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The 1930s Redux
I found something really interesting about the similarities of some of the news headlines in July to that of the 1930s.
Here’s news from July 24 2009 and July 24 1930. The news from today’s Wall Street Journal has been inserted and bolded to show the similarities. History doesn’t repeat, but does it rhyme?
Thursday, July 24, 1930: Dow 239.33 +5.03 (2.1%)
Market opened with large buy orders for major industrials. Many majors in early trading reached highest point of last week. Buying broadened to rest of industrials in late morning; upward movement continued almost all day. Some short covering seen. Car stocks strong, particularly GM; in spite of generally weak news. Utilities strong; amusement stocks dull. Banks and trusts weak.
Strong housing data combined with good earnings reports to spur a stock-market rally that pushed blue chips to a new 2009 high and the Nasdaq Composite Index to a winning streak unparalleled even in the dot-com bubble.
The Dow Jones Industrial Average leapt 188.03 points, or 2.1%, to 9069.29, helped by gains in components 3M, up 7.4%, and AT&T, up 2.6%. Both announced declines in profits smaller than analysts expected.
The most recent advance was powered by a combination of unexpectedly positive second-quarter corporate-profit reports and reassuring economic data.
3M Co., maker of Scotch tape and Post-it notes, said second-quarter earnings fell 17%; that was better than analysts were expecting. Its shares rose 7.4%.
Ford Motor Co. said it returned to profitability in the second quarter, with net income of $2.3 billion versus a loss of $8.7 billion the previous year. That profit was the result of a $3.4 billion boost from restructuring debt. Without the one-time gain, Ford would have posted a loss, but a smaller one than the previous year. Ford stock was up 9.4%.
Prominent brokers, rumored to be supported by banking interests, recommended buying sound industrial stocks. Believe this month marks the bottom of the industrial recession and stocks are likewise scraping bottom. M.J. Meehan & Co. expressed confidence in industrial outlook and recommended investment in representative stocks at current prices.
On Monday, Goldman’s once-skeptical strategist David Kostin told clients he expects the S&P 500 to hit 1060 by year’s end, up from 940 previously. He boosted his overall estimate for profits at S&P 500 companies
MMM – BofA Merrill upgrades to Neutral from Underperform
L.G. Federman, Pres. Interstate Dept. Stores, believes “Business in general hit bottom last month,” and likewise for commodity prices. “Both are now picking up and I am confident the advance will rapidly gain momentum.”
How’s the economy, you ask? I have the proverbial good news and bad news, but in this case, they’re exactly the same: The U.S. economy appears to be hitting bottom…. Furthermore, there is a reasonable chance—not a certainty, mind you, but a reasonable chance—that the second half of 2009 will surprise us on the upside. (Alan Blinder, editorial page)
Conservative observers remain cautious; believe broker recommendations have so far attracted traders looking for quick profits, not long-term investors and general public. Recommend not reaching for stocks but buying leading issues on declines. Immediate outlook uncertain, but longer term considered encouraging.
Some traders wonder how durable the stock gains will be, noting persistent weakness in employment and corporate revenue that hasn’t shown much improvement even as profits have risen.
Second-quarter earnings so far better than expected. Third-quarter predictions are difficult; current business is below second-quarter average; if seasonal pickup does not develop until September, as leading authorities expect, the improvement won’t be reflected in third-quarter earnings.
As for earnings, based on results from just under one-third of the country’s biggest companies, 76% have surpassed analyst estimates, according to Thomson Reuters. Although that percentage could weaken in coming weeks, it currently eclipses the 73% recorded in the first quarter of 2004, the highest since Thomson Reuters began tracking that percentage in 1994.
Economic news and individual company reports:
Deposits at member banks up $1.494B to $21.317B in past six months. Similar increase to 1924, which was soon followed by business revival; caused by easy money policies of Reserve banks. However use of the money has been different from 1924; banks then increased commercial loans, but now there’s been a large decrease in commercial loans and large increase in security loans and investments; easier credit policy has so far failed to increase demand for business credit. However, if a recovery does come, the Fed would be reluctant to allow rates to rise; necessary expansion in Reserve credit could then lead to inflation.
Current interest rates: Fed. Reserve NY discount 2.5%; commercial paper 3.25%-3.5%; 90-day bankers’ acceptances 1.875%; call loans 2%.
First 8 rails reporting June earnings total $10.368M, down from $10.912M in May and $14.137M in June 1929.
The country’s two biggest rail operators said the dramatic drop in freight volumes over the past year has begun to stabilize, but that a full-fledged recovery in demand for shipping remains well out of sight.
Posting second-quarter earnings that sagged because of slack demand for shipping, Burlington Northern Santa Fe Corp. and Union Pacific Corp. both said they see no clear signs of an imminent rebound in business. In spite of recent improvement in demand for certain shipments, both rail operators expect a slow recovery.
Burlington Northern, based in Fort Worth, Texas, and the country’s biggest rail operator as measured by revenue, said earnings for the period were buoyed by a charge that hurt second-quarter earnings in 2008. Net income climbed to $404 million, or $1.18 per share, a 15% increase compared with $350 million, or $1 per share, a year earlier. Excluding the 2008 charge, earnings declined 10% compared with a year ago. Revenue fell to $3.32 billion, down 26% from $4.48.
Union Pacific, based in Omaha, Neb., said net income during the quarter fell to $468 million, or 92 cents per share, from $531 million a year earlier. Revenue during the period dropped to $3.3 billion, compared with $4.6 billion a year ago.