Fear, Lust and That 1930s Feeling

I’ve had this ongoing project of reading as much as I can about the 1930s and the Great Depression. I favor the first-person accounts, stuff written by people who were there — like Damon Runyon.

Some of his early stories written in the 1930s reflect on the mood of the era. And even if you don’t care for reading about the 1930s, you’ve got to love Runyon’s way of capturing the voices of the times. For instance, “I put the old convincer on him by letting him peek down the snozzle of my John Roscoe.” That’s a pretty colorful way of saying you stuck a gun in somebody’s face.

In these stories, there is also that undercurrent of bad times. You never forget it. People view anybody who looks well with suspicion. Prosperity of any kind is seen as unreal in some way. As Runyon writes:

“You cannot tell by the way a party looks or how he lives in this town if he has any scratch, because many a party who is around in automobiles, and wearing good clothes, and chucking quite a swell is nothing but the phonus bolonus and does not have any real scratch whatever.”

There is also a macabre sense of humor. In one story, Runyon writes of being at a track in Miami. He’s having a run of bad luck. It goes on awhile and gets worse. “I wonder if I will not be better off if I buy myself a rope and end it all on a palm tree in the park on Biscayne Boulevard,” he writes. “But the only trouble with the idea is I do not have the price of a rope, and anyway I hear most of the palm trees in the park are already spoken for by guys who have the same notion.”

It was an era with an undercurrent of playful meanness, too. For example, look at the nicknames of some of the baseball players in the 1930s. Author Bill James wrote about this years ago. “In the ’30s, nicknames turned nasty,” he wrote. If you had a big nose, you were “Schnozz” — a nickname earned by Hall of Fame catcher Ernie Lombardi. If you were overweight, your nickname was “Blimp,” as in Frankie “Blimp” Hayes. Or just “Fats,” the nickname pinned on poor Bob Fothergill.

Some other nicknames used by journalists and forever affixed to players’ names in the registers: “Stinky” “Boob” “Boom Boom” (for a pitcher with a 38-69 career record) and “Suitcase” for anybody who had trouble sticking with a team. Joe Medwick walked with his toes pointed out and got stuck with “Ducky.” An outfield named Cuyler stuttered and they called him “Kiki” Cuyler. It was a brutal era.

I guess with bread lines, shantytowns and so many people out of work, no one cared about playing nice. In 1930s, you had to have thick skin.

Floyd Odlum: Making the Best of Bad Times

And more than just reading about the 1930s out of my own personal fascination with the period, there are also some practical benefits. There were people who made a lot of money in the Great Depression doing legal things. There is Floyd Odlum, for instance. He is sometimes described as the only guy to make a fortune in the Great Depression. (He wasn’t.)

I’ve written to you about him before. The reason to revisit him briefly is that James Grant also wrote a little about him in a recent Grant’s Interest Rate Observer. Grant calls him a “salvage artist par excellence.” “None of us can know the future,” Grant writes. “But like Odlum, we can make the best of a sometimes unappetizing present.”

Grant also managed to scrounge up a pretty good anecdote on Odlum. In the summer of 1933, when all the world seemed to be in pieces, Odlum strolled into his office, looked at his glum partners and said: “I believe there’s a better chance to make money now than ever before.”

Odlum liked poking around in the smoking wreckage of the 1930s. Bad times create wonderful pricing. I suspect if Odlum were still alive, he’d find himself very busy. There is a lot to look at now.

Scared? Read This

A friend of mine recently wrote to me about how he was looking at Potash (POT: NYSE) with “fear and lust.” It was a Hunter Thompson moment, and I knew exactly what he meant. Everything feels a little scary right now. At the same time, your rational brain gets excited about the great prices you see dancing on your screen.

“Fear and lust” sums up what it feels like investing in stocks these days…

Every investor will have to overcome fear to buy anything today. I hate to try to call a bottom. But remember that even in bad times, the stock market can put up stunning rallies. Jeremy Grantham at GMO makes the point about sitting on cash too long:

“In June 1933, long before all the banks had failed or unemployment had peaked, the S&P rallied 105% in six months. Similarly, in 1974, it rallied 148% in five months in the U.K.! How would you have felt then with your large and beloved cash reserves? Finally, be aware that the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”

Backlash From the CVR Energy Sell

I’ll end this week’s note with a quick word on CVR Energy, which we parted with after a little more than a year with a terrible loss. I always get lots of e-mail after every sell, no matter whether it was up or down.
I’ll reprint one of those e-mails… from my father:

“Your great analysis costs us $7,200 if we sell now. What happened to all that good stuff you wrote about it as far as the fertilizer plant and using its coke to run it? I thought (you thought) it was going to save it money, etc., on running the plant and make money on the fertilizer.

“Love, Dad”

Guess that will come out of my inheritance, assuming there is any. Well, a lot changed. Fertilizer prices tanked. Natural gas prices tanked, thereby making the company’s use of pet coke less appealing with all this cheap gas around. And gasoline demand fell, as did prices, thereby hurting the refinery. On top of that, there is the seeming inability of the company to get it together and deliver a clean set of results.

I suppose CVR Energy will bounce back from these lows at some point. If you want to hold out for a better price, that seems reasonable. But I’d rather own other things in this environment. Sorry, Pop. We’ll hit the next one!

Chris Mayer

March 16, 2009