The Great Depression (30 page)
Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
12/21/37Stock prices continued up until Sept. 1937 and then came a big break which is still in process. Prices are now back to 1935 level.
There is nothing new to report. Business is dull—Congress is quiet. In the meanwhile the stock market has continued slowly upward without a break for almost a year.
The street is full of stories of large sums of money made in the stock market. Most of these people bought stocks a year or more ago and held on grimly. Less than a year ago Sheet & Tube sold at 12 and is now 52 1/2. Many of course sold too soon and took a small profit. The speculative fever has spread just as in 1929 and all sorts of people are crowding the broker’s office. Many stocks sell at 20 and 30 times earnings and a break seems overdue. Bonds pay only about 3% and because of this low return and because of fear of inflation much money has been switched to equities.
It is said about the wealthy banker George F. Baker of New York:
1. He always bought sound stocks and bonds when they were offered below intrinsic value.
2. He always had liquid cash for such a purpose.
3. After he bought such stocks and bonds he held on “until the cows came home.” He never made a practice of speculative buying and selling and never tried to catch the market swings. He simply bought when bargains were offered. He never sold unless the stock market was going bad or the price offered was too good to refuse.
The last three years offered just such a chance to build a fortune. How many took the opportunity I do not know. Many who understood did not have the money. Others who had money did not see the opportunity or were afraid to risk their money when things looked so black.
Things move along quietly and nothing much is heard from Washington. Industrial Production in January and February fell off a little and is now about 5% below normal. The question on everybody’s mind is whether the recovery which started a year ago will continue for a year or more until we are above normal or whether we have a slump this summer and full recovery in 1937. I am inclined to agree with the latter view although the vast majority are on the other side. Most financial writers tell people to hold on to stocks—that they will go higher etc. It is for this reason there has been so little selling although the market has been slightly lower and unsettled during the past week.
In
Time
magazine for 2/24/36 I found one lone financial writer who agreed with me. He said:
Time
magazine for 2/24/36 I found one lone financial writer who agreed with me. He said:
1. Stocks are too high. They ought to be sold now—not bought. They will be much lower next summer. Business has not carried thru.
2. Inflation will start with the 1937 Congress.
3. There will be an unprecedented boom 1937-1939.
4. This boom will be followed in 1940 by a terrific crash and prolonged depression for four or five years.
5. If Republicans are in power 1940-1944 they will become known as the depression party.
12/21/37This prediction was more nearly right than the others. The crash came in Sept. 1937. There is no sign yet of a boom.8/21/44No boom yet—to the contrary, low prices all through the war.12/15/45All of these predictions proved to be wrong.
War clouds again threaten Europe. Germany sends troops and seizes the Rhine Valley which she lost after the World War. This is a violation of the Locarno Pact and France threatens military reprisal. The situation looks bad.
The stock market has been slowly heading down the past few days but nothing startling.
Business continues quiet although steel operates at 60%.
EDITOR’S NOTEFloyd Odlum was a lawyer who accumulated wealth speculating on utility companies in New York in the 1920s and formed the Atlas Utilities Company in 1928. In 1929 Odlum sold half of his Atlas stocks and various other holdings he had acquired on Wall Street in the summer prior to the Great Crash, leaving him with fourteen million dollars in cash by October 1929. During the Depression Odlum purchased many stocks at below-market rates to become a major shareholder of such corporations as Northeast Airlines and Bonwit Teller. Howard Hughes would eventually buy RKO Studios from Odlum. By 1933 Odlum was one of the top-ten richest tycoons in the country.
Business and the stock-market continue upward without a pause now for about 13 months. Steel mills operating at about 65%. In spite of all this, money continues tight and the law a difficult profession. Talk of inflation has died down and likewise there has been little political talk lately.
I read an interesting item today about Floyd Odlum and the building up of his Atlas Investment Trust. Started with $40,000 in 1924—ran it up to a million in 1929. Sold out for cash and held on to cash until bottom of depression was reached in 1932. With his cash he bought heavily in “special situations.” Mostly in investment trusts hard up for cash. Stocks in these trusts were selling at less than 50% of the asset values. Since the assets were stocks quoted at depression levels—the buyer of such an investment trust bought the assets at 1/2 of depression values. He then held on and later liquidated at huge profits. He never took over the active management of a business but sold the stock to those who could run it. There were many such “special situations” during the depression. He was actually buying stocks under the hammer. The same thing happened with railroads and other companies such as Continental Shares when they went into receivership. The person who had enough money to liquidate them could have the assets for a song. Same principle as buying real estate at a foreclosure sold for price of the mortgage. Assets of the Atlas Corporation are now over $100,000,000 and they have literally become private bankers.
Like most successful bankers Odium believed that “silence” was one of the ingredients of success. Nobody knew what he planned until a thing was done—and then they got very little information directly from him.
6/18/68Floyd Odlum went thru the wringer and Atlas sells for $6—a Uranium Holding Co.
The retail merchants had a big Easter season. Yesterday in Cleveland the streets were crowded with people in new clothes and I saw more gardenias than in many years. Also the roads were filled with thousands of glittering new automobiles. It is clear that at last after a long depression the people are again spending money. In Youngstown the mills are working at 80% but in spite of this pay envelopes are small and there are many unemployed. Also in the U.S. there are still about 12 million unemployed. In spite of all this apparent prosperity the law profession lags behind. Things are better but fees are small and the work is difficult.
Business continues at a high level with steel operations at over 70%. For the last two weeks the stock market has been slowly sinking and yesterday a bad break brought losses ranging as high as 10 points. It is funny how when the stock market is rising every piece of news is regarded optimistically and bad news is ignored. Now the reverse is true.
Poland goes off the gold standard. This leaves only France, Switzerland and Denmark and it is feared they will follow. By remaining on gold France has suffered severe deflation in past two years and has not had the gain in business felt by non-gold countries.
EDITOR’S NOTEThe Guffey Coal Act, or the Bituminous Coal Conservation Act of 1935, aimed to protect the coal industry’s earnings and stabilize coal prices by fostering a coal consortium to control its prices. But on May 18, 1936, in Carter v. Carter Coal Company, the U.S. Supreme Court ruled that the federal government did not have the right to infringe on free enterprise in the coal industry.
There has been very little to add lately. Inflation talk and political has died down. The stock market suffered a number of declines but nothing serious—it has been quietly drifting for past two weeks.
General business conditions have continued good and steel mills are operating at 70 to 80%.
The U.S. Supreme Court yesterday declared the Guffey Coal Act unconstitutional. It was a small NRA.
I have not had a chance to make any entries in this record for the reason that for the first time since the depression I have been busy with my law practice. Business has been better for more than a year now and is about 95% of normal but until now the professions have not felt the recovery. I hope our time has come because it has been a long, dreary road.
The gov’t last week paid a soldiers’ bonus of over two billion and as a result the veterans have been buying cars, clothing etc. Streets are crowded and the highways are jammed with new cars. It begins to look like old times again.
The stock market has been irregular but refuses to have a break of any size. Prices are about the same as they were in April and are actually at their highest point in 6 years. There is some fear that France may devalue her currency and halt the recovery. Barring this it seems we ought to be back at normal by Fall. Most economists think we have 2 prosperous years ahead of us and then a depression again of 1 to 4 years.
The presidential campaign is just beginning and promises to be very bitter.
Business continues good and there has been less than the usual summer letdown. Retail stores and most businesses are doing better than any year since 1929. Everywhere things are beginning to look like old times again. Even the legal business is showing signs of life. There is still an absence of small “bread and butter” business but this is compensated for by an occasional substantial fee for drawing a downtown lease, etc.
Steel mills are operating at about 80% and prospects are good unless a threatening strike develops.
A bad drought in the West means higher food prices this winter.
The stock market has fluctuated several months but at no time had a bad break. Averages are highest since 1930.
As I look back over the record of the stock market since 1932 many remarkable results can be seen. Stocks that sold at receivership prices are now selling at substantial values. Here are a few extreme examples showing quotations in 1932 and 1936. Phillips Morris Tobacco Co. 1/2 to 90; Sheet & Tube 4 to 68; Republic Steel 2 to 26; Gen. Motors 10 to 70; Chrysler 6 to 100, etc.
It is literally true that if a man had the courage to invest $5000 in 1932 and then had the courage to hold on he would be worth $100,000. Those people who did buy in 1932 sold out long ago with what they then thought was a good profit. When the depression started the “ideal” investor would have:
1. Sold out before the crash if possible; if he got caught then he would have sold anyhow at a loss.
2. He would have patiently waited until rock-bottom prices in 1932 and then bought heavily.
3. He would have then held on until prosperity returned.
Of course nobody could have foreseen these things. It might prove that long-term trading is better than short-term profits. In 1932 most people were hard put to buy food and had no money to invest. Those who had a few dollars were hoarding it in fear. Those who did invest sold quickly as soon as they saw a profit. There may be some who profited fully but I do not know of any.
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