View Text Version (OCR)
SAN FRANCISCO, CALIF. .- n.Hoffmon &, GOOduTi.,. NEW YORK, N. Y. LOS ANGELES, CALIF. BAKERSFIELD BEVERLY HILLS EUREKA. FRESNO RIVERSIDE SA.CRAMENTO SAN DIE&O LONG BEACH MODESTO SAN JOSE SANTA ANA OAKLAND STOCKTON PASADENA VALLEJO TABELL'S MARKET LETTER 35 WALL STREET, NEW YORK 5, N. Y. Digby 44141 Signs of a recession in business are multiplying. During the past week, this situation has been described as a leveling off, a disinflationand even as an economic burp. I prefer to call it a return to economic normalcy, an adjustment from the war boom with its dislocations and shortages to normal peacetime competitive condi- tions. This is a healthy situation. Sustained prosperity is not based on shortages and high prices and black markets. From 1921 to 1929, there was almost immediate delivery on any automobile you wanted and the only black market was in bootleg liquor. Of course a return to competitive conditions and lower prices will be painful to many marginal companies, but its effect on soundly entrenched enterprises should result in no more than a drop in earnings from the unprecedented peaks of 1947 and 1948. Business is following the normal post-war pattern. Economists have been predicting a depression since late 1945. Their timing has been woefully bad because they failed to take into consideration the huge pent up demand built up not only by five years of war shortages, but also by the t.en previous years of depression. That is why, in my opinion, the present dip in business will be in no way comparable in magnitude to the 1921 recession. When the adjustment is completed, there should be a sustained period of prosperity. The demands of fifteen years of depreSSion and war shortages have not been nearly supplied by the production of the last three years, even as large as that production has been. The Stock market started its readjustment period in the Fall of 1946 when it dropped from a May high of 213 to a low of 160. Since that time, regardless of greatly increased earnings, the market has moved in a relatively narrow range. Stocks are selling today at the lowest ratio of price-to-earnings, dividends, cur- rent asset value and book value in twentyfive years. The only comparable periods are 1921, 1932 and 1942. Today there are no top-heavy speculative pOSitions, only a small amount of stock on margin. and plenty of liquid money awaiting investment. This com- bination of factors will not last long. It is happening today only because of the depressed mental state of the investing public. The following quotation from the column of C. Norman Stabler n the New York Herald-Tribune of February 20th, is an excellent description of present public psychology. The tendency of the pendulum of human reactions always to swing too far, and thus to produce waves of unjustified optimism or pessimism, brought some thought-provoking observations from Herbert H. Weitsman, of the Stock Exchange firm of L. F. Rothschild &Co., last week. In the period immediately preceding the panic of 1929, he observed, there was a tendency to think that 'nothing means anything'unfavorable. It was a New Era. NOW, 'nothing means anything' favorable. A remark frequently heard is that 'earnings and dividends don't mean anything'. The mis- taken philosophy of the present, Mr. Weitsman notes, goes something like this. 'Low earnings are obviously no good, but high earnings are no good either, because the higher the earnings, the greater the vulnerability. Neither are increased dividend payments any good because large disbursements lend themselves to future reduction. Mere continuation of current rates is nothing less than catastrophic. After all, what good are stable dividend payments High pro- duction, at best, is just another reflection of unhealthy boom conditions. Why, it is the stuff that nightmares are made of – that slip from 102i of capacity and then fall rlght through the rigid break-even point into a bottomless sea of red ink. As to book values, well,have you ever tried to eat a brick or a lath or an openhearth furnace – who would want to drink from an oil well Big book values don't mean a thing, except perhaps potential business for the junk man. High commodity prices are no good because inflated prices are subject to collapse. Deflated commodity prices certainly are no good, Such a condition is bad for the farmer and inventory values are adversely affected. Implied lower costs for the consumer also are no good because the consumer is going to be worried about his job, if he has one. Anyway, he is nown the habit of saving instead of spending, the figures proves that. War is no good, that is self-evident, but neither is peace. Parades and inaugurations would hardly justify the present-day expensive military establishment. The prudent thing is to ignore values and yields. Equities should not be bought, it is concluded. 'Nothing means anything'-favorable. The 1929 philosophy was just as mistaken,Mr. Weitsman pointed out, for then nothing meant anything unfavorable. 'It made no difference,' so the thoughts of that day went, 'that market prices in relation to earnings and dividends and book values were fantastically high. It was all in the future – prospects were the impGrtant consideration and that prospect was not only undiminished but increasing prosperity for the foreseeable future and even longer and the Dow Jones industrial average was only 380. The thing to do was to buy more and more common stocks.' Reference should be made to the 19291932 stock tables.for the complete details of that 'New Era' — and its surprises. .nThis memorandum Is not haY8 an Interest In some to or be condrued ., an of the NeurUies offer or IOlldtatlon of offers to mentioned herein. The foreooln; bmuyateorr!!!sI,1Ihaasnybeseencuprritji;MllU..''f'rWMll..V..tulrtWp,MtoA..1hln…'.,WaJ,stoInnoHrmoaftfm1oann & GoodwTn ma, only. It Is baled upon Information believed rellable but not n.cessarlly complete, Is not c;luaranteed as accurate or fInal, and Is not Intended to foreclose Indepondent InquIry. – ..– .—- SAN FRANCISCO, CALIF. NEW YORK, N. Y. BAKERSFIELD BEVERLY HILLS EUREKA RIYERSIDti SACRAMENTO ,..SAN DJEGQ TABELL'S MARKET LETTER LOS ANGELES, CALIF. OAKLAND PASADENA STOCKTON VAllEJO 35 WALL STREET. NEW YORK 6, N. Y. Digby 4-4141 I see no reason to change my forecast for 1949, as stated in the letter of December 15, 1948. Briefly, I still expect that the market will reach its low point for 1949 in the first three months of the year. I do not believe that the low will be much, if any, lower than the November 1948 low of 170.35, and that it certainly will be above 160. I believe that by the latter part of the year the market will approach or pass the 1946 high of 213. The action of the market has been discouraging, particularly as far as the rails are concerned. The rail average and individual rail stocks had two possible top formations. The first top formation was outlined by the May to July highso The second formation was formed across the entire May to October pattern. It appeared for a while that the average would hold at its first object- ive, but last week's decline carried most of the rail issues down to their lower objectives. I have listed below the downside objectives of the averages and individual issues in the three groups that have shown worse than average market action since Election Day. These groups are the rails, oils and steels. These downside objectives are the object- ives outlined by the complete May to October distributional pattern. It is interesting to note that in a great number of cases these objecttives are very close to recent lows. Prices are as of Friday, February 25th. – 2g Last Objective Low 1946-1948 Low (- Dow-Jones Ind. 171,10 172-165 162 170.56 Dow-Jones Rails 46.34 48-45 41 46004 New York Times 110 110-108 107 110 New York Herald-Trib 117 116 114 117 Armco 23 7/8 23 21 23 1/2 Atch.Topeka & S.F. 87 3/4 86-81 66 87 1/2 Atlantic Coast Line 36 37-35 41 36 Baltimore & Ohio 8 5/8 9 -7 8 8 1/2 Baltimore & Ohio,pfd 16 5/8 12 12 16 1/4 Bethlehem Steel 30 7/8 31-29 26 30 3/8 Chesapeake & Ohio Chicago & North W. 3110 /88 30 10 32 31 1/8 14 10 1/2 Chicago,Rock Island 28 1/2 28-26 26 28 1/8 Cities Service 39 39-36 21- 38 1/2 Continental Oil 50 45-42 34 47 5/8 Delaware & Hudson 34 35-33 26 34 Denver & Rio Grande 21 1/2 21 7 20 1/4 Great Northern, pfd 37' 36 35 36 1/2 Gulf,Mobile & Ohio 10 3/8 10 7 10 1/8 Gulf Oil 60 1/4 61-59 57 60 1/4 Illinois Central 23 23-20 19 22 1/2 Inland Steel Jones & Laughlin 36 5/8 28 1/8 33 28-27 33 28 36 1/2 28 1/8 Kansas City Southern 35 30-28 16 34 1/4 Louisville & Nashville 35 1/2 34 39 35 1/2 Mid-Continent Pete 42 41-39 32 40 1/8 M-K-T, pfd 18 16 12 16 1/4 New York Central 10 1/2 9 12 10 1/4 Since listing. The balance of the list will follow in the next letter. February 25, 1949 EDMUND W. TABElLL WALSTON, HOF1AN & GOODWIN j This memor.!lndum Is not to be construed as an offer or solicitation of offers to buy or sell any securities. From time to time Wolston, Hoffmfln & Goodwin may have an Itertlst In lome or all of the securities mentioned herein. The fOrElQolng matarlal has been prepared by us as a Mlitte, of Information cnly. It Is based upon information believed reliable but not necessarily complete, is not quaronteed as accurate or flnll1. lind Is not Intellded to foreclose independent Inquiry.