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Hopes are spreading on Wall Street that the Federal Reserve will lower interest rates and raise stock prices in the summer of 1989, courtesy of an easier credit policy.
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Full text: [Boston Globe] May 28, 1989
CPI Corp. has adopted a poison pill plan to discourage possible takeover attempts aimed at raiding the firm’s swollen coffers. CPI, a St. Louis-based consumer services company, earlier this month adopted a shareholder rights plan designed to thwart certain hostile takeover attempts. Under the plan, the shares of any person or group attempting to gain a controlling interest in CPI would be diluted through a preferred stock offering, according to an 8-K filing with the Securities and Exchange Commission. The stock offering would be triggered by an individual or group acquiring 20 percent or more of CPI’s outstanding stock or an announcement of intention to acquire 30 percent of outstanding stock. The rights offering, if enacted, would not interfere with any merger or other business agreement approved by CPI management, according to the document. (excerpt)
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Moore, Rob
Full text: [St. Louis Business Journal] May 29, 1989
Although profitable times have returned to Wall Street, not all institutional investors believe that good times will last. The market’s surge has led many participants to claim that the market is on a continuing upswing. Some say the Dow Jones Industrial Average could attain 3000 this year. The Dow has risen more than 14% from its December 30, 1988, close of 2168.57. After a drop in US producer prices and declines in interest rates, it reached a post-crash high of 2502.02 on May 22, 1989. Some of Wall Street’s prominent portfolio strategists are changing their recommended asset mix, but more than half of the investment executives interviewed by Pensions & Investment Age were far from bullish. Merrill Lynch & Co., Goldman, Sachs & Co., and Salomon Brothers Inc. have recommended increasing equity allocations by reducing cash. Wall Street’s predictions do not seem to be impressing many pension fund executives and their investment managers.
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Price, Margaret
Ring, Trudy
Full text: [Pensions & Investment Age] May 29, 1989
Sensing an opportunity and a strengthening equity market, nearly a dozen companies have issued more than $660 million of convertible securities since the first week of May 1989, bringing new vitality to the slumping convertibles market. The issuers include small growth companies and larger firms. Investors are purchasing securities in the search for attractive equity alternatives, and many recent issues have been oversubscribed. Convertibles are attractive for issuers that can obtain a 25% to 30% premium on their stock price and a low coupon. The most recent issuers are using the proceeds to retire high-cost debt, build working capital, expand operations, and make acquisitions. There are several factors that account for the resurgence of convertibles, including the recent strength of the equity market and softening interest rates. Institutional investors are eager to add to their portfolios, but several money managers say they cannot find enough attractive convertibles to meet their needs.
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Parker, Marcia
Full text: [Pensions & Investment Age] May 29, 1989
Above all, the Federal Reserve could drive down the dollar’s value by relaxing its anti-inflation policy. But Fed officials indicated that fighting inflation remains their top priority. ”It would not be a good idea to upset price stability in the pursuit of dollar devaluation,” Wayne Angell, a Fed governor, said. Most of Mr. [Thomas J. Palladino]‘s numerous trades were based on the assumption that the dollar would keep rising. ”No one thought it would get above 1.90 marks,” he said, ”and once it did, there was a willingness to try to push the dollar as high as possible.” ”Some foreign businessmen needed dollars to finance deals in this country, and some American corporations took the opportunity to convert money earned abroad into dollars,” Mr. [John Hackett] said. ”But they have done so with trepidation because nothing has changed that much in the U.S. economy.” Looking for Explanations
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UCHITELLE, LOUIS
Full text: [New York Times] May 29, 1989
Barry Sahgal, director of research at Ladenburg, Thalmann & Co. (New York), who has been covering the energy industry for 15 years, says that the independent oil refiners are experiencing a surge in profits. This brighter outlook can be expressed in a measure called the “crack spread,” which is the difference between the forward prices for gasoline and crude oil for the same month, as quoted on the New York Mercantile Exchange. Sahgal explains that the crack spread represents what would be the gross margin in other industries, and notes that the profitability of the refining industry is directly correlated to the spread. The crack spread widens when gasoline prices rise faster or fall more slowly than crude’s price. Since December 1988, it has widened dramatically, from under $4 to over $9.50. The independent refiners clearly receive the greatest benefit from this. Investments in the category of independent refiners that may be worth considering include Sun Co. and Diamond Shamrock R&M.
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Chakravarty, Subrata N.
Full text: [Forbes] May 29, 1989
The decision last week by LIN Broadcasting Corp. to spin off its group of seven television stations into a separate company strengthens the prospects that LIN, which will retain its valuable cellular phone business, will be acquired. That, analysts agree, means that Manhattan-based LIN remains a strong stock buy. Trading last Friday over the counter at 101, up 4 3/4 the day after the planned new subsidiary was announced, LIN is described by analysts as reasonably priced. The stock closed the week at 103 1/2, up 5, or 5.1%. (excerpt)
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Beschloss, Steven
Full text: [Crain's New York Business] May 29, 1989
With Essef Corp.’s biggest customer placing orders once again, the company’s stock appears undervalued, two local analysts say. But what will happen beyond the next few quarters is anybody’s guess for the Chardon-based maker of plastic products used in computers, business machines, water treatment systems, swimming pools and spas. Last year, International Business Machines Corp. sharply curtailed its orders for Essef’s line of plastic housings for small computers. As a result, sales in Essef’s business machine and computer division tumbled 41% in the fourth quarter of fiscal 1988, which ended Sept. 30 of last year, and 65% in the first quarter of the current fiscal year, compared with the year-earlier periods. (excerpt)
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Barnes, Jon
Full text: [Crain's Cleveland Business] May 29, 1989
With the US dollar at its highest level since 1986 and Federal Reserve and Bush Administration still undisturbed by the dollar’s rise, traders predict the currency will gain an additional 10% or more in weeks ahead. The rising dollar can only help the Fed’s tight-money campaign to limit inflation and slow the economy. Merely stabalizing the dollar at its current level, around 1.97 deutsche marks and 139 yen as of May 17, 1989, will reduce the US inflation rate by 2% by 1991. Unless the Fed lets interest rates fall, which is highly unlikely, the slowing economy may restrain imports and keep the trade deficit from worsening. With the dollar and US bond and stock prices all rising, foreign money managers are worrying that they will lose the chance to reap large capital gains unless they move now. Although many economists warn that the rise in the dollar may trigger higher interest rates and an ensuing recession, investors do not want to miss the gains possible now.
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McNamee, Mike
Glasgall, William
Full text: [Business Week] May 29, 1989
In April and May 1989, as the evidence of a slowing economy started to grow, the Dow Jones industrial average climbed over 200 points, or about 10%. About 1/4 of that move occurred May 12, when the market surged 57 points on some of the heaviest volume seen all year. The reason for the rally was simple: The producer price index, a key inflation indicator, showed a 5.5% annualized rate of increase for March and April, compared with the frightening 12.6% increase for January and February. The possibility of a “soft landing” appears to be driving the market. Proponents of the soft landing theory argue that the economy is slowing dramatically and the Federal Reserve will soon respond and that, with the dollar so strong, the Fed can now allow interest rates to fall. Due to the strong dollar, foreign buyers, who have been scarce since the October 1987 crash, want to own dollar-denominated securities again. Still, a new bull market will depend on a soft landing.
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Laderman, Jeffery M.
Full text: [Business Week] May 29, 1989
John H. Harland Co. is the 2nd-largest printer of bank checks in the US. Despite predictions of the demise of the personal check, Harland is on its way toward its 36th consecutive year of higher profits and dividends and its 40th year of higher sales, a record unsurpassed by any US exchange-listed company. According to the Electronic Funds Transfer Association, the number of home-banking and point-of-sale debit transactions, the largest threats to check writing’s future, is small and increasing very slowly. Harland, meanwhile, is busily expanding, and the rapid growth it has attained for the past 40 years has made it a good generator of cash. In the first quarter of 1989, the company’s net sales grew to $83.7 million from $80.8 million for the same quarter in 1988, and it experienced a 15.6% gain in operating income and a 10% increase in net income.
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Wyatt, Edward A.
Full text: [Barron's National Business and Financial Weekly] May 29, 1989
Banta Corp., a printing and graphics services company, experienced high sales and profits in 1984 from producing and assembling the popular game, Trivial Pursuit. However, 3 years of declining-to-flat earnings followed. From a growth standpoint, 1988 and 1989 are shaping up as much more significant for Banta than 1984. A big move came in April 1988 with the acquisition of Beddor Cos., which nearly doubled Banta’s size by increasing sales over a half-billion dollars in 1988. Accordingly, Banta has moved into the upper tier of graphics services companies. Banta’s sale of its Daniels Packaging subsidiary is expected to result in a sizable one-time gain for the company. Apart from that gain from a transaction estimated at $35 million-$40 million, Banta stands a good chance of record earnings of $1.90 a share or better in 1989. Banta has maintained an active program of plant and equipment modernization.
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Byrne, Harlan S.
Full text: [Barron's National Business and Financial Weekly] May 29, 1989
Wall Street is optimistic about the airline industry’s stock prospects. Airline stocks are higher because of improved financial performance and takeover speculation. US airline profits continue to improve as the industry has overcome the uncertainties caused by deregulation. However, Wall Street remains wary of defense contractor stock performance as the national military budget continues its slow decline. Meanwhile, defense stocks are trading at discounts reminiscent of 1971. Declining defense spending and procurement programs are raising questions about the weakening of the US defense industrial base. Electronics is playing an increasing role in military systems, with an emphasis on software development and systems integration. US airframe builders and their suppliers are still ramping up slowly. The end of large military programs and the poor prospects for new projects have prompted defense contractors to make large cutbacks in skilled and semiskilled workers.
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Full text: [Aviation Week & Space Technology] May 29, 1989
The US aerospace industry employment of skilled and semiskilled production workers declined 4% in 1988, mainly because of reduced spending in military aircraft. The Aerospace Industries Association (AIA) expects another 1% decrease in the number of workers involved in military aircraft manufacture in 1989. The Pacific states account for 42% of aerospace workers. The New England states account for 14%, and the western North Central states have 11%. Wages for skilled and semiskilled aerospace workers are increasing slightly each year. The increases are due to cost of living raises, not by hikes in hourly rates. To attract workers and be competitive, virtually all major aerospace companies continually review their benefits packages and wage structures. Additional employment for the industry would be provided by: 1. the US space station, and 2. the military service procurement of additional missile systems. The number of females employed in the industry increased more than 4% between 1977 and 1987.
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Full text: [Aviation Week & Space Technology] May 29, 1989
US defense contractors are faced with the concurrent, mutually reinforcing problems of declining stock values, looming Pentagon budget cuts, and reforms in the corrupt weapons procurement system.
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Full text: [Aviation Week & Space Technology] May 29, 1989
Some investors seem to be reminded they should take such action each time the market passes a milestone, as it did last Monday when the Dow Jones Industrial Average reached a post-crash high of 2502.02. After that, the Dow slipped 24 points — in “profit-taking,” the pundits said, as you may have guessed — before recovering a bit to close Friday at 2493.77. Nonetheless, at some point all investors do want to take their profits. Some, notably the hedge funds and the big brokerage houses that are trading for their own account, seek profits on a short-term basis, sometimes buying and selling a stock in a matter of minutes or hours. Big instititonal investors such as pension funds take a longer view, perhaps holding a stock anywhere from six months to several years. And the most conservative investors may hang on to certain stocks for decades. For analysts and money managers who don’t trade stocks on a minute-by-minute basis, the current six-month rally in stock prices puts them in a quandary. With the Dow Jones Industrial Average up some 455 points, or 22%, they’re wondering how much more prices can rise.
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By Douglas R. Sease
Full text: [Wall Street Journal] May 30, 1989
Bulls have bid up many of these consumer-specialty stocks by 50% to 100% just this year. The favorites range from companies catering to the affluent, such as Sotheby’s Holdings and Tiffany, to more democratic types, including Walt Disney, L.A. Gear, Office Club and Home Depot. Many of the consumer-niche stocks now trade at very lofty multiples of earnings, perhaps setting them up for a fall. Yet so far they seem stubbornly resistant to bad news, and often spring back after a selloff. Bears who have wagered that the stocks would plummet have mostly lost money. What’s going on? With the economy uncertain, many investors are wary of industrial stocks. They’ve been burned too often by takeover plays that fizzled and by shares of technology companies in businesses that are difficult to understand, analysts say. So they’re seeking simple, more traditional investments that seem to offer reliable profit growth.
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By Linda Sandler
Full text: [Wall Street Journal] May 30, 1989
The recent surge in stock prices means the chance for companies taken in leveraged buyouts in the last five years to go public again and reap fortunes before a general business slowdown affects sales.
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Kadlec, Daniel
Full text: [USA TODAY] May 30, 1989
Edper Enterprises, fief of the Toronto Bronfmans, said it has filed a preliminary prospectus for its issue of class A subordinate voting shares. The share issue, announced earlier this month, is part of a major overhaul within the Bronfman empire. Investors appear to be waiting for this Friday’s release of U.S. unemployment figures covering May. News of slower employment growth could provide yet another sign that the U.S. economy, rather than crashing into a recession, could be in for a soft landing.
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Full text: [Toronto Star] May 30, 1989
Such skepticism about the rally’s strength is widespread. In fact, as the Dow climbed past 2,500, individuals and portfolio managers at banks, insurance companies and mutual funds have demonstrated no signs of euphoria. ”Most of the public and most of the professionals are more pessimistic than I’ve seen,” said John Templeton, a mutual fund manager who has been a professional investor for 49 years. ”I like it that they’re all saying it’s late in the game,” said Barton M. Biggs, investment strategist at Morgan Stanley & Company. He is one of a small group of investors who think that this year the Dow can exceed its high of 2,722.42, even though such an advance, he said, would encounter ”a lot of psychological traffic.” Worries About Fed Tightening ”There’s no way out without a hangover, and it’s coming,” predicted Joseph J. McAlinden, director of research at Dillon, Read & Company. Even though he thinks the market could rally past its old high, individuals should stay out of the market because it will not last, he said. Factor of Earnings Estimates
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WALLACE, ANISE C.
Full text: [New York Times] May 30, 1989