Tokyo, London Post First Gains in Seven Sessions; Most Continental European Markets Also Advance

The Nikkei Index of 225 issues was up 428.13 points at 24165.76, helped by buying focused on blue-chip issues in the late afternoon, traders said. The index plunged 1473.28 points Thursday. In Friday’s trading, volume on the first section was estimated at 550 million shares, up from 477 million Thursday. Declining issues still outnumbered gainers, 526-367, with 80 issues unchanged. But the Tokyo Stock Price Index of all issues listed in the first section, which plummeted 110.58 points Thursday, was up 16.47, or 0.90%, at 1845.72. After a weak opening, the Nikkei Index shot up nearly 750 points by midmorning. A Japanese news wire’s headline at the time said that Iraq was withdrawing from the Kuwait-Saudi Arabian border. However, participants soon learned from reports by other news services that Iraq wasn’t withdrawing but was replacing some elite troops at the border with less highly trained units.
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Full text: [Wall Street Journal] Aug 27, 1990

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‘New’ Fund American’s Portfolio Makes Its Stock an Oil-Patch Play

Fund American, which was called Fireman’s Fund Corp. until last December, agreed a few weeks ago to sell its insurance operations to the West German insurer Allianz for $3.3 billion. Fund American, based in Greenwich, Conn., will remain a publicly traded company, and its first move will be to buy back its former insurance unit’s stockholdings for $2.2 billion, which was the market value of the portfolio on May 31. The Allianz agreement initially drove Fund American’s stock price to a new high of 51 3/4, prompting many Wall Street insurance analysts to advise clients to unload their shares. The stock has since declined to 46 3/4. Now analysts say Fund American is beginning to look attractive, because its shares are trading at a significant discount to the value of the oil-rich fistful of stocks in the portfolio. If the insurance unit had been sold as of last Monday, says Ira Malis at Alex. Brown & Sons in Baltimore, the remaining company would have had a net asset value of roughly $65.15 a share. Based on his estimate, Fund American shares last Friday were selling at a 28% discount to the company’s worth, known in Wall Street jargon as the net asset value. Fund American will say only that the transaction should cause its book value to exceed $60 a share, based on its financial position as of last May 31.
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Hilder, David B

Full text: [Wall Street Journal] Aug 27, 1990

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Hot-and-Cold Pattern of Economic Data Is Likely to Continue During This Week

This week is likely to see a continuation of the economy’s up-and-down pattern. Today, for instance, analysts expect the Commerce Department to report that personal income in July rose by about 0.5%, slightly faster than the 0.4% gain in June. The main factor, according to Stephen S. Roach, senior economist at Morgan Stanley & Co., was an acceleration of wage earnings. Another report today, however, is expected to show that personal consumption in July rose by 0.5%, down from a 1.0% gain in June. Nancy Lazar, an economist at C.J. Lawrence, Morgan Grenfell Inc., figures last month’s spending pattern was highly uneven: a 1.5% rise in outlays on durable goods other than automobiles and a 0.8% upturn in services, both partly offset by a 1.5% drop in autos, with no change in spending on nondurable goods. The performance of the index’s components in July, analysts say, was almost entirely negative. C.J. Lawrence analysts offer the following estimates for various index statistics: stock prices, down 0.1%; inflation-adjusted M2 money supply, down 0.3%; manufacturing hours worked, down 0.2%; vendor performance, down 7.9%; and consumer sentiment, down 0.1%. These declines, C.J. Lawrence says, more than offset a 0.2% gain in sensitive materials prices and a 0.8% drop in initial unemployment claims, resulting in a projected 0.2% drop in the index. The index will be announced Wednesday.
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Clark, Lindley H Jr

Full text: [Wall Street Journal] Aug 27, 1990

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Computer Maker Withdraws Public Stock Offering Plan

Computer maker Sun Microsystems Inc dropped its planned public offering of 5.9 million shares of new common stock because of a sharp dive in the stock’s price.
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Full text: [Wall Street Journal] Aug 27, 1990

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The Market: Death by a Thousand Cuts

According to an increasing number of investment analysts, a sustained decline in stock prices has begun. Only the ability of the Dow Jones Industrial Average to hold up has masked the trend.
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Egan, Jack

Full text: [U.S. News & World Report] Aug 27, 1990

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Stock prices climb as tensions ease: Crude oil and gold go down

The Dow Jones average of 30 industrials was up 81.93 points to 2,614.85 by mid-session today after Iraqi troops backed down from an ultimatum that U.S. embassy officials leave the country. About four million barrels of oil a day have been lost to the world market because of the international embargo on Iraqi and Kuwaiti oil. The sanctions were imposed after Iraq invaded and occupied Kuwait on Aug. 2. Inflation is the greatest fear of the bond market, since it erodes the value of the fixed-return securities. Inflation also worries stock traders, since it puts a squeeze on corporate profits and can lead to higher interest rates.
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Full text: [The Vancouver Sun] Aug 27, 1990

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Stock Prices Drop Back to Basics

During the week of Aug 20, 1990, conditions on the NYSE are described as being near the riot point. Despite control measures implemented to avoid panic, stock prices continued to go down.
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Francis, David R

Full text: [The Christian Science Monitor] Aug 27, 1990

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Stock Prices Drop Back to Basics

What has happened, according to [Warren Smith] and some other analysts, is that stock prices rose well beyond their “fundamental worth” this spring and summer. The Dow peaked at just over 3,020 in mid-July. Then the slowness of the economy became clearer. And Iraqi President Saddam Hussein ordered his troops into Kuwait, sending the price of oil soaring. Economists marked down their forecasts further, some seeing a recession ahead. Stock analysts began to suspect their earnings predictions for various corporations would be too optimistic. Except for the Iraq oil shock, both Smith and [H. Bradlee Perry] figure that share prices at the moment are not far out of line with “fair value.” The price to earnings ratio (P/E ratio) of broad stock averages, using earnings for the past 12 months, is about 13. The long-term average P/E ratio is about 13.5. The rise in oil prices, if it brings an economic slowdown, could knock down earnings further. The P/E ratio got under 9 in 1982 when there was a “negative market psychology,” Perry says. Much depends on what happens in the Middle East – a long siege of Iraq, a shooting war, or a quick negotiated settlement.
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Full text: [The Christian Science Monitor (pre-1997 Fulltext)] Aug 27, 1990

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Landmark’s Falling Stock Price Ends Pembroke Purchase

Since January, when Landmark Bancshares Corp. announced plans to buy Pembroke Bancshares Inc. of Kansas City, its stock price has dropped 40.6 percent. That drop is the main reason the transaction, which included a stock exchange, was called off Wednesday by Landmark and Pembroke, the parent company of Union Bancshares Inc. “Just look at what’s happened to the price of the stock since we started talking (almost a year ago),” said Jerry Green, chairman of Pembroke. “Market conditions just aren’t conducive for these things.” (excerpt)
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Sahm, Cathy

Full text: [St. Louis Business Journal] Aug 27, 1990

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Engineered Support’s Role in Mideast Helps Hike Stock

Engineered Support Systems Inc. has found an oasis for its lagging defense business in the Saudi Arabian desert. Engineered Support manufactures water purification and distribution systems. According to reports, representatives of the U.S. military have asked the firm to produce more of that equipment for the troops stationed in Saudi Arabia. As a result, the company’s stock has jumped more than 156 percent in value in less than a week. Aug. 15, Engineered Support stock was selling for $2.63 a share and by Wednesday, Aug. 22, it was selling for $6.75 a share. (excerpt)
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Scott, Mac

Full text: [St. Louis Business Journal] Aug 27, 1990

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WALL STREET BEARS AWAKENING

NEW YORK – The steep decline in stock prices this summer has left investors staring into the jaws of what some say may be Wall Street’s first sustained bear market in nearly a decade. That debacle produced a 36 percent drop in the Dow Jones industrial average, enough to rank prominently on any list of modern-day market declines. But almost all the carnage occurred in less than two months, and stocks began to recover quickly thereafter en route to new highs. For an undisputed example of the kind of long, debilitating slide for which classic bear markets are famous, one has to go back to 1981-82, before the big boom of the ’80s on Wall Street was ready to start.
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Full text: [Seattle Times] Aug 27, 1990

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Tokyo Stocks Set a Record

”The market has clearly been oversold, so a modest technical rebound is natural,” a trader said. ”But the major investors are still very cautious.” Today’s one-day gain was the ninth largest in the Nikkei’s history. The index is now 35 percent below its record high of 38,915.87, set on Dec. 29. ”Dollar-yen trading will not be active here today,” said Kaoru Kondo, a dealer at Security Pacific National Bank after the morning session ended. ”Instead, activity will be led by cross-trading again.”
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Reuters

Full text: [New York Times] Aug 27, 1990

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Corrections

The total of 250.4 million shares traded was the third-heaviest volume, not the heaviest, since the day after the 190-point plunge in October 1989.
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Full text: [New York Times] Aug 27, 1990

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Kuwait Crisis Hits Life Cos. Indirectly

The political crisis in the aftermath of Kuwait’s invasion by Iraq will indirectly impact investment portfolios, a spot sampling of insurers indicated. According to Michael Keran of Prudential Life Insurance Co., the effect of higher oil prices will not be immediate but will start in 1991 and occur over the next 2 years. In the short run, higher oil prices will drive up long-term interest rates and depress stock market values and, as a result, insurers’ assets. Insurance companies could benefit from holding debt because a fall in interest rates early in 1991 would increase the value of their investment, while a fall in stock prices would push down the value of their holdings. Provident Mutual Life Insurance Co.’s Stanley Reber indicated that long-term interest rates have already begun to climb and that inflationary fears have contributed to the climb. Insurers with common stock holdings will be affected because of pressures on the stock market. Roger Nastou of John Hancock Mutual Life Insurance Co. suggests that the Middle East is a problem to the extent that it exacerbates a recession.
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Connolly, Jim

Full text: [National Underwriter] Aug 27, 1990

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Tokyo Stocks Were Due for Fall Before Crisis, Analysts Say

“What’s happening is a liquidation after a long period of overheating,” said Osamu Tanaka, president of NB Investment Technology, a Tokyo-based investment advisory firm. “It would have happened last year, but the imbalance of demand and supply distorted fundamentals.” In the heyday of what analysts already are remembering fondly as Tokyo’s “super bull market,” stocks went sky high in an investor environment blessed with the “triple merits” of low interest rates, cheap oil and strong yen. Corporations and institutional investors were laden with huge amounts of cash that invariably found its way into domestic stocks, pumping up share prices and creating the illusion that the Nikkei would climb forever. Moreover, Finance Ministry officials have lost much of their ability to steer the market with the easing of market regulations since the mid-1980s. Futures and options on the Nikkei average that are traded in offshore markets now have an unpredictable-and uncontrollable-effect on stock prices in Tokyo.
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KARL SCHOENBERGER

Full text: [Los Angeles Times (pre-1997 Fulltext)] Aug 27, 1990

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Drop in Landmark Bancshares Stock Kills Deal Between Union, Landmark

A deal to sell Union Bancshares Inc. to St. Louis-based Landmark Bancshares Corp. has been called off after a drop of almost 40 percent in the stock price of the St. Louis bank holding company. Officials with the two companies announced Aug. 22 that they had mutually decided to end the planned sale, two months before the deal was scheduled to close. Jerry Green, chairman and co-owner of Union Bank Downtown, said that the drop in Landmark’s stock price from 15 5/8 in January to 9 1/2 as of Aug. 21 was the main factor in the decision to call off the sale agreement. (excerpt)
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Anonymous

Full text: [Kansas City Business Journal] Aug 27, 1990

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Railroad Stock Revs Up

Illinois Central Corp. made a rocky return to independent public ownership last week, hut the railroad holding company appears headed for the fast track. Although a well-known company with a long local history, Illinois Central is a newly traded concern, having been spun off to shareholders by parent Prospect Group Inc. Before its Nasdaq over-the-counter listing on Tuesday, analysts estimated that Illinois Central stock would trade at $18 to $20 a share. The issue never reached that point. On Tuesday, it closed at $15, and has since hovered in the $13-to-$15 range. (excerpt)
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Elstrom, Peter J. W.
Keefe, Lisa M.

Full text: [Crain's Chicago Business] Aug 27, 1990

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Crisis splits investors into 3 camps

As financial markets open Monday amid a continuing scramble over the Mideast crisis, investors are expected to continue a crisis-investing pattern that has split them into three groups: Those hunting for safe havens, those seeking buying opportunities and those willing to ride it out. Energy and gold stocks have been among the few winners since Iraq invaded Kuwait Aug. 2, while traditional safe havens such as the dollar and bond funds have fallen along with the overall markets. The bond funds have been sinking on expectations that U.S. interest rates are heading higher. Referring to the natural resources funds with stock in gold and oils, [John] Rogers of Ariel company said: “I think it’s a little too late. Investors should have done it six weeks ago. They’re trying to do it once all the information is already out. The stock prices already reflect all that information.”
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Steven Morris

Full text: [Chicago Tribune (pre-1997 Fulltext)] Aug 27, 1990

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“This Is Not 1987 . . . This Is a Change of Economic Direction”

A world financial community that barely a month before was characterized by peace and confidence has been plunged into uncertainty and fear of war by Saddam Hussein. The initial shock of Iraq’s invasion of Kuwait fell heavily on US markets, but as the Persian Gulf crisis has unfolded, the action has shifted overseas. The economic impact has been most jarring not in Japan, where the market has suffered most of the year, but in Europe, where markets have had spirited gains largely as a result of the opening of Eastern Europe. The Saddam Hussein market has been most keenly felt in Vienna, but it has also had an impact in Paris and in West Germany. Continued caution is the byword in world markets. It seems likely that gold will regain its traditional role as an inflation hedge. Smart investors may do well to continue to bet on Eastern Europe’s revival.
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Weiss, Gary

Full text: [Business Week] Aug 27, 1990

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Stocks: Catapulting into the Double Digits Series: 10

The median dividend yield of the top 50 banks is currently 7.5%, more than double the 3.7% yield for the Standard & Poor’s 500 stock index, the most often used measure of the overall equity market. The yield, which moves inversely to prices, is calculated by dividing the stock price by the annual dividend. Highest Return at Midlantic “Shorting high-yielding stocks is a relative expensive pursuit because the individual or corporation instituting the sale must make good the dividend to the buyer. Thus, in some cases the stocks drop more than 10% in order for the seller to cover the carry costs,” said Richard X. Bove, an analyst for Dean Witter Reynolds Inc. Covering Short Positions This suggests that if money-center institutions in particular maintain their dividends, as Mr. Bove expects, “substantial pressure” will build on short sellers to cover their positions before the next dividends are announced for these stocks. That would lead to the acquiring of stock, thus giving prices a lift. END
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GORDON MATTHEWS

Full text: [American Banker (pre-1997 Fulltext)] Aug 27, 1990

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