The Great Depression (38 page)
Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The coming war brought a hectic stock market boom with gains up to 20 points. Housewives rushed to buy groceries—sugar was scarce and doubled in price—everywhere there are signs of excitement . . . Broker’s offices are crowded, prices of everything are going up—merchants and manufacturers are preparing for war time demands.
Our national debt is $40 billion—our banks have enormous reserves. If these reserves are loaned out for wartime expansion and multiplied 10 times by credit processes—it may bring on the long-awaited inflation.
England again commands the sea. Our present neutrality law forbids sale of arms to belligerent nations but Congress will meet in special session next month to change the law so that America can sell to the Allies on a cash and carry basis and help them win the war. America is neutral but American sentiment is preponderantly with the Allies.
Our banks are loaded to the gills with government bonds paying 1 1/2% interest. Last week these bonds broke badly because there is a chance to use the money to better advantage. Will depreciation in U.S. bonds affect our banking situation?
The future looks troubled. Because the situation is so interesting I have determined to continue these notes for awhile longer. If the war continues it looks like another crazy period of speculation ending in inflation and a bad crash.
Again the lawyer is on the spot. Ten years of depression has left him poorly prepared to face an inflationary period. It looks bad. The war industries will make huge profits and so will the speculator, but the lawyer faces ever diminishing returns from an inflated dollar.
For 10 years I have longed for normalcy but it does not seem so destined. My generation has already lived thru war, boom and panic but evidently we still have some excitement ahead of us.
The following shows some of the high and low averages for past 10 days: AT&T 170-148; Bethlehem Steel 100-50; Com & So. 1 5/8-1 1/4; G.E. 44- 30; GM 55-36; Penn RR 25-15; U.S. St. 82-45; Repub. 28-12; Steel & Tube 56-30; United Air 46-31. The advance affected mostly steel, rails, aircrafts etc. and left other stocks almost unchanged.
Since the war started on Sept. 1st, it has dwindled down into a siege in which England is trying to starve Germany into submission. There has been no spectacular fighting and consequently no war orders to U.S. except for a few planes. After the first spurt in “war brides” the market became stagnant. Steel and airplane and other war stocks have retained most of their gains but the other stocks are about where they were in August. Our steel mills are still operating over 90% to fill the early rush but it is predicted this will peter out and we will have a slump by spring unless the war changes. The Senate yesterday passed the “cash and carry” embargo and it is expected the House will confirm it shortly. There has been no pick-up in the law business.
The business picture remains much confused. So far the European war has been a phony. Very little fighting and very little buying of war supplies except airplanes. Steel mills are still above 90% but it is freely predicted we will have a slump this spring unless war orders come in. Business is much better than a year ago but the stock market is 10 points lower even after including “war babies” in the averages. Aircraft stocks and steel are higher than a year ago but the regular stocks are lower. It is a queer picture. Are we retracing the 1914 pattern when business did not pick up until the war was several years old? Part of the explanation is the orderly liquidation of stock holdings by foreign nations in order to get cash.
I am reading a biography of Elihu Root by [Phillip] Jessup and was interested in Root’s theory and method of investing his funds. He believed—as did Geo F. Baker—that no man could predict the near future course of the market. He bought stocks that he thought were selling below intrinsic value and then held on until the market confirmed his judgment. He dealt mainly with banks and railroads with whose affairs he was familiar.
On one occasion a friend of Root’s wrote asking his opinion as to the near term speculative value of a certain stock with which Root was in close contact. Root answered that he had no idea what course the market would follow and that any opinion he might express would be a guess. As for the stock itself, he was of the opinion that it was selling at an attractive price—below its value.
1940
Again we face a new year and the depression of 1929—now 10 years old is not yet completed. The year of 1939 closed without the war boom which was expected when war broke out in September. The war still rages in Europe but very little buying has been done from the U.S. except airplanes and trucks. With the outbreak of war in September the stock market rushed up and all industries prepared for a rush of war orders. It was shortly realized that very little actual fighting was taking place in Europe; that England was encircling Germany and was prepared for a long siege with as little fighting as possible and that this kind of a war meant little business for the U.S. and it also meant a loss of much foreign trade. The stock market fell and ended the year at about the same average as January 1939 altho certain war stocks such as aviation and steels retained much of their gains.
During the last six months of 1939 Youngstown was more fortunate than many other parts of the country. With the coming of the war the steel plants were besieged with orders from domestic railroads and other industries—all rehabilitating their industries in preparation for a war boom. These orders kept the steel mills operating at a 90% capacity and it is expected that these orders will keep them going until March at about 70%. What will happen after that depends on war developments. Germany may be forced to take the aggressive to prevent strangling—this may result in much fighting and a rush of war orders. Again 1940 is a national election year and brings many uncertainties. All in all I am optimistic and hope it will be better than 1938 altho I do not look for a boom.
Due to the large payrolls—the Youngstown stores enjoyed a record-breaking Xmas season. As usual the law business trails behind. 1939 was about 10% better than 1938 but I am still about 40% below the pre-depression levels.
As I look back over the decade just closed it all seems like a bad dream. I have learned much but I hope that neither I nor my children will go thru such an experience again. None of my children—Connie 19—Bob 14—and Daniel 10—remember the pre-depression era. They have known only blackest depression—uncertainty—European wars—talk of Communism, socialism and fascism. Even their school books are filled with these subjects and with the constantly changing maps of Europe. Along with this morality and religion have been at a low ebb and the philosophy of Franklin and Lincoln are all ancient history. Even worse than this is the uncertainty of the future.
The war in Europe is rapidly spreading and even tho the U.S. may not be involved directly—we can nonetheless not escape the consequences. Our government debt is over $40 billion and constantly mounting. Will inflation come—will the war bring another unhealthy boom and subsequent deflation? Religious intolerance increases—and our country is swayed by European propaganda and subversive activities. All in all the world of 1940 is not a pleasant one. We can only hope that a better day is dawning.
Jack S—told me today: In 1937 I sold my business and I had $14,000 in cash. I went into the stock market and bought on margin. In the slump of 1938 I lost everything—in addition to which I caused losses to several relatives and friends who tried to help me out. If I had been able to hold on to these stocks I could make a handsome profit today. Several of my friends bought the same stocks on margin—but had enough surplus to carry thru the downsizing and made money. It is clear that if I had not bought on margin or could have held on just a few weeks longer I would have made money.
Business has been stagnant so far this year. The stock market has slowly drifted downward. It is generally predicted that prices of clothing etc. will rise this year because of the war. It is to be noticed that very few stores are pushing their January sales. The European war is not spectacular although it is thought that there will be a great deal of fighting in the spring and that this will bring in the long expected war orders.
There is very little to report. There has been no spring rise so far although many expect improvement in the near future. There is some talk that the European war will become violent this spring and will bring a flood of war orders that will spell a boom here. Just now all is quiet on the western front and business is stagnant.
Occasionally I hear a true story of the stock market which is worth recording. Had lunch with Mr. M. S. who has been manager of a branch clothing store for a growing company for about 30 years. During the 1st 20 years he accumulated stock of the company out of his savings—under employee plans, etc. Never speculated in his life. In 1929 the stock was sky-hi—he had 400 shares at $130 a share—worth $50,000. On 10/10/29 he learned from his boss that the company would declare a special Xmas dividend of $5. Since the news was not made public he decided it was a good chance to speculate. Took his $50,000 stock to a bank—borrowed on it—bought more. At the end of October 1929 the crash came. He could have gotten out at 25 but he held on. It went to 14 and he lost everything but about $1000. All because he had put his stock up as collateral and had speculated with someone else’s money.
His brother was the owner of an amusement park and quite prosperous. Owned a small summer home in Florida which cost him $2500 long before the Florida land boom. Sold it for $75,000 during the 1925 Florida land boom—then got land speculation fever—moved to Florida and lost everything. He knew the amusement business and made money in it. He knew nothing about real estate speculation and was playing the other man’s game.
There has been much war hysteria in recent weeks and the tide of war has turned against the Allies. Germany has been successful in every move so far and now has control of Norway, Belgium, Holland, Poland, Hungary, and Czechoslovakia. At the present moment Germany has penetrated 12 miles into France and a critical battle is raging which may be the turning point in the conflict. As the Allies have been weak—so has the stock market weakened. The worst slump since 1937 took place Monday with the news of the Allies’ danger. Stocks lost as much as 9 points on Monday and as high as 15 points yesterday. All gains of last September’s war boomlet have been wiped out and stocks are lower than a year ago.
Congress is appropriating $2 1/2 billion for defense and this will raise the national debt above $47 billion. There is talk of invalidating the Johnson Act so that munitions can be sold on credit to the Allies. The U.S. has thus far received very few orders for war materials. Excitement is high and business is dull. This is typical of conditions for the past 10 years.
The following shows stock drop in past week: AT&T 171-149; B&O 4 5/8-2 3/4; Com. and So. 1 1/8-7/8; G.E. 35-28; GM 52-40; Penn RR 20 5/8- 16 3/4; Radio 6 1/8-5 5/8; Republic Steel 22 1/8-15; U.S. Steel 62-48; Steel & Tube 42-31.
The war in Europe continues to rage and so far the victories have gone to Germany. It looks black for the Allies. Germany has conquered Norway, Belgium and all the channel ports across from England as well as Poland and other Balkan states. Today a great battle rages on the Western Front, and Germany, with a million and a half men, is within 35 miles of Paris. Today at noon the paper announced that Italy had finally declared war on France and England. It looks bad for France with Germany attacking from the north, Italy from the south and England unable to help much. The U.S. is sending planes etc. to the Allies and we are very near to a declaration of war ourselves. In the meanwhile very few war orders have been received so far. Business is slack and the stock market is lower than 2 years ago. Again it seems to me to be a good time to buy stocks.
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