P 500 companies having
reported for Q1 2009), making this by far the largest
decline on record (the data goes back to 1936). In fact,
real earnings have dropped to a record low and if
current estimates hold, Q3 2009 will see the first
12-month period during which S&P 500 earnings are
negative.
The chart above is Inflation Adjusted so we cannot use
it as a PE comparison but the Standard and Poor's site
has quarterly estimates of earnings and for the
full 2009 it is now at about $54 so with the &P 500
closing at 882 this week the current PE using those
numbers is 16.3 while generally bottoms are at a PE of
near 8 or 9. A PE of 10 with these numbers would
take the S&P 500 to 540 though the actual earrings could
surprise and move up there is also the possibility that
they will be going lower.
The past week's major
indices with only gold up slightly as the US
dollar dipped.
The top and bottom sectors for
the week.
And the best and worst industry
groups.
Tobacco lead the way last week and last week
in an airport duty free shop I noticed on all the
displays of cigarettes many types of
warnings with the most common one saying
Smoking Kills. Seems with any other drug
that kills even a few people, they take it
off the market in a heart beat but in this
case the governments must not have enough
money or brains to finally stop selling. I
guess they are making a considerable front
end profit on selling cigarettes. In the
long run it costs the government a lot in
work loss and health care. Anyone with
children should wish for them to grow up in
a word where companies and governments are
not taking in billions by making and selling
these products. In the USA each day over
1,000 die in smoking related illnesses and
the government supports the selling of the
products. Swine flue killed under 100 people
and it is front page. Pretty clear that many
in government are getting paid to keep
smokes legal. There is the Smoking
Prevention and Tobacco Control Act that has
passed the House and is to go to the
Senate though it only allows the FDA to
regulate and not ban the selling of tobacco.
Seems like only a white wash as if the FDA
has control but does not stop it then they
in fact are approving it which is totally
opposite to their duties to the people in
making sure that products are safe.
Right now the government puts its seal of
approval on each pack (tax stamp) and to add
the FDA approval is rather nuts. Reminds us of the FED which was created to
make a stable and reliable banking system.
Why they were not disbanded by the new
president is beyond words. Instead he gave
them even more power.
On a non current issue go to the site's
message center
and check out the video that
PBS's Frontline did in 1997 a piece called "Betting on the
Market" only 12 short years ago. Today it looks and
plays like an important piece of history. The videos show Jim Cramer and other fund managers in the momo days of 1996
and the average people who were investing at
the time and the pumping of Motley Fool
boards when it was young. This is a history lesson in bubbles
and a must see.
A recent
post on the
Blog
is named A Gimmick
Economy for a Wimpy Populace by
Robert Marcin. When you go to any post
on the message center/blog it is set so you
see the most recent post on top. If in your
case it shows the oldest on top you can
permanently change this by clicking the
Profile Tab then under the
Modify Profile tab go to Look and
Layout then on the list make sure that
the Show most recent posts at the top
is checked.
Our multi chart of the major indices. The high number of
new lows at the March low is high enough to suggest that
it needs to be tested but the current uptrend has so far
not been damaged by the current pullback. Some indices
are at their 20-day EMAs and some under so watch support
lines as if broken the lower Bollinger bands may be the
bounce points.
The Dow weekly did not quite give up all the
gains from the week before.
The utilities had a large drop on Friday but
still over recent support.
Transportation index hit the 50-day EMA and so
far has found support with a two-day bounce. It does
make one watchful though as a bear fag may develop.
The Nasdaq weekly ran almost to the Fibonacci and
resistance line.
The Nasdaq McClennan oscillator NAMO touched the
oversold line this week and bounced a bit.
The NASI has had a crossover. This could cross
back as it has done in the past and in the past bit if
velocity picks up the rally could be over.
The VIX though up on Friday looks like it may
test the lower trend line which could mean a new high on
the market.
The semiconductor index SOX broke out a while
back but could not hold it and dropped back to the
50-day EMA.
The Nasdaq 100 proxy QQQQ ran just a bit over the
50-week EMA and our resistance line and failed there as
is expected on a first try after such a large and fast
run up..
The Nasdaq - S&P 500 ratio found support at a
pervious level so the Nasdaq picked up speed over ht S&P
again.
The S&P 500 monthly and the move back to the
center Fibonacci which is the 50% mark of the 1987 to
2007 run.
Some find it easier to look only at bullish charts so we
can invert the S&P 500 monthly chart and it
looks like a typical first try at the trend line and now
a pullback to gather steam to make another run. Here it
shows RSI was overbought and now pulling back but
stochastics still in the high range. On this inverted
chart if the stochastics also breaks under the top line
we will see higher prices on the S&P.
On our weekly S&P 500 we see the
inside week of this past one. Stochastics
are still over 90.
The daily view of our same scenario. Of the major wave B
up we may have completed minor a and are now in b to be
followed by the final wave c up then start the major C
down.
A closer daily view as the S&P 500 is at a trend line
and 38% retrace from the November 2008 high.
The S&P 500 60-minute chart now at the 50%
retrace as shown and at the same moving average where it
found support in Late April.
The NYSE daily if it breaks the current level
lower we may see the 50-day EMA again at 5409 or 5500
could give round number support.
The NYSE advance/decline ratio chart as the
candle is still inside the channel and above the support
EMA..
The percentage of stocks on the NYSE now over their
50-day moving average is at 83% and as it was resistance
before it may now be support a while yet it is a high
percentage so will break at some point.
The S&P 400 midcaps may also find the 50-day EMA
calling at 531.
The Russell 2000 is at a support with the 50-day
EMA not far below.
The Value Line Arithmetic has the 200-day at 1532
and as this was also former resistance it may give good
support.
The homebuilders XHB has been pulling back
after failing at the 50-week EMA.
The financial sector ETF XLF bounce the
first time at the trend line on Thursday and now it is
testing it again.
The Russian index RTSI is up 90% since its
bottom 4 months ago. If the Dow had done so well it
would now be at 12,291. From 2001 the RTSI is up over
500%.
The commodities index CRB ran to resistance
exactly and is pulling back.
Crude oil weekly ran to backrest the trend line
and our 60 target for the first move.
On the monthly oil it did not quite make it to
the lower Fibonacci line
US oil fund USO ran to resistance. Depending on
your count. it could test the lower line one more time.
Gold weekly chart shows a two week advance but now at a minor break
point. Eventually this may really move a lot higher but we are in deflationary
times still so that gives some pressure.
The Gold cloud chart shows it ran to the top
resistance at the inside of the cloud. It did have a bullish crossover recently
not marked on the chart.
The 60-min GDX renko chart
this week gave a sell and short signal after
a super run on the long side. The live
version of this is at the top of our
stockcharts public page , a link to which is
on the top of the message center page and on
the site's home page.
On the GDX candle long
term chart we see the resistance it ran
into.
The
gold and silver index XAU ran
into short term resistance again and not far
above another level of resistance. Not many
gold or silver stock charts show much
interest at this time. Occasionally there
are some selected stocks the make a nice run
but in general, miners are out of favor at
the moment
Silver ran to resistance trend line and
only a minor pullback so far so it could
break above but note the horizontal
resistance just under 15.
The US dollar found a bit of support on the blue line and it now at the
200-day EMA.
The weekly Dollar
and the bounce at the center Fibonacci band
line.
|
Butch Cooley Comments
(Butch is founder of
Leg Up House
and the
Butch Cooley Worldwide
Hunting and Fishing . He has
been an active trader for decades.)
Great Depression: Part 1
I wanted to write something a little different this
week. It will probably be in 3 parts over the next 3
weeks. As most of you know, I don't think we are in
"Recession". I believe we are and have been in a
depression since the end of the 3rd quarter of 2008. I
truly, do not believe our economy will improve
significantly for many years. We really messed it up
this time around. Big Time!! The stock markets will go
up and down, and we will have some great rallies, and we
will retrace. And money will be made and lost.
Eventually we will all agree that a bottom was struck at
some point. But Stress Tests don't mean anything.
Banks are not making money, and they can't figure out
what to do with their debts. They aren't lending, heck,
they can't lend. The only reason banks are solvent at
this point is Treasury is pumping money into them.
TARP!! Housing is not getting better. It is getting
worse, and it will get worse for a long time yet.
Foreclosures will continue. Unemployment maybe be
decreasing, but it is still serious, and it will
continue to cause havoc with the economy and the GDP.
Businesses are not doing well and this has a devastating
effect on the economy. Chrysler in bankruptcy and GM
about to go there just is not a good thing. Money is not
moving, let alone moving with any degree of velocity.
Eventually, it will all work itself out, I think it
will. I hope it will. But "things" will not be the
same. Most likely "Things" will be different from
here on out.
I have been doing some research on the Great Depression
of 1929. I'm not Ben Bernanke, and not an expert on
this. I'm a fly fisherman and an investor. But there
are some similarities to then and now. But there are
many differences too. I don't think we are destined to
repeat history, but we do have a tendency to repeat
errors. Greed and Fear errors seem to repeat often in
history. We may very well have repeated some of the
errors of pre-Great Depression Era in the last few
years. So I thought it would interesting to share some
of the information I found. I found it intriguing .
And I hope you do to.
I decided to look into the 2 years leading up to the
Great Depression, to see what things were like. In this
writing, I am only dealing with the economy, the
markets, oil/energy, autos and some businesses. And I
will run through 1931 (5 years) in Part 1.
1927
"Things" were pretty good. The economy was booming,
people were making money. The world was a smaller
place, but also it was a place of business, much as it
is today. Calvin Coolidge was President. And on August
2, 1927, he issued a statement saying he was not
choosing to run in 1928. And that is all he said, and
from what I could find out, he never issued another
statement on the matter. Nor did he run for President
again. I wonder if he just didn't want to be President,
or if he could see bad times on the horizon, and didn't
want to be President?
Earlier that year, on May 13th, Germany's economic
system collapsed. Remember Germany was still coming off
the effects of loosing World War 1. It was known as
"Black Friday".
The average income in the US was about $1,000. That was
under $20 a week. Wow!! Middle class families had
incomes of about $3,000, and middle class was not a big
group yet.
Labor Unions were a real pain in the butt to big
business. In late November, in Columbine, Colorado,
police were ordered to use machine guns on striking mine
workers, and they killed 5 and wounded 20. Striking was
considered illegal. And UN-American.
The DJIA closed on December 31, at 202 pts, up from 157
at the end of 1926. It had been a really good year for
the Dow. It was a very prosperous time period in our
history.
JC Penney was still alive, and he opened his 500th store
in 1927. He decided to take the company public, and was
listed on the NYSE in 1929, and he had almost 1,500
stores by then.
Sears and Roebuck sent out 15 million copies of their
catalogs. In 1927 virtually every rural American
household had a copy of the Sears Catalog and Montgomery
Ward catalog.
And 7-Eleven, opened it's first store in Dallas, Texas.
This was part of the new company named Southland Corp.
In the next 70 years, the number of 7-11's grew to over
16,500, most of them franchisees. They sold gasoline,
beer, soft drinks, candy and some food, very much like
today.
Schlumberger Ltd figure out a way to accurately measure
an oil well depth on Sept 5th, using an
electrical-resistance log. They are still in business
and still measuring the depths of wells. I'm sure they
are using new technology.
A group called Iraq Petroleum Ltd, which was a cartel of
French, British and US investors, and of course Iraq,
had a major oil strike in Kirkuk, in northern Iraq. It
was a "gusher" and it took the drillers 10 days to get
the oil under control. For those 10 days, the well
gushed oil over 140 feet in the air, 24 hours a day, at
an estimated rate of 80,000 barrels per day. Today,
that would be "eco-catastrophic"!!
Phillips Petroleum went to "Phillips 66", taking the
number from US Hwy Rt 66.
1928
Another good year for America and for the markets.
A.P. Giannini, owner of the Bank of Italy in California,
bought Bank of America, and consolidated it in with his
other bank holdings, making his bank the largest banking
institution in America. On November 30, 1930, he
dropped the Bank of Italy name and went with Bank of
America.
Herbert Hoover decides to run for President, against Al
Smith, a democrat from New York. The only decent quote
I could find from Hoover at the time was, "We in America
today are nearer the final triumph over poverty than
ever before in the history of any land." He apparently
was wrong. We hadn't even seen poverty yet!! But he
didn't know that. Later it would be disclosed that
Smith had been taking funds illegally (and stocks) that
totaled around $400,000 from the National Democratic
Party, particularly a fund raiser named Chadbourne.
This had been going on since 1923 when Smith was
governor of New York. Hoover won, Smith most likely
went to jail.
The DJIA closed on Dec 31, 1928 at a new high of 300
pts. RCA stock had gone from 85 to 428, DuPont from 310
to 525, Montgomery Ward from 117 to 440 and Wright
Aeronautic went from 59 to 289. It was the year that
corporations and investment trusts began to lend money
to stockbrokers for "speculation". America had also
started buying on time. The beginning of the revolving
installment plan. Credit!!
JP Morgan took over the Marland Oil Co in 1928. Marland
was sort of a wild type I guess, spent a lot of money,
built a huge mansion, some 55 rooms in Oklahoma. He was
a poker player, played polo and had borrowed money from
Morgan putting up stock in the oil company as
collateral. Oil prices fell in 1928, and Marland never
recovered. JP Morgan stepped in and took over the oil
firm. It was also the first step in becoming Conoco.
Oil consumption in the US reached a rate of 7 barrels
per person, and the rest of the world averaged about .2
barrels per person. The Oklahoma City Field #1 Foster
Well came in on December 28th. It was significant
because they had been drilling in the county in search
of oil for over 25 years. They had drilled 25 previous
wells, all dry holes. But this well was a gusher, and it
produced in excess of 5,000 barrels a day. It was the
beginning of a new era for Oklahoma City and oil
production.
Chrysler Motors came out with the Plymouth and also the
De Soto. Plymouth was advertised as a high compression
engine with hydraulic brakes, much better than the
current cable/mechanical brakes. Plymouth came in 3rd
in sales behind Ford and Chevrolet. De Soto was billed
as the medium price car for America, and Chrysler
produced the car until 1960. They also introduced a new
Imperial "80", 112 hp and was considered America's most
powerful auto at the time. Motorcar, excuse me. We
didn't call them autos yet.
Motorola had its beginning in 1928, and amazingly
similar to the Microsoft story. Started out as the
Galvin Manufacturing Co, in a brick garage in Chicago.
Paul and Joe Galvin started the company with $560 cash,
to make something called a "battery eliminator", which
was suppose to allow people to power their radios from
household AC current instead of being connect to a
battery.
CBS was founded by Congress Cigar Co advertising
manager Bill Paley. He was 27 years old. Through a
series of investments against his father's advice, he
ends up selling all his stock in Congress Cigar to buy
United Independent Broadcasters, which also owned
Columbia Phonograph. He kept the company running by
selling the last of his stock in Paramount Motion
Pictures, and the following year he took CBS to NYC and
the rest is history.
GE started the first regularly scheduled television
programs in May in Schenectady, NY. These were
definitely "hi tech times"!!
1929
New York financier Paul Warburg, started the year out
by issues a warning in January that sharply criticizes
the "present orgies of unrestrained speculation" on Wall
Street. Apparently, no one was listening?
New York reports in February that business girls average
$33.50 for a 50-hour week. I am a bit confused here,
but I think they meant "hookers". At any rate, they
wouldn't be making that much money for long.
British unemployment tops 12.2 percent.
.
Now things start going haywire:
May 4th, 1929, the DJIA closed at 327 points.
Speculators were buying on margin. Apparently huge
volumes of margin. The Dow drops below 300, but
recovers and rebounds to 381 on Sep 3. A seat on the
NYSE sold for an all time high of $625,000.
On October 17, a Yale economist named Irving Fisher
issued this statement, "Stocks have reached what looks
like a permanently high plateau". But the Dow breaks in
October, following a big drop in iron and steel
production in the US. British interest rate jump to 6.5
percent. Money from Europe pours out of the stock
market. The Dow falls 51 pts on October 19 (23%). It
falls 39 points on October 28 (13%) and over 16 million
shares, a new record are traded on Oct 29th. And the
Dow drops another 31 pts (12%). Leading economists are
stating that no business recession is imminent.
Apparently they didn't know much more then, than they do
now. On Nov 6th, the Dow drops another 25 pts, (10%),
and now margin calls are flying around. Overnight, $30
billion disappears. I looked up how much money that
really was back then. In 1929 terms, the US could have
paid for the entire costs of World War I. It's also
important here to realize that about 99% of American
owned no stock at all. The entire crash gets blamed on
one guy, Jesse L Livermore, who was a speculator, and
reportedly had 30 telephone lines that linked him to
various brokerage houses. But, in reality, Livermore
had gone short on the markets back in the summer, a few
months too early and he was broke at the time. So it
was not Jessie's fault after all.
70% of Americans had incomes below $2,500. This amount
was considered to be the minimum amount for a decent
standard of living. But most Americans were actually
making about $28 a week. The Crash ended 9 years that
had seen unemployment go from a high of 12% to 3.2%.
The economy over all had grown at an annual rate of
3.6%. The national debt was $16 billion, down from $24
billion. And the federal budget had been running a
surplus every year. Inflation was below 1%. But it is
commonly agreed the unchecked, unregulated speculation,
margin, caused the bubble to burst.
Conoco is created by JP Morgan. The world is producing
1.5 million barrels of oil a year, and 2/3s of that is
coming from the USA. Number 2 is Persia and Iraq is
number 3.
GM is headed by Alfred Sloan Jr, and he has taken GM
from the brink of insolvency and attempting to create a
modern corporation, with an independent board of
directors and various finance committees. Various
division in the company are given financial benchmarks
that have to be met. Still no union. GM also has
purchased 80% of the German company, Opel AG for $26
million. (The very same Opel they are trying to sell
right now!!) They have options on the other 20% and
they which will be exercised in 1931. They were in
trouble in 1929!! But GM will eventually recover and
end up making a profit during the Depression, and will
pick up significant market share.
Ford Motor Company introduces the first station wagon,
which is a Model A with a wooden body, kind of a box.
It's the first "Woodie". I owned one of these as a
young man. What I would give to still have it now!! And
it was selling for about $500.
The aviator, Glenn Curtiss designs and builds the first
mobile home trailer, and it goes on sale in New York
with the Hudson Motor Car Company.
It's 1929, and America is doing well. US "motorcar"
production tops 5 million. GM has produced over 1.3
million cars in 1929. US motorcar ownership is about 23
million, up from 7 million in 1919. This number, 5
million, will not be sustainable after this year. And
it will not be reached again for 20 more years.
The MG sportscar is being built in England. It rapidly
become a symbol of the British sportscar generations,
and remains in production until 1980.
1930
Now "Things" were just starting to get bad.
The Dow started the year off on a down slide, but still
above 248 pts. It wouldn't last long.
Congress votes a $230 million Public Buildings Act March
31 and a $300 million appropriation for state
road-building projects April 4 to create jobs. These
kinds of numbers have never been heard of before and we
considered staggering! Hoover Stimulus??
The "recession" as it is being called, is extending
worldwide. 35,000 textile workers go on strike in
Japan. Unheard of prior to this. France enacts a
workmen's insurance law April 30.
US unemployment exceeds 4 million. No real records were
being kept back then. President Hoover says that 4.5
million Americans are out of work. He appoints a
Committee for Unemployment Relief and requests about
$150 million for new public works construction projects
from Congress on Dec 2. Congress acts quickly and
passes the Public Works Bill, 18 days later, and funds
it with $116 million. We were not using GDP at the
time, but using the National Income, and it fell from
$81 billion to $68 billion. There are only 3.4 million
union workers in the US, and they are concentrated in
construction, railroads and trucking. Autos and steel
are not unionized yet.
In June, President Hoover makes what history will call
his biggest errors. He signs the Smoot-Hawley Tariff
Bill into law. This put tariffs to the highest levels
in history. Until then, the average import duty was
about 25%. This Bill raised that to 50% and shut down
imports. Other countries follow suit in retaliation,
and international trade basically comes to an end.
Congress approved the bill in a special session called
by President Hoover. Over 1,000 US economists signed a
petition warning Congress not to sign this bill, but it
went unheeded. The Smoot-Hawley Tariff Act, and a major
recession took the rest of the world into the abyss of
the Great Depression as production dropped and
unemployment increased worldwide.
This is very interesting. Wall Street prices break
downward again in May/June. There had been an early
spring rally, and had taken stock gains back to 33%
average of last years losses. But, more investors
started to realize the economic realities of a "business
depression", and stock prices began a long decline that
will take them to a new low.
Not everyone was waiting on the government to "fix
everything that was broken". The CFO of United States
Steel, Myron Taylor, started a work policy that "shared
the work load with the employees working". This meant
everyone working making steel for them got between 2 and
3 days work per week. Not the best deal, but better
than what was ahead for many in this country. Even when
production dropped to 17%, Taylor kept all the mills
running, even extending credit to the workers.
The prelude to the GDP comes in 1930, from a Russian
born economist. He has become an American, and comes up
with the formula for the Gross National Product Index.
Late 1930, there are many strikes in Europe, and
economies there start to collapse completely.
Over 1,300 banks close in 1930 in the US. The largest
is New York's Bank of the United States. It had 62
branches, 440,000 depositors, and closed it's doors on
Dec 11th. The Secretary of the Treasury is Andrew
Mellon. There are a few quotes attributed to him during
this time. Some are amazing, but one is the best.
Mellon believed the depression was the result of a
natural phenomenon! "I see nothing in the present
situation that is either menacing or warrants
pessimism". Mellon favored deflation and he opposed
public-works project. He will be asked to resign in a
short period of time.
The DJIA closes 1930 at 164 pts, down from 248 at the
end of 1929. And the worst is yet to come!!
1931
President Hoover says in March that "prosperity is just
around the corner," but financial panic and economic
depression engulf most of the world. Vienna's
Kreditanstalt comes under pressure in the spring, but
the government refuses to abandon the gold standard as a
drop in the value of the schilling will increase the
burden of Austria's foreign-currency-dominated debt and
raise the possibilities of hyperinflation. They ask for
help from neighboring countries and from the new Bank
for International Settlements. But there really is no
help. So the government supports the Kreditanstalt with
a large infusion of freshly printed currency; a flight
of capital quickly depletes Austria's gold and foreign
exchange reserves. The Kreditanstalt goes bankrupt May
11, and the panic spreads to Germany, where the
Darmstadter und National Bank closes. Between 30 and 40
percent of the German workforce is jobless. The
Danatbank goes into bankruptcy July 13, which forces a
general closing of German banks that continues until
August 5. So the gold standard starts to die off.
The Bank of England advances money to Austria, but
Britain's own financial position critical.
In the Kentucky, coal miners and guards have a gunfight
May 4 at Evarts following 4 years of strikes and labor
disputes. The Harlan County Coal Operators Association
began spending a lot of capital in 1927 to terrorize
miners and their families with strong-arm tactics in a
move to keep the United Mine Workers from organizing.
This conflict came to a head, and the result was a gun
battle that left three guards and one miner are left
dead.
The first mention of the Communist Party shows up in
1931. San Jose, Calif., canneries were forced to cut
wages, and workers organized by Communist Party members
walk out in the summer. I remember a book about Woody
Guthrie, and how he wrote songs during this period of
time for the Communist Party and union organizing. It
wasn't that people embraced communism. Most didn't even
know what it was. It was that "things" were so bad,
they would embrace anything new that might help.
Britain receives a French-American loan August 1, but
London and Glasgow have riots September 10 to protest
government economy measures, naval units mutiny
September 15 to protest pay cuts, the pound sterling is
devalued September 20 from $4.86 to $3.49, and Britain
is forced to abandon the gold standard September 21.
Detroit lays off another 100,000 workers as motorcar
sales collapse, reducing employment in auto plants to
250,000, down from 475,000 in 1929. Two out of three
Detroit workers are unemployed. The situation will
improve somewhat, but unemployment will remain high in
Detroit until 1942.
The "Swope Plan" for economic recovery, outlined by
General Electric president Gerard Swope, says, in
effect, leave the problem to business and let trade
associations develop national economic plans to revive
the economy. It never happened.
U.S. unemployment tops 8 million now. Although the
government will stick with it's reports of 4.5 million
people. Now we are in a serious situation. No one has
any money. So now just eating becomes a major issue. In
NYC, people compete with dogs and cats for what they can
find in garbage cans. Hunger marchers petition the White
House December 7 for a guarantee of employment at a
minimum wage but are turned away. President Hoover who
was U.S. food administrator from 1917 to 1918, opposes
suggestions that the federal government distribute food
to the needy. Rather he insists that charitable
organizations will provide what is needed. The American
Red Cross dietitians offer advice on how to eat
economically, but the organization refuses to use its
funds to help the unemployed. They must have been
waiting for some kind of disaster?
U.S. bank failures total 2,294, up from 1,352 last year.
In December 1931, President Hoover calls for increased
taxation in his annual message to Congress. More revenue
is needed to make up for a $900 million deficit. He
recommends an emergency Reconstruction Finance Corp. (RFC)
and a public works administration; Federal Reserve Board
governor Eugene Meyer has been a leading advocate of the
RFC, and he chosen to head that organization..
Japan abandons the gold standard December 11th. Prime
minister Tsuyoshi Inukai tries to reflate his economy.
By printing money!!
DJIA closes on Dec 10th at 57 pts. It rebounds on Dec
11th to 80 pts, but closes the year at 78, and is down a
record 52% from it's close of 164 in 1930. But this is
not the bottom, not yet.
BC
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