The Great Depression (22 page)
Read The Great Depression Online
Authors: Benjamin Roth,James Ledbetter,Daniel B. Roth
Stock market still on the upgrade. Average is 82. Sheet & Tube 31; Republic 15; U.S. Steel 52; Radio 9; Truscon 8.
I am afraid the opportunity to buy a fortune in stocks at about 10¢ on the dollar is past and so far I have been unable to take advantage of it.
It is my conclusion that the successful investor must cultivate the habit of “patience.” He must be able to hold his money and wait until it is really the time to buy. In this panic it meant waiting over 3 years until stocks were really at rock bottom and selling at less than 1/10 of their normal value. I suppose the real investor would then have the patience and courage to wait until normal times returned before selling.
Patience
to wait for the right moment—
courage
to buy or sell when that time arrives—and
liquid capital
—these are the 3 essentials as I see it now. When stocks reached their all-time low in July of 1932 (when Sheet & Tube sold at 6; Republic 1 1/2; Truscon 2; U.S. Steel 20, etc.) it would have taken plenty of courage to buy because receiverships and bankruptcies threatened the largest companies and most of the banks in the country were closed or refusing to permit withdrawals.
Patience
to wait for the right moment—
courage
to buy or sell when that time arrives—and
liquid capital
—these are the 3 essentials as I see it now. When stocks reached their all-time low in July of 1932 (when Sheet & Tube sold at 6; Republic 1 1/2; Truscon 2; U.S. Steel 20, etc.) it would have taken plenty of courage to buy because receiverships and bankruptcies threatened the largest companies and most of the banks in the country were closed or refusing to permit withdrawals.
Steel mills are now operating at 63% as contrasted to 17% in March.
In the face of opposition of almost the whole world Pres. Roosevelt refuses to stabilize the dollar and goes forward with his inflation plan of raising domestic prices. Briefly he says he will let the dollar fluctuate on foreign exchange until domestic prices are raised to a point where industry can show a profit and debts can be paid. Then he will stabilize the dollar at its then rate to foreign currencies.
Skepticism and doubt and criticism of his plan are becoming more outspoken daily. When U.S. went off gold standard we got some foreign trade with our depreciated money but we are fast losing this because of rising domestic prices and increasing foreign trade barriers.
The stock market boom is completing 4 months of upward soaring without a halt. Stock averages are about 96. New brokerage offices are opening everywhere and the public is rushing in as they did in 1928. American dollar at 69¢ on foreign exchange. Steel mills are operating at 65%. Stock prices: Truscon 13; Sheet & Tube 32; U.S. Steel 65; Bethlehem 46; General Elec. 25; Penn. R.R. 43; Republic 2.
As far as professional men are concerned business continues steadily worse. People are using their new earnings to pay bills, buy food and in some cases automobiles. Sales of automobiles have doubled and trebled. The reiterated promise of Pres. Roosevelt that he will raise prices to the 1924 level is cited by brokers as a guarantee that stock prices will go up. Seems to me it is about time for a bad break.
EDITOR’S NOTEA Senate investigation of the most powerful institutions on Wall Street in determining the cause of the stock market collapse of 1929 was well under way by June 1933. The probe would continue into 1934 under the direction of Ferdinand Pecora, an assistant district attorney from New York who would eventually go on to become chairman of the Securities and Exchange Commission. The vigorous interrogation of the most powerful bankers and brokers of the era, from J. P. Morgan Jr. to Charles Mitchell of National City Bank, revealed an embarrassing breadth of underhanded financial practices by the nation’s wealthiest financiers, from skipping out on paying income taxes on bonuses to tampering with stock market pools so only friends would profit. The information disclosed in these hearings proved deeply damaging to the image of Wall Street in the eyes of the public.
National affairs are very confusing. Roosevelt sticks to his inflation idea and so far has resisted attempts of the Economic Conference in Europe to stabilize currency or peg the dollar. As a result brokers’ offices are crowded and stocks still go up after 2 months of unbroken progress. Market average is 87.5.
Prices of commodities are going up and stores and factories are buying large quantities of merchandise for fear prices will go still higher. The steel mills operate at 50% and a great many men have been called back to work. Wages, however, have not increased with prices. Also all the lawyers and other professional men complain of lack of business. People must be optimistic because automobile sales for past 60 days reached record proportions.
The more conservative judgment is that we are on the upgrade and on the way out provided the government will let business alone.
The Industrial Control Bill which will practically dominate business thru its trade associations is just beginning to take form. It is a radical excursion into the field of a “controlled economy.”
I talked to Atty. Andrew Rheuban today. He says: “I have $35,000 equity in a 6 family brick apartment and have been fighting 3 long years to hold it against the mortgage. I would never again invest in real estate. The net income is never above 5% and the personal attention and worry is not worth the effort. I would have been better off and happier if I had put my money in government bonds.” He echoes the feeling today of almost all real estate owners. I fear his view-point will change when real estate again becomes the medium of speculation.
Investigation and criminal indictment of bankers and big business men is still the order of the day. A great deal of rotten-ness in high finance has been discovered. For the present at least the lawyers as a group are not in the limelight. The banker and financiers hold the limelight as the evil genius.
The upturn continues without interruption. Steel mills operate at 55% today and Youngstown sees the 3rd largest pay-day in past 3 years. The streets are crowded with Saturday shoppers. Stock market for 60 days moves slowly up and average stands at 88.
European economic conference so far has accomplished nothing. U.S. fights monetary stabilization and return to gold standard because it won’t stop inflation and rising prices at home. U.S. may talk stabilization etc. when price recovery has gone a little further.
Professional men all claim that they have not so far been benefited by the mild boom we are enjoying. We will probably be among the last to feel the effect.
The boom continues and prices soar upward in the most spectacular recovery the world has ever seen. I still cannot believe it is permanent. Yesterday saw the return of $1 wheat and 10¢ cotton for the first time since the depression. Inflation and control bills started the price up on March 15 but a severe drought and continued hot weather did the rest. It is now estimated that the wheat crop this year will be the smallest since 1890. The 2 main causes are (1.) Drought and (2.) Small acreage planted by discouraged farmers who had been selling at a loss.
I think the next 4 months will tell the story. The European conference is still fighting for monetary stabilization. This conflicts with Roosevelt’s plan for inflation and higher prices. What happens as to money stabilization will considerably affect the near future. Personally I favor stabilization and a slower recovery—but it is anybody’s guess as to what will happen.
Only France, Holland, Switzerland and a few smaller countries remain on gold standard. They are fighting desperately at economic conference for stabilization but U.S. refuses. France now says that she will be forced off gold if this continues and that she and other gold nations will withdraw from conference. This would mean the whole world off gold and a race for world trade by depreciating currency—and would result in destructive world-wide inflation. Interest in real estate has picked up since inflation talk started because in Germany it proved to be the best investment at the time.
Labor unions are busy in Youngstown trying to unionize the steel industry. They claim they have broader authority under the Industrial Control Bill. This may be the fore-runner of labor difficulties.
I read an article a few days ago in the
Saturday Evening Post
describing the German inflation period. It is enough to strike fear into the heart of the most brave and explains why European nations are demanding stabilization of the U.S. dollar. The German inflation was a huge fraud which benefited the debtors and speculators at the expense of the large, prudent middle class. The following things happened in Germany:
Saturday Evening Post
describing the German inflation period. It is enough to strike fear into the heart of the most brave and explains why European nations are demanding stabilization of the U.S. dollar. The German inflation was a huge fraud which benefited the debtors and speculators at the expense of the large, prudent middle class. The following things happened in Germany:
a. Bonds (including governments), real estate mortgages, life insurance, bank savings and all fixed value investments became worthless because they were redeemed by debtors with depreciated money.
b. Common stocks of industrial concerns soared to fantastic heights and paid huge dividends. When stabilization came these stocks crashed and only the strongest companies survived. In spite of this common stocks proved to be the best investment.
c. Real estate owners who paid off their mortgages with depreciated currency
and held on to it
until stabilization came, still had something of value. The same applied to purchasers of commodities such as diamonds, etc.
d. Industries expanded, built huge additions to their plants and paid in worthless currency. Of all classes, the industrialists fared best.
e. Professional men were badly off.
The American dollar is now worth about 75¢ on foreign exchange and to the extent of this depreciation, we are seeing here a changed outlook on the part of the investor. Bonds are being exchanged for common stocks and commodities because prices are rising fast. There is also talk that Americans of German extraction are beginning to put their money into real estate.
Inflation is a terrible thing and I hope it will never come to America. It penalizes saving and changes the entire outlook of the prudent investor from government bonds, life insurance, etc. to speculative stocks and commodities. The German Mark before the war was worth almost 25¢ in American money. When inflation ended a dollar would buy about a billion marks. During inflation American speculators went into Germany and bought huge pieces of valuable real estate for sums as low as $50 in our money. Hunger, starvation and ruin were the results of German inflation. In no country has it ever proven to be a blessing.
The European Economic Conference closes today, a complete failure mainly because U.S. refused to stabilize currency and go back to gold. It looks now as tho France and the few remaining countries will be forced to leave gold and then we will have a world wide competition in depreciated currency.
I talked to Julius Kahn of Truscon last night. He said, “The depression is now a thing of the past—there is no question about it. The next 60 days will see a remarkable change for the better with thousands of additional men called back to work. Our plant is now operating at a profit.”
Industry continues to boom and the entire public seems to be speculating in the stock market. Almost as bad as 1929. We already have 3 brokerage houses in Youngstown and another opens next week. Last Friday was a record day of the year with nine million shares changing hands. Likewise cotton and wheat markets are soaring.
In Youngstown steel mills operate at 67%. The air is again thick with smoke and hundreds of men are going back to work.
The whole recovery has been so spectacular as to be almost unbelievable. Because so much of it is based on inflation theories I have doubted its permanency. The next few months ought to tell the story.
In the meanwhile lawyers and other professional groups have failed so far to share in the boom.
The economic conference in Europe adjourns—a complete failure.
The following shows a few typical examples of increases in stock prices in past 4 months:
Amer T&T 85 to 132; Nat’l Distillers 16 to 114 (b/c of Prohibition amendment); U.S. Steel 23 to 65; Western Union 17 to 71; G.M. 10 to 33; N.Y.C. 14-56.
Again and again during this depression it is driven home to me that opportunity is a stern goddess who passes up those who are unprepared with liquid capital.
Col. Ayres of the Cleveland Trust Bank says in his bulletin that he is convinced that the depression definitely turned the corner between the 1st and 2nd quarter of 1933. He thinks recovery would have proceeded without inflation but that inflation has made it spectacular and abrupt. He fears that the recovery has been too rapid and may be followed by a set-back. General opinion, however, seems to be that we will move forward now in spite of occasional set-backs.
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