New sign of slowing economy

The index of leading indicators, the government’s main measure of the economy’s direction, fell by a larger-than-expected 0.7 percent in March, its first back-to-back decline in more than a year. “One can make too much of the fact that the indicators have dropped in consecutive months for the first time in over a year,” said Edward A. Treichel, vice president and investment strategist at Van Kampen Merritt Investment Advisory Corp. in Lisle. Leading the fall was a sharp decrease in the number of building permits issued. Other factors pulling the index down were declines in factory orders for consumer goods, the length of the average workweek, consumer expectations, the money supply, factory backlogs and stock prices.
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Sallie Gaines.

Full text: [Chicago Tribune (pre-1997 Fulltext)] Apr 29, 1989

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Indicators’ fall signal slowdown, economists say

Leading the fall was a sharp decrease in the number of building permits issued. Other factors pulling the index down were declines in factory orders for consumer goods, the length of the average workweek, consumer expectations, the money supply, factory backlogs and stock prices.
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Sallie Gaines

Full text: [Austin American Statesman] Apr 29, 1989

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Highs and lows: Experts view market

[Hugh Johnson] is not predicting another crash, but he does think the Dow could easily fall about 270 points from the 2,400 level it reached this month. The fall could be even greater if – as Johnson says – stock prices will climb a bit more before suffering a reversal. Johnson also said that his analytical work suggests that corporate profits aren’t of the same quality as they were in the early 1980s because of changes in the tax laws. By quality Johnson means that companies are not generating as much cash from their operations as they once did. [Joseph Feshbach] says that the dollar has been stabilized and won’t be subject to the wide swings of recent years. That, he says, will bring foreign investors back into the U.S. stock and bond markets. Foreigners, especially the Japanese, have been much less of a factor in the U.S. stock market in recent years because of concern about the dollar.
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John Crudele

Full text: [Star Tribune] Apr 30, 1989

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Wall Streeters Reacted With Collective Yawn to Good News

In 1966, you could buy an average, modest home in the Seattle area for about $16,000. If you had done that and kept the home, today it would be worth somewhere around $100,000 depending, of course, on factors such as location and condition. Many people would tell you now that such a home was one of the best investments you could have made. But suppose, instead, that you had invested $16,000 in 100 shares of Boeing stock. If you had kept that stock through thick and thin-and there were some intervening years when that would have required a lot of faith-your stock today would be worth in the neighborhood of $100,000 –$102,431, to be precise, based on Friday’s closing price of $75.875 a share. (excerpt)
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Buck, Richard

Full text: [Seattle Times] Apr 30, 1989

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WALL STREETERS REACT WITH A COLLECTIVE YAWN TO GOOD NEWS FROM THE BOEING CO.

Last Monday, Boeing announced another split – soon Boeing shareholders will receive one additional share for each two they own now. (The stock price will change accordingly, and each share will suddenly be worth only two-thirds as much.) With a comparable investment in Boeing stock, you would have received thousands of dollars over the years in dividends. After the dividend increase that Boeing announced last week – from 40 cents to 45 cents per quarter – that investment would be sending you a check for $607.50 every three months. In fact, Wall Street seemed almost indifferent last week as Boeing announced several bits of what should have been good news: the upcoming stock split, higher first-quarter profits, the dividend increase and the largest aircraft order in Boeing’s history: $15.7 billion in Boeing jets to be bought by United Airlines.
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RICHARD BUCK

Full text: [Seattle Times] Apr 30, 1989

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THE TIMES 100 THE BEST PERFORMING COMPANIES IN CALIFORNIA VIEW FROM THE STREET Perils of Payouts Low-Yield Stocks Often Out-Perform Big-Dividend Issues

High dividends may look appealing to income-oriented investors. But anyone who blindly selected some of last year’s high-dividend stocks without looking at financial fundamentals would have been courting disaster. Some firms continued to pay high dividends-in one case, payouts were higher than annual earnings per share-even as stock prices plummeted. The result was unusually high dividend yields. PG&E’s lofty ranking stemmed mainly from a drop in its stock price that was precipitated by concern that the company would cut its dividend, which at the time was $1.93 a share. PG&E, which owns the Diablo Canyon nuclear power plant, eventually did cut its dividend 27% in October, 1988, after agreeing to a rate settlement for the plant that resulted in a $1.43-per-share writeoff for disallowed project costs. Analysts say investors shouldn’t rush to buy high-yield stocks until they’ve thoroughly analyzed a company’s underlying financial performance. Investors should also consider historical factors about the dividend itself, experts say, including how long a company has been paying dividends, whether it has missed any dividend payments and whether dividend payouts have risen over time.
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JUBE SHIVER Jr.

Full text: [Los Angeles Times (pre-1997 Fulltext)] Apr 30, 1989

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THE TIMES 100 THE BEST PERFORMING COMPANIES IN CALIFORNIA VIEW FROM THE STREET A Search for Value Not Suprisingly, Thrifts Crowd List of Lowest-Priced Firms

Savings and loans account for 11 of the 25 lowest-priced firms. S&Ls have generally fared poorly when market and book value are compared. The books of many S&Ls carry low-rate mortgages made 20 years ago that are now worth much less, given higher interest rates. S&L stock prices in general have been hurt by the problems of a relative few. And while many institutions have continued to grow and remain profitable, they have suffered on Wall Street. “These are bad times for S&Ls and the good guys are being punished along with the bad guys,” said Allan G. Bortel, a savings and loan analyst with Shearson Lehman Hutton. “It does hurt them when they try raising new equity capital.” Industry analyst Gerlad S. Haims at Seidler Amdec, a Los Angeles brokerage, said there is some concern that federal legislation could force S&Ls like Columbia to beef up its traditional home-mortgage business at the expense of its investments in junk bonds and commercial real estate.
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JESUS SANCHEZ

Full text: [Los Angeles Times (pre-1997 Fulltext)] Apr 30, 1989

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THE TIMES 100 THE BEST PERFORMING COMPANIES IN CALIFORNIA THE HUMAN FACTOR Company Notes

Henley Group Inc.-On Dec. 31, 1988, Henley Group, as it existed last year, was divided into two companies: Wheelabrator Group, (old Henley renamed) headquartered in New Hampshire, and a new company named Henley Group. Shareholders of Henley Group as of April 4, 1988, received on Dec. 31 one share of the Wheelabrator group and 0.225 shares of the new Henley Group for each share of old Henley previously held. After adjusting for this reverse spinoff, stock price appreciation for Henley Group shareholders is 4.5%. Kaufman & Broad Inc. and Kaufman & Broad Home Corp.-On Feb. 21, 1989, shareholders of Kaufman & Broad Inc. (KBI) and Kaufman & Broad Home Corp. (KBH) approved a restructuring plan in which KBI distributed a share of KBH for each KBI share. Immediately before distribution, KBH paid each of its shareholders a special dividend of $4.50 a share. After the distribution, KBI changed its name to Broad Inc. (BRO) and decided to focus on life insurance and financial services businesses under the umbrella marketing name Sun America. Kaufman & Broad Home Inc. will continue to be engaged in regional on-site housing. Results for Kaufman & Broad Inc. do not reflect this distribution because it occurred after year-end 1988.
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Full text: [Los Angeles Times (pre-1997 Fulltext)] Apr 30, 1989

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THE TIMES 100 THE BEST PERFORMING COMPANIES IN CALIFORNIA REGIONAL PROFILES Energy and Aerospace Are the Powers in L.A. Investors, Though, Favor Deal Makers or Merger Targets

The Los Angeles-based real estate development company has a history of attracting negative publicity, including a loud chorus of condemnation over the accelerated cutting of redwood trees after its move into California’s lumber industry in 1986. But investors applauded last year when Maxxam bought KaiserTech, the parent of Oakland-based Kaiser Aluminum & Chemical. Maxxam’s shares rose 225% in the past year, showing the greatest stock price appreciation of all California companies surveyed by MZ Group of San Francisco. Shares of St. Ives, which sells personal-care products under the “Swiss Formula” label, rose primarily because of buyout speculation. Rumors began in March, when Stephen Redding, vice president of Nexxus, a rival personal-care products maker in Santa Barbara, acquired a 5.3% stake. St. Ives’ top two executives control 53% of the shares, ruling out a hostile takeover. But Redding’s purchase still fueled rumors of a possible buyout of public holders. The company’s shares also benefited from 18% revenue growth and a 10% profit surge in 1988. Maxxam topped the state and county rankings of the fastest growing in terms of two-year average sales growth. Acquisitions account for Maxxam’s 158% average growth. But L.A. Gear, best known as a retailer of stylish athletic shoes for teen-age girls, has expanded its product line of apparel and jeans. The company, one of last year’s top-performing stocks, ranked second in revenue growth in the county.
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LINDA WILLIAMS

Full text: [Los Angeles Times (pre-1997 Fulltext)] Apr 30, 1989

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LET’S ESCAPE THESE TRAP DEFENSES

(13) If Minniefield is on active, injured or suspended list of any team during the 1988-89 season, Houston’s second round choice will be conveyed to Cleveland instead of third round choice*. Whichever choice (second or third*) is not conveyed to Cleveland will be conveyed to LA Clippers as part of Maxwell trade 1/16/87, then will go to Chicago as part of Cureton trade 2/11/ 87. Quiz time, courtesy of Detroit assistant Brendan Malone. What high school produced four players who performed in an All-Star Game this winter? (Answer below) . . . Reader Kevin Brown of Springfield informs us that Wayman Tisdale is a backup singer on the number “Slam!” from David Sanborn’s newest album . . . Charlotte president Carl Scheer on Muggsy Bogues: “He played very well within his limitations. Ideally, he’s an 18- or 20-minutes-a-game player. He would be more effective on a team with real runners, but he had to play with people like Kelly Tripucka, Dave Hoppen and Kurt Rambis, who aren’t that kind of player.” . . . Dallas CEO Norm Sonju told Adrian Dantley he would listen to any postseason renegotiation requests AD might have, but a little birdie told me the answers to any and all requests will be succinct, and that the reply will be a two-letter word starting with the letter “n.” Sonju is still furious that, right after the trade with Detroit, Dantley and his agent, David Falk, tried an end run by going directly to owner/ president Donald Carter rather than dealing with him. “Apparently, they didn’t realize I have stock, too,” says Sonju . . . The Lakers will most likely be under the salary cap once Kareem Abdul-Jabbar leaves and a few other things take place. “We’ll be able to spend money for a center,” says general manager Jerry West. “We could structure a contract at $1.5 million, $2 million and, if he’s young enough, a package for $5 million.” . . . The NBA has lost two valued public relations men in Bill Needle of Atlanta and Dave Coskey of Philadelphia. When will owners ever learn that these people are critically important employees who deserve far more than they make? NBA draft words to live by: “Teams may talk small,” says one scout, “but they draft big.” . . . On occasion, too many cooks spoil the editorial pot, and so may I stress that Jay Edwards, late of Indiana University, and James Edwards of the Pistons are not related. The meddling brother in question is a policeman in Marion, Ind. Big James was born and raised in Seattle . . . Quiz answer: The late Power Memorial Academy on New York’s West Side. Abdul-Jabbar graduated from there, and fellow NBA All-Star Chris Mullin went there for three years before transferring to Xaverian. Meanwhile, NHL All-Star brothers Brian and Joey Mullen also went there . . . Longtime Cleveland announcer Joe Tait says there is no comparison between the current Cavaliers and the team that extended Boston in 1976. “That team came out of nowhere and had a great run,” Tait explains, “but the miracle started when we traded for Nate Thurmond and ended when he hurt his knee a year later. It was a one-year happening.” . . . The Gospel according to Sir [Charles Barkley] of Barkley: “New York doesn’t intimidate you. If you play well, you can beat them. You’re afraid to play Detroit. Against them, you’ve got to play as well as you can play because they have so many players who can hurt you. They’ve got a great mentality. When Isiah Thomas got hurt, they wanted to send a message it wasn’t going to make any difference.” . . . Incidentally, Barkley was voted the Southeastern Conference Player of the Decade . . . Friday’s closing Celtics stock price: 13 7/8.
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Bob Ryan, Globe Staff

Full text: [Boston Globe (pre-1997 Fulltext)] Apr 30, 1989

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Principal Gauge Of Economy Declines 0.7% — Leading Indicators’ Drop In March, Second in Row, Is New Sign of Slowing

A second consecutive monthly decline in the government’s principal economic forecasting gauge is another broad sign that the economy is slowing. The index of leading indicators — a composite of 11 measures of economic activity ranging from stock prices to claims for unemployment benefits — plunged 0.7% in March after falling 0.3% in February. It was the first time in more than a year the index has dropped two months in a row. But some economists still see too many signs of strength in the economy to suggest that an actual downturn is imminent. In addition, the index is notorious for signaling recessions that never happen. For instance, the index declined for five months from September 1987 through January 1988, the months surrounding the stock market crash, but the economy didn’t pitch into a recession.
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By Hilary Stout

Full text: [Wall Street Journal] May 1, 1989

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New View of Black Monday: Stocks Advanced to Lower Level

A funny thing is happening on Wall Street as the great stock market crash of 1987 recedes into history. Stock prices have soared back to levels not seen since before Oct. 19, 1987, the Black Monday crash day. Bullish brokers want to make favorable comparisons with the dregs of 1 1/2 years ago — but without rekindling the fading memories of you-know-what. So euphemisms are flying. Some firms, following the lead of the stock exchanges, have policies to avoid “crash” and steer reporters to do likewise. “It’s like Wall Street’s version of ‘I’m sorry Mrs. Lincoln, but how did you like the play?’” says market analyst Laszlo Birinyi, in describing brokers’ attempts to divert attention from Oct. 19. For his part, Mr. Birinyi calls it a crash, but adds that dwelling too much on the big plunge is unhealthy.
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By William Power and Sonja Steptoe

Full text: [Wall Street Journal] May 1, 1989

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April brings broad boom in stocks

Following a correction, however, [Chester Pado] expects the market to continue moving upward. And, if the Federal Reserve moves to reduce interest rates and inflation cools, the market could test or even surpass the Dow’s August 1987 all-time high of 2722.42 by late summer, says Pado. Drexel Burnham Lambert investment strategist Abby Cohen says stock prices may be nearing their peak for the time being. True, first-quarter earnings were strong for many companies. But Cohen says profit gains will be weaker as the year goes on. “The thrill is gone,” from profit gains, she’s telling clients. [Carmine Grigoli], however, notes that “waiting for the second shoe to drop (recession) has been costly” to investors who’ve sat on the sidelines. His market forecast: “Gradual upside progress in the months ahead.” TEXT OF GRAPHIC
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Gary Strauss

Full text: [USA TODAY (pre-1997 Fulltext)] May 1, 1989

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Optimisim for lower rates continues on markets

A post-budget surge in bank stocks – financial institutions escaped a feared special tax grab – gave the Toronto stock market a strong finish last week. Stock prices also rallied in Toronto in hopes of relaxed interest rates. But in New York hopeful signs of easing interest rates were offset by caution over the outlook for corporate earnings. The Toronto Stock Exchange’s 300 composite rose 24.39 points over the week, while the Dow Jones average finished the week with a net gain of 9.34 points. U.S. leading economic indicators continued to fall last month, providing new evidence the economy was slowing. That means lower rates but also may hurt earnings. [Paul Bilzerian] was indicted on 12 counts in connection with multi- million-dollar securities transactions in 1985 and 1986. The U.S. government charges Bilzerian made millions by secretely buying stock in three takeover targets. Bilzerian faces a maximum of 60 years in jail and a fine of either $3 million (U.S.) or twice the profit from each offence.
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Full text: [Toronto Star] May 1, 1989

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Are Changes in Inflation Expectations Capitalized into Stock Prices? A Micro-Firm Test for the Nominal Contracting Hypothesis

The nominal contracting hypothesis argues that changes in subsequent inflation expectations cause a change in the market value of fixed-rate debt instruments, especially long-term debt, which, in turn, should be capitalized into the market price of equity. Little, if any, supporting evidence has been found for the theoretically anticipated wealth redistribution effects of inflation from bondholders (creditors) to shareholders (debtors). Using micro-firm data for the period 1961-1985, evidence is provided in support of the hypothesis. The data consist of 50 semiannual cross-sectional samples of nonfinancial and nonutility corporations drawn from the COMPUSTAT and CRISP files. Model specification is improved by: 1. recognizing explicitly that a firm’s asset and capital structure variables are balance-sheet constrained, and 2. controlling for individual firm risk differences and capital gains taxation.
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Dokko, Yoon

Full text: [The Review of Economics and Statistics] May 1989

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Acquisition And Divestiture Strategy: The Stockholders’ Perc

The impact on shareholder wealth of corporate acquisition and divestiture transactions is examined, and the role of the underlying strategy behind such business recombinations in determining stock market reaction is analyzed. Previous research into the effectiveness of acquisition strategies typically fails to distinguish between strategic motives for making acquisitions. The link between corporate strategy and acquisition-divestiture performance is investigated by examining market reaction to a sample of business recombinations categorized by underlying strategy. The sample consists of 109 acquisition and divestiture transactions occurring during 1983, 1984, and 1985. The results suggest that stock market reaction does not systematically vary with the underlying strategy of the acquisition or divestiture returns.
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Cherin, Antony
Hergert, Michael

Full text: [The Mid - Atlantic Journal of Business] May 1989

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The Regression Tendencies Of Bates: A Reappraisal

In 2 articles, Blume (1971, 1975) argued that betas exhibit a tendency to regress toward the mean of all betas, namely 1.0. This conclusion has been sustained by other researchers. In a study, the thesis that betas regress to the mean was reexamined. It was argued that the thesis has been stated imprecisely, and at least 2 conflicting interpretations were presented. It also was argued that Blume did confirm one version of the regression hypothesis, but common assertions in the academic literature about the behavior of betas go well beyond the scope of Blume’s evidence and are in error. The distribution of betas during the period 1926-1985 was analyzed, and the tendencies of betas to change over time were examined. It was found that extreme betas tend to move toward the mean, while betas near the mean in one period tend to move away from the mean. Because of this, the distribution of betas is approximately stationary over time.
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Kolb, Robert W.
Rodriguez, Ricardo J.

Full text: [The Financial Review] May 1989

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The Regression Tendencies of Betas: A Reappraisal

In 2 articles, Blume (1971, 1975) argued that betas exhibit a tendency to regress toward the mean of all betas, namely 1.0. This conclusion has been sustained by other researchers. In a study, the thesis that betas regress to the mean was reexamined. It was argued that the thesis has been stated imprecisely, and at least 2 conflicting interpretations were presented. It also was argued that Blume did confirm one version of the regression hypothesis, but common assertions in the academic literature about the behavior of betas go well beyond the scope of Blume’s evidence and are in error. The distribution of betas during the period 1926-1985 was analyzed, and the tendencies of betas to change over time were examined. It was found that extreme betas tend to move toward the mean, while betas near the mean in one period tend to move away from the mean. Because of this, the distribution of betas is approximately stationary over time.
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Kolb, Robert W.
Rodriguez, Ricardo J.

Full text: [The Financial Review] May 1989

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The Rationality And Efficiency Of Stock Price Relative To M

Recent analyses have found that stock price reacts only to unanticipated changes in the money supply. These analyses assumed a joint hypothesis of rationality and efficiency in their tests. A model was developed in which stock price depends both upon anticipated and unanticipated money supply forecasts. From the model, an econometric model that separates the hypotheses of rationality and efficiency was estimated. The results indicate that investors rationally incorporated forecasts of the weekly current money announcement into stock price during the pre-October 6, 1979, sample period. However, efficiency with respect to money information could not be corroborated during this period of time. Cross-equation restrictions implied by rationality were rejected for the post-October 6, 1979, period, and efficiency gains could not be corroborated. Alternative money prediction specifications supported the robustness of the results.
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Foote, William G.

Full text: [The Financial Review] May 1989

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The Rationality and Efficiency of Stock Price Relative to Money Announcement Information

Recent analyses have found that stock price reacts only to unanticipated changes in the money supply. These analyses assumed a joint hypothesis of rationality and efficiency in their tests. A model was developed in which stock price depends both upon anticipated and unanticipated money supply forecasts. From the model, an econometric model that separates the hypotheses of rationality and efficiency was estimated. The results indicate that investors rationally incorporated forecasts of the weekly current money announcement into stock price during the pre-October 6, 1979, sample period. However, efficiency with respect to money information could not be corroborated during this period of time. Cross-equation restrictions implied by rationality were rejected for the post-October 6, 1979, period, and efficiency gains could not be corroborated. Alternative money prediction specifications supported the robustness of the results.
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Foote, William G.

Full text: [The Financial Review] May 1989

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