Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
The Great Depression (40 page)
Today 16 million men between the ages of 21 and 30 will register for the first military conscription in U.S. history. Marion is working on one of the draft registration boards and I have been named to the advisory board.
Steel mills and all industry is working at 100%—yet the stock market lags far behind. I think it is a good time to buy. Reasons given for the lag are uncertainty over the European situation and over possible entrance into war and uncertainty over the coming election. Betting odds have been 11 to 5 on Roosevelt but yesterday they dropped to 8 to 5. A small “Willkie” boom hit the stock market as a result.
From time to time people tell me their experience in the stock market. For the most part they were within reach of large profits but did not take them. Dr. S. D. said: In 1929 I held $180,000 in stocks subject to a 40% margin. The crash caught me and I rushed in to sell but my broker strongly advised against it. Later I had to put up $10,000 additional margin. I finally sold out in 1930 and salvaged only the $10,000 margin. I put this $10,000 in the Home Savings Bank. It closed in 1931. In 1932 when the market was at low ebb I sold my pass book on the Home Savings for $4000—and bought high grade stocks at about 1/10 their real value. I determined to hold these until the market came back to normal. I did hold on until first part of 1935 but then I needed money so badly I sold these stocks for about $10,000. Six months later these stocks shot sky high and I would have made an extra $50,000 if I had been able to hold on.
This presidential election is the most exciting in 25 years. On every street corner people argue the matter and a good deal of bitterness is beginning to appear. Present national polls show Roosevelt with a popular lead of about 55% to 45% but Willkie is gaining steadily. If this trend keeps up he may win.
In the meanwhile both business and the stock market are stagnant although industry booms. It seems to me stocks are selling below their intrinsic value based on industrial activity. For instance Sheet & Tube is operating at capacity but the stock sells at 39. In normal times it would be selling in the 80s. The uncertainty of the national election and the fear that U.S. may enter the war plus new excessive profit taxes is holding everything back.
Today is Election Day. It brings to a close the most bitter campaign since the days of Bryan. Even the “polls” taken by nation-wide organizations are afraid to predict the result. It may be close—it may be a landslide. Wendell Willkie, 48, public utility president and lawyer, opposes “third term candidate” Franklin D. Roosevelt. Roosevelt pictures all the social legislations he has sponsored and promises the millennium if given four years more to finish his “New Deal”—pensions for the aged—food and housing for the submerged—peace and security and such an America as we have never dreamed of. Willkie promises to hold on to the social gains but to put a stop to the baiting of big business; to the trend toward government ownership and national socialism. He promises a return to simple honesty, sacrifice, hard work. He says the nine million unemployed can be put back to work by reasonable cooperation with business and by permitting business to expand without punitive taxes, government competition, etc. The campaign has been a liberal education to all in the real meaning of democracy and the American way of life. I have worked hard for Willkie but am not as optimistic as I should like to be.
Business has gone thru the usual election year dullness during the past two months although steel and other industries have been booming. Stocks have been stagnant and are far below prices that would be justified by present activity. During the past few days stock prices have advanced slightly to anticipate a possible Willkie victory. In New York betting odds are 9 to 5 on Roosevelt. There has been a strong demand recently for utility equities which are selling at receivership prices because of the government fight against them. It is thought they will fare better if Willkie wins.
It is predicted that if Roosevelt wins stocks will drift down and if Willkie wins they will go up—for about a week—and then in either case will adjust themselves to the war news.
It seems to me there is a lot of latent speculative fever which has not yet expressed itself since the outbreak of war in Sept. 1939. Given a Willkie victory with the long-term assurance that an end has come to the war against business—it seems to me that the stock market could go far.
Franklin D. Roosevelt appears to have been re-elected by a landslide. Present incomplete reports indicate 458 electoral votes against 28. In the popular vote he receives only about 4 million votes more than Willkie. In Mahoning County all Democrats win. U.S. Senate and House are both Democratic. Harold Burton, Republican, appears to have won for Senate in spite of the landslide. It seems to me he has a good chance for the presidency in 4 years. Ohio re-elects its Republican governor.
The stock-market broke yesterday on news of Roosevelt’s election and leading shares lost 2 to 4 points. Utilities in particular lost 25% of their quoted values because they have been the political football of this administration. I think it is a good time to buy. For instance Sheet & Tube sells at 40—will earn about $6 per share this year and much more next year. It should go to 75 or 80 in the next 6 months.
11/18/41Wrong. Earns about $10 and sells at 34.1/6/4337 1/210/16/43Sells at 352/22/44@ 3710/10/52@ 90 (old)4/7/62@ 200 (old)
The stock market did a complete turnaround yesterday and “inflation” stocks such as steels gained 4 to 8 points. Utilities which are not much affected by inflation were stationary. It was all caused by a statement by Secy of Treas. Morgenthau that the defense program had only started—that the debt limit would be raised from $45 billion to $65 billion and that new U.S. bonds would not be tax exempt. U.S. Steel gained 7 7/8; Bethlehem Steel 6 1/2; Sheet & Tube 4 3/8, etc.
Inflation always pops up unfortunately. It is forgotten for awhile but is continually hovering in the background. Added to this, stocks are selling much below prices justified by the rate of industry, and there is a great deal of speculative fever which has been suppressed since the 1936-7 boom.
It becomes increasingly clear that nobody can predict the future behavior of the stock market. One day the results of the election upset it and the next day it booms because of some chance happening. Fools rush in to buy when the market is booming—the wise investor buys on darker days when he knows stocks are selling below value—and then holds on—confident that he cannot lose his principal and that sooner or later the market will come back and raise prices above their intrinsic value. To do this an investor must have liquid capital, courage and above all
patience and ability to hold on and wait
.
patience and ability to hold on and wait
.
It is difficult to analyze the financial picture for the next 6 or 12 months. It seems to me that there cannot be a prolonged bull market because of the war uncertainty which dominates everything. There are three possible stages:
1. We are now in pre-war armament period.a. Industry is at high gear but how long it will continue nobody knows. Stocks will fluctuate widely for short periods but no prolonged bull market. Every change in the war front—threats that we will be drawn in—inflation fears—fear that war will suddenly end—all of these things preclude a long drawn bull market.b. In view of these short-period fluctuations it would seem wise to buy stocks whenever they are selling below intrinsic value and then to sell whenever a fair profit can be obtained.
2. War Perioda. There is great probability that USA will be drawn into war before spring.b. Declaration of war might bring a crash in stocks.c. If this war is similar to the last one there will be no prolonged bull market during the war.
3. Post-War Perioda. Should present money-making opportunities.b. Post war depression—post war boom—inflation and then a big crash.
The financial picture defies analysis. Industry is operating at boom levels, extra dividends are being declared, armaments are building up, huge government debts—and yet the stock market is stagnant and so is the legal profession. Retail stores are already feeling the impulse of Xmas shopping and are looking for the biggest season since 1929.
In these circumstances one would look for booming stock markets but the reverse is true. The most common explanations are:
1. Fear of sudden termination of war.
2. The New Deal will continue its old policies of restricting private enterprise, profit, etc.
3. The armament program will be carried forward without the help of private capital and if private capital is used it will receive such a low return of interest that investment will not be worthwhile.
It seems to me that the whole situation carries dynamite. Banks are crammed with huge unused deposits that could be the basis for credit inflation if some spark set it off. People have money and are spending it for clothes, gifts, etc. The times are uncertain and when the break will come nobody knows. Psychology and fear on the part of the holders of government bonds may start the trouble.
Yesterday a seat on the stock exchange sells for $34,000—lowest since November 1914. The 1914 sale took place just after outbreak of world war #1 when stock exchanges closed and no one knew what would happen when and if they were reopened. They did reopen and the same stock exchange seat sold for $625,000 in1929. It seems to me the present situation is very similar. All industry is booming and it seems to me that sooner or later the market will follow.
A stock exchange seat sells for $33,000—lowest since 1899.
A stock broker after 40 years experience said to me today: “The only people I know who ever made money in the stock market are those who bought for cash and owned the stocks outright. I do not recall a single margin trader who did not lose sooner or later.”
Col. Ayres of Cleveland gave his annual forecast yesterday. He predicted:
1. There will be a boom in 1941-2 in steel centers and industrial areas producing armaments. This will not be a chaotic boom a la the 1st World War. Taxes will be higher, wages higher and profits lower.
2. Agricultural areas will suffer because there is no overseas outlet for their produce.
3. A moderate rise in stock prices but no bull market. Stocks are selling low today in a comparison with industrial rate.
4. A firming of money rates and, after an early peak, a reaction in bond market.
5. Strength but not marked inflation in commodities.
Stocks remain stagnant, bonds go to dizzy heights and show a return as low as 1/2%. Gov’ts about 2%. Bonds today are as high as stocks were in 1929. It looks like an unhealthy situation. Seems to me interest rates must go up and there will be a crash in the bond market similar to stocks in 1929.
Retail trade is good but not as good as expected. Professional offices are idle.
Very little to report. Retail stores are having a record Xmas season. Stocks have been drifting downward all month. Tax selling started late in November and is still on. It looks as tho U.S. will give full aid to Britain by giving all the arms she needs as a gift. Law practice is very slow in spite of the fact that Youngstown steel mills are operating at capacity.
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