JULY 7, 1938
After pausing for a day or two over the 4th of July the market started up again and today there is another stampede of buyers to get stocks. As yet the industries’ indexes show no definite improvement. At least a technical set-back seems overdue.
In looking over the past 6 months it seems clear that nobody could have guessed the bottom of the swing because nothing happened that should have caused the market to go up. The same thing happened in 1932. It is thought that Pres. Roosevelt engineered the rise in order to pave the way for November elections. All he needed was the cooperation of a few Wall St. operators. Since then the gov’t has encouraged the upswing.
For several weeks before the rise the market was stagnant—sales fell to 300,000 a day—losses were small—and everybody was pessimistic. Such a sold-out market was the only sign the bottom had been reached.
JULY 11, 1938
For past few days there has been a wild reaction in the stock market with a loss of 2 or 3 points. The longer outlook is good.
JULY 20, 1938
After a pause for a week the market started up again yesterday. There has as yet been no real reaction and it seems overdue. In this depression at least the stock upturn came several weeks before business indexes showed any improvement. For the past two weeks these indexes have been turning slowly up. At the time of the stock market upsurge the indexes were very slowly moving down and some were stationary. Same with stocks. Volume was low and there were many indications of a sold-out market.
Fundamentally the whole business situation is weakened by the monetary policies of the New Deal and I do not see how we can have enduring recovery until this is rectified. This may not be until Roosevelt’s term of office is over. In the meanwhile the national debt approaches $40 billion. People seem to have forgotten about the danger of inflation but it is still there just the same.
AUGUST 10, 1938
Business and the stock market have been stagnant for the past few weeks. It seems to me that stock market prices are higher than business prospects warrant. Everything is still as uncertain and clouded as when Roosevelt took office. I am beginning to believe there will be no return to normal until his term is over. A short boom and then a collapse seems to be all we can look for. Yesterday was primary election. People are slowly turning back to the Republican Party—but New Deal money with millions on W.P.A. and relief still give the Democrats the edge. It will be interesting to see how far the swing goes this fall.
AUGUST 29, 1938
Business men seem to be optimistic about fall business but there is very little in the way of statistical [evidence] to bear them out. For past two months the stock market has moved sidewise in a hesitant manner. I do not look for much during the balance of the year except a fair pick-up at best. Meanwhile it looks like war again in Europe.
OCTOBER 20, 1938
Prospects look brighter than for a long time. In September—due to war scare in Europe—stocks and business had the jitters. With the “Peace of Munich” normal recovery forces took hold of things and stocks and business forged ahead rapidly. I would not be surprised if we are now at the beginning of a cyclical upswing which may last a year or more. I also believe that the “Roosevelt Era” and the New Deal are waning—that conservatives are making progress—and that this will help business. I am optimistic for the first time in months.
1939
MARCH 6, 1939
The optimism in the last paragraph was misplaced. Once again the recovery fizzled out and since December has been down. Business is at a standstill, stocks are stagnant. At least Congress is independent but nothing is being accomplished. The New Deal has apparently been stopped but the opposing forces are not strong enough to go forward. The battle before Congress now is whether to stop pump priming. It does no good, but a lot of harm. The gov’t debt is $40 billion and still increasing. Fear of inflation is always in the background. If gov’t spending is stopped there may be some hope for recovery. The European situation still is badly muddled and there is always the fear of war. It is terrible to contemplate that we are in the 9th year of depression and still cannot see clearly ahead. I am afraid nothing definite will be done until Roosevelt is out of office. In meanwhile everybody is living a hand-to-mouth existence and struggling under a burden of debt accumulated in past 9 years. It is not pleasant.
MARCH 10, 1939
Talked to W. W. Z. today. He said: During the past 10 years I lost half my life savings in local banks and corporations. The directors were personal friends and they advised the investments. I thought they were high-minded men and would look after the business. When the companies were broke I found out they had protected themselves and nobody else. If I had it to do over again I would invest only in outstanding national corporations with stocks listed on N.Y. Exchange so I could sell when trouble threatened.
JULY 19, 1939
I have entered nothing on this record because there has been nothing to record. The slump which started in Sept. 1937 is still with us although in fact for days there have been some signs of recovery. Business has been rotten the past two years—mills at 60%—most millworkers earnings about $18 per week etc.—and in the background a continuous fear of war in Europe. After panic of 1893 there came a 2 year recovery—a slump of a year—then several years of good business. We had recovery 1935-37 and a slump 1937- 39. Let us hope the pattern of 1873 will repeat and we have several good years ahead. Stocks are about 10% lower than last spring.
As I re-read some of the predictions made by outstanding economists in past few years, I must laugh. They were all wrong. None of them foresaw the 1937-39 collapses and many predicted inflation before this. It seems that Geo. F. Baker of New York had the right idea. He knew how to value a stock and bought when selling below value—then held on, grimly confident that in the end he would make a profit. He could with assurance buy U.S. Steel at 30—ignore all predictions—and make a profit by holding on long enough. If the country survived the stock would go up—and there was little chance of such a company going broke. Baker never tried to predict the course of business or to follow market swings. Baker’s plan seems sound. It is like buying a piece of real estate or a suit of clothes below value—but you must be a good judge of values.
Let us take Yo. Sheet & Tube Co. for example:
1. Its earnings fluctuate widely and the price of its stock does also. Some years it operates at 40% capacity—other years at 80%, etc. In 1935 it operated at about 40% and stock sold for 35. In 1937 it operated at 80% and stock sold for 100.
2. Since the company survived the 1929 depression it is not likely to go broke now.
3. When it operates at 40% one year—it will likely operate at 70% or 80% in another 2 or 3 years.
4. Therefore stock bought at 35 can probably be sold at a profit in a year or two.
JULY 21, 1939
A friend of mine started to speculate on the stock market on 25% margin with $2500 in cash in May 1933. This was shortly after Pres. Roosevelt reopened the banks and devalued the dollar. For several months there was an inflation boom that trebled stock values and then a collapse. This man traded actively in public utility stocks such as Am. Super. at 8 and in steel stocks such as Republic at 19. By end of 1933, he lost his $2500 and owed the broker $7500—a total loss of $10000.
Hindsight is better than foresight. Mr. Baker would have bought outright sound stocks such as U.S. Steel—G.E.—G.M.—and he would have
held on
. In 1935-37 rises he could have had many chances to sell at treble values. Net result is that my friend is out not only the $10,000 he lost but the additional $10,000 he might have made if he followed a more conservative course. His total loss is really $20,000—a fortune to him. And this is why some men can accumulate and others cannot.
SEPTEMBER 11, 1939
On Sept. 1, 1939 war broke out in Europe. Germany marched into Poland. England and the dominions and France immediately declared war. Russia stands with Germany. Italy has declared herself neutral. Germany has during the past week occupied 1/3 of Poland and has almost surrounded Warsaw. This situation has been smoldering ever since Hitler came into power 5 years ago. It looks like a second world war of long duration.
The coming of war raises many basic questions. It seems to write finis to the New Deal and to the last 10 years of depression. In the past week the stock market boomed 20 points. What does the future hold? It is anybody’s guess. A period of war prosperity—followed by a world collapse? With our huge bank reserves and a national debt of $40 billion—will the pyramiding of these huge reserves bring on the long awaited inflation? Will America enter the war? What to do to protect oneself? These are the questions in everybody’s mind. Of one thing only are we certain and that is that after 10 years of depression and political uncertainty—a long war will mean troubled times ahead. I dread the prospect.
CHAPTER 7
SEPTEMBER 12, 1939-DECEMBER 31, 1941
“My children have known only blackest depression.”
EDITOR’S NOTE
By his own admission, Roth hadn’t anticipated he would still be writing in his diary by 1939. But by the fall of 1939 Roth determined that the impending war in Europe, and its impact on America’s industry and economy, was just as dramatic and worthy of record as the Depression itself.
Indeed, the bellicose activities abroad in 1939 shifted much of America’s attention away from domestic economic reforms and recovery to the preparedness of our national defense. Prior to 1939 the nation as a whole shared Roth’s reluctance to get involved in overseas tensions. Between 1935 and 1939 the U.S. government passed a series of acts intended to restrict America’s possibility of entering a foreign war. In April 1939 Roosevelt even sent a wire to Hitler and Mussolini suggesting a dialogue on trade and arms agreements in exchange for a guarantee of a decade of peace. He was ignored. Publicly, Roosevelt would retain the stance of U.S. neutrality even as Hitler defied the Munich agreement and invaded Poland on September 1, 1939. But domestically, Roosevelt was taking steps in Washington to bring the United States closer to war. It would also boost the American economy to heights unmatched by his New Deal.
One step, a “cash-and-carry” provision, was passed that finally loosened the grip of the U.S. arms embargo and allowed America to sell much needed arms to Great Britain. As long as the nation paid cash and ferried the ammunition on non-U.S. ships, the United States could still position itself as neutral while opening up U.S. manufacturers to new war production orders.
Second, U.S. policies moved quickly from appropriating budgets to drum up employment and public works to bulking up a national defense for both an invasion and a possible declaration of war. After Roosevelt won a third term in 1940 on a campaign platform dominated by foreign affairs rather than domestic relief programs, Congress authorized twelve billion dollars in defense spending on goods like fifty thousand new military airplanes in a year. This type of construction was a tremendous boon to the steel and rubber industries in and around Youngstown. Yet Roth continued to wonder how it was that industry could be experiencing a near-record boom without a corresponding boost in the stock market or his own law practice. His proposed explanations—the uncertainty that war produces, fears of inflation and a postwar bust, the regulatory limits to war profiteering—remain confounding factors to anyone today who tries to assess the relationship between military spending and economic growth.
VOLUME VI
SEPTEMBER 12, 1939
When I started these notes on the Depression of 1929, I expected to bring them to a close when the depression ended. I thought the depression would end in a few years in a perfectly normal way. But instead—after 10 years of depression—and New Deal politics under Roosevelt—we now see war in Europe which threatens to be of long duration and to involve the greater part of the world in its destructive effects.
The coming of war changes the whole political and economic situation. Before it broke out we still had the depression with us and it was pretty well agreed that the Democratic Party would go out of power in 1940. With this change in politics I expected to see the liquidation of the New Deal and the beginning of a normal recovery without bad inflation.