The Great Depression (36 page)
Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
10. Information and statistics are so voluminous that each investor must develop some simple method to make use of them. Most of the information deals with the daily ups and downs of the market—the waves and not the tides. These things are not important. The investor is interested only in that information which affects the long-time trend.To give meaning to stock prices and values he must learn to make simple comparisons between similar things. For instance, stocks and bonds can be grouped as steels, rails, etc. Put the vital figures of U.S. Steel along side Bethlehem and compare them. General Electric vs. Westinghouse, General Motors vs. Chrysler, etc. In this way the complicated statistics have meaning and make an intelligent choice possible.A brief comparison between similar companies as to earnings, debt, capitalization, dividends and surplus will show the true picture. Orderly knowledge can be built up out of this confusion of statistics by simple comparisons with the past and with like companies.As to general conditions—the investor must analyze and digest general information in newspapers, business magazines and personal observation and use his own judgment as to the present state of business.The investor must organize all the material around him so he can use it in a simple way. He must disregard the non-essential. He must discipline himself and realize that the investment of surplus funds is all-important and requires work and diligence.
1938
The year of 1937 came to a close in the midst of depression talk and after a four month’s drop in the stock market which was the steepest in history. The stock market started up in the spring of 1935 and continued straight up with hardly a pause until spring 1937. A short break in August and then a long plunge which cancelled all gains of the past two years. Most economists blame it on the inflationary policies of the government. In spite of all the criticism the President appears determined to go ahead with his plans. The forecasts for 1938 are gloomy. They all say they cannot make a prediction because so much depends on what Congress will do. Most of them think 1938 will not be as good as 1937.
In Youngstown the steel mills boomed in 1936 and part of 1937 and worked as high as 80%—now down to 18%. The steel strike in May and June 1937 shut things down tight and then the market crash in August kept them down. Again it has been a disappointing year in the law profession. It is true that my 1937 earnings were about 20% above 1936 but I am still about 30% below normal.
The depression continues with increased intensity. Stocks are at a low point and business is at a standstill. It is thought now that the government will start spending money again in the spring in order to bring revival before the fall elections. If so it will be an inflation spurt. This depression seems harder for people to bear than in 1932. During the 1935-1937 spurt they bought autos, furniture etc. on the installment plan and now they cannot pay. Also most people have after 7 long years used up all their surplus and have no place to turn. Most predictions say recovery will not come until next fall or later. In the meanwhile, stores are loaded with merchandise and selling at a sacrifice. Same old story. It seems that the time is here again when good stocks can be bought cheap—to be held for the next cycle. The Erie R.R. went into bankruptcy last week. About 40% of RRs are now in receivership.
The “depression” continues without much change. Business continues to mark time. There has been no spring upsurge in either the stock market or in business. In past few days the government has taken steps of an “inflationary” nature and talk of inflation has started again. Once again the government remedy is toward inflation instead of correcting basic errors in policy. Again I wonder if we are heading toward a bad inflation boom and collapse. Just how long can deficit financing continue? It seems to me however that we have about reached the bottom of this bear market and the time has come again to accumulate stocks The European situation is worse than ever with a constant threat of war. Germany is now gobbling up Austria. War continues in Japan and Spain. U.S. takes steps to build up its navy. It is a crazy world.
6/1/38Note: The low point came about when stock prices started up without warning.
The depression just continues without much change. When it started last fall it was thought to be only a temporary down-turn. Now it has assumed more definite proportions and even European nations have been affected so that it is becoming international in scope. The recognized economists believe that real prosperity cannot return until Roosevelt stops trying to reform and lets business alone under fair restrictions but with a reasonable chance to earn a profit—and also no more currency manipulation and no more “white rabbits.” Roosevelt does not seem the kind of a man to admit that he is wrong—especially with election coming next fall. There may be a slight spring upturn but there seems little hope of more permanent improvement until after the fall elections. 1938 will be the 9th year of bad business for me.
After 8 years of “pump priming” and other trick methods of bringing back prosperity, it is my conclusion that none of them are any good. In our capitalistic system we must let the forces of competition and demand and supply work things out in a natural way. No man or group of men is smart enough to control prices or supply and demand or currency in a nation so large as ours. I am only afraid that we have gone too far to prevent a period of inflation. After 8 years of bad business most of us are at rock bottom and are poorly prepared to weather such a storm—so what?
Very little new to report. The depression continues and the stock market has been stagnant for several months. A large New York brokerage house fails. It was thought that Pres. Roosevelt would take some drastic step to break the depression but so far he has failed to act.
In Europe war becomes more imminent. Hitler seizes Austria in a bloodless coup and England and France arm rapidly to prevent the seizure of Czechoslovakia. The French Cabinet falls and Blum again becomes premier. It is a world of chaos and nobody can predict ahead. Retail stores are dumping their spring mdse at sale prices and bankruptcies are on the increase. Law practice continues bad.
Fear of war caused Europe to liquidate U.S. stocks and gave a bad break to the market. Prices are now near low point of this Roosevelt depression.
Talked to J. C. R. today who is in retail merchandise business. Says his business is 70% below last year. Also says that he holds shares of stock that were worth $25,000 last year and now worth $5000.
The depression deepens and yesterday the stock-market crashed thru the low point of 1937. Prices are back to 1934. It is pretty well agreed now that we are in a new cycle of depression. The old depression started in 1929 and reached bottom in June 1932. From there it climbed up until fall of 1937 and then broke again. There has been no period of “normal” business and as far as I am concerned it is the same old depression. If this continues long it will be a knock-out-blow. Most people and businesses are groggy from 1929. In 1937 they began to expand, expecting a few years of normal. They are not in a position to stand much further strain. To me it proves that the economic policies of Roosevelt did not bring a lasting recovery.
The present depression is almost as bad as 1932 and continues without abatement. 1/4 of Cleveland population is on relief. Unemployment is as great as 1932. Business is stagnant and everybody is waiting for something to happen.
Pres. Roosevelt announces a new spending program to prime the business pump. He proposes to spend $3 or $4 billion. It will help him to win the November elections but we will probably have a short spurt of prosperity and then another slump. Business is afraid of his reforms and I am now afraid we will have chronic depression so long as he has control of Congress. Even with the announcement of this huge spending program there has been little inflation talk even tho it brings us nearer the abyss. People are apathetic and do not seem to care. The spending of billions seems to mean nothing. Even the stock market continues listless. If only private capital would gain confidence and go to work, the problem would be solved.
The business slump continues with very little change in the picture. The index of production, consumption, bonds, etc. are still down although the decline is less abrupt.
I have been interested in trying to call the turn on the present depression. As long as the majority of the important indexes point down and the general outlook is bad, it seems to me the depression would not be over. But if stock prices go up several months in advance of business improvement—then it seems that indexes of production would go up
after
stocks have risen and would only confirm the judgment of the courageous speculator. It seems to me that all one can do is to judge the entire picture and when things are blackest—then make a guess that things will get better and buy stocks for the rise. I see the risk here because very few people knew in June 1932 that the turn had come. It seems to me that the present turn is near at hand and will come in early summer [undated note: “Right”]. It also seems easier to call the turn at the top of the boom than at bottom. At top with money rates high, speculation rampant, stocks selling far above intrinsic value, bonds falling—there are many warnings. In either case the best the investor can do is to buy and sell at approximately the right times and then not worry even if he could have made a little more by waiting.
after
stocks have risen and would only confirm the judgment of the courageous speculator. It seems to me that all one can do is to judge the entire picture and when things are blackest—then make a guess that things will get better and buy stocks for the rise. I see the risk here because very few people knew in June 1932 that the turn had come. It seems to me that the present turn is near at hand and will come in early summer [undated note: “Right”]. It also seems easier to call the turn at the top of the boom than at bottom. At top with money rates high, speculation rampant, stocks selling far above intrinsic value, bonds falling—there are many warnings. In either case the best the investor can do is to buy and sell at approximately the right times and then not worry even if he could have made a little more by waiting.
France devalues the franc again yesterday for the 3rd time since the war. The history of France for the past 20 years should be a warning to the U.S. for our course here is very similar. There has been chronic depression in France all those years.
Business here continues at a standstill. Most of the important indexes still point down. In spite of this I think the upturn in the market is about due. Bonds turned up two wks. ago partly because of lowering of bank reserves and partly because of friendliness to business shown by the administration. If I had funds to invest I believe I would start accumulating stocks. Steel mills operate at 30% and the summer promises to be dull.
The depression gets worse and is now down to 1933 levels without signs for a pickup in the fall. As usual, when it started in March 1937 people said it would last only a few months. They said recovery would come in fall 1937—then winter—then spring 1938—and now they say fall 1938 but I think they are wrong again. Steel mills operate at 25% and industrial production and other indexes continue to hit new lows. There is talk of a further devaluation of the dollar from 59¢ to 50¢. In the meanwhile Pres. Roosevelt is rushing his money spending program so it will take effect before the November elections. It is a dreary and uninspiring grinding depression that seems to have no end. Law business of course is at a standstill.
Beginning early this week the stock market started an upward spurt which still continues. Whether it will last long and mark a major upward movement remains to be seen. It caught the commentators unprepared. There are still no signs in the industrial indexes to confirm it. For two weeks before the spurt the volume dwindled to 300,000 shares a day. It was predicted a change was coming but most predictions said it would be down. It all goes to show how difficult it is to call the turn at the bottom of a depression. Your guess is as good as anyone’s. If you wait for the actual upturn to begin, it moves so rapidly that much is lost. Republic Steel for instance jumped from 12 to 17 in 2 days. Still this might be better than trying to buy on the way down.
Stock prices have continued straight up for more than a week now and many gains amount to 50% or more. Just as in 1932 the rise came after a lull of several weeks and a falling down in volume of sales—but no indication of improvement in business indices. It caught the economists flat-footed.
Both 1932 and 1938 indicate there is no sure way to catch the bottom of the swing because it comes without warning. When liquidation has dried up and the situation looks hopeless—that is the turn. Your guess is as good as anybody’s.
The market has continued straight up for two weeks and almost all commentators agree that a new major cycle has started. My own business and general business in Youngstown show no improvement. Steel mills operate 20%.
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