Fund Managers Vary Approach to Market Swing

Measuring the total return variations explained by shocks to expected cash flows, time-varying expected returns, and shocks to expected returns is one way to judge the rationality of stock prices. Variables that proxy for expected returns and expected-return shocks capture 30% of the variance of annual New York Stock Exchange value-weighted returns. Growth rates of production, used to proxy for shocks to expected cash flows, can explain 43% of the return variance. However, because production growth rates, expected returns, and shocks to expected returns are all related to business conditions, the combined explanatory power of the variables – about 58% of the variance of annual returns – is less than the sum of their separate explanatory powers. It is concluded that a large fraction of the variation of stock returns can be explained, primarily by time-varying expected returns and forecasts of real activity.
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Diamond, Jonathan

Full text: [The Journal of Finance] Sep 1990

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FUTURE SPIN

Oil price impact: The stock market is in the rare situation of having its primary influence being oil prices. Crude costs fell sharply last week, so stock prices jumped higher. This direct relationship will last until the Persian Gulf crisis plays out. Then it’s back to the old fundamentals: corporate earnings, interest rates, the federal deficit. Smart stock specialists are keeping an eye on those indicators as well as the Middle East, and many don’t like what they see. The current train of thought: if peace is reached in the Persian Gulf, expect a celebratory rally — followed by a “reality” downturn. Paying the tab: As the superpower amassed its tanks and planes in the Mideast last week, its top diplomats got out their beggar’s cups and prepared to seek a way to pay for the expeditionary force. That spectacle may help to explain why the dollar has been far weaker in this world crisis than in previous ones.
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From Register news services

Full text: [Orange County Register] Sep 3, 1990

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Buyers active at Zero Corp., Hilton

Zero Corp. — On Aug. 17, Director Roger L. Putnam purchased 10,000 shares at $11.13 each. This buy is interesting because of Putnam’s good trading history in Zero Corp.’s shares. His last purchase preceded a 30 percent rise in the stock price over six months. Calfed Inc.: Lew E. Coppersmith, director, indirectly purchased 2,000 shares of common at $10 per share on Aug. 3 and now indirectly holds 4,000 common. Richard M. Greenwood, vice president, purchased 1,200 shares of common at $9.50 per share on Aug. 7 and now directly holds 1,200 common. Chesapeake Industries Inc.: Peter W. Johnson, vice president, acquired by gift 9,500 shares of common at $1 per share on July 31 and now directly holds 39,692 common. Hilton Hotels Corp.: Robert C. Moore, vice president, purchased 500 shares of common at $36.75 per share on Aug. 17 and now directly holds 2,700 common. John V. Giovenco, vice president, sold 20,000 shares of common between $35.63 and $35.38 per share on Aug. 22 and no longer holds shares in the company.
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Special to the Register

Full text: [Orange County Register] Sep 3, 1990

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Stocks Firm In Tokyo

”Because of the Labor Day holiday in New York, many people don’t know what sort of attitude to take to the market,” said Daniel Marull, a trader at Sanyo Securities here. ”We had good volume for the past four days, but it will be very weak today.” Dealers here are focusing on how the United States Federal Reserve and the West German Bundesbank will react to last week’s three-quarters of a percent rise in the Bank of Japan’s discount rate, to 6 percent.
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Reuters

Full text: [New York Times] Sep 3, 1990

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Banks Brace for Impact for FDIC Insurance Boost

The Federal Deposit Insurance Corp.’s plan to boost insurance premiums by more than 60 percent next year is expected to cut short-term earnings and stock prices for many area banks. Stung by the failure of the federal savings and loan insurance fund and the ongoing financial problems of many large commercial banks, regulators hope the proposed increase in fees that the FDIC charges banks to protect depositors will keep the fund viable. But it’s a cost that bank executives say would hurt bottom lines. They also say it’s an expense their customers ultimately would bear. (excerpt)
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Tosto, Paul

Full text: [Minneapolis / St. Paul CityBusiness] Sep 03, 1990

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WEEKLY SCORECARD STOCK GROUP WINNERS & LOSERS Best- and worst-performing industries and companies in each group, with closing stock price, for the week ended Aug. 31. Only stocks trading for $1 or higher are included.

3) Freight, shipping: +7.2% Nortankers Inc. (9): +28.6% 6) Nonferrous metals, coal: -0.9% General Metals (1 5/8): -18.75% TABLE: STOCK GROUP WINNERS & LOSERS
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Full text: [Los Angeles Times (pre-1997 Fulltext)] Sep 3, 1990

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Workouts? No! This Lender Forecloses

Like other lenders who underwrote the city’s real estate spree of the 1980s, BRT Realty Trust is struggling with mounting nonperforming loans. But unlike most other lenders, this real estate investment trust, located in Great Neck, L.I., is not averse to taking over property collateralizing its $200 million loan portfolio. Rather than restructure its bad loans, as most financial institutions are doing, BRT Realty is moving quickly to foreclose. “More often than not, the borrower has problems in a multitude of places,” says BRT Chairman Frederic H. Gould. “We’re best off seeing that the income stream from our properties is not used elsewhere.” (excerpt)
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Grant, Peter

Full text: [Crain's New York Business] Sep 03, 1990

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Photo House Smudges Once-Sharp Future

There was a time when the investment community might have been more patient with a growth company like the Image Bank — a leader in the $15 million stock photo business with 53 worldwide offices, and the only publicly held company in its industry. But Wall Street is neither kind nor gentle anymore. When the Image Bank recently announced it would have to take a $700,000 writeoff because of unutilized foreign tax credits, the unexpectedly poor earnings pummeled the stock. Shares were trading around $8.50 in March, fell with the general market slide to $5 in early summer, then plunged to less than $4 after third-quarter earnings were released last month. (excerpt)
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Gault, Ylonda

Full text: [Crain's New York Business] Sep 03, 1990

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Commodore Vanderbilt, Meet Ahmad Bayaa

Southland Communications Inc. (Santa Ana, California) provides paging service to 48,000 customers under the name of National Paging Co. The company’s stock trades as high as 17, making it worth some $40 million. However, the Securities & Exchange Commission (SEC) is charging that Southland President Ahmad Bayaa and Atlanta, Georgia, broker Shaw Tehrani masterminded an elaborate scheme to inflate Southland’s stock price. Bayaa and Tehrani are accused of manipulating the stock and violating basic SEC disclosure requirements. Bayaa has denied any wrongdoing to the SEC. The regulators charge that, on March 3, 1990, Tehrani and Bayaa enlisted friends and relatives to buy Southland stock on margin to drive up the price. These friends and relatives refuse to pay the margin calls made on their stock purchases, and the brokerage firms are left with the bill. There is nothing new about cornering the market for a stock. For example, 19th-century railroad tycoons such as Commodore Vanderbilt were known for snatching up their own companies stock to drive off short sellers. That was before strict laws outlawed the practice.
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Schine, Eric

Full text: [Business Week] Sep 3, 1990

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Georgia-Pacific Earnings, Stock Price Take a Tumble

Slow demand within the paper industry, a weakness in commercial and residential construction, and high financial leverage led Georgia-Pacific to report lower second quarter net income compared to a year ago, but analysts are still bullish on the company’s stock. Georgia-Pacific shares, now trading in the mid-40s, are down about 25 percent from their 1989 high — among the largest drops in the paper and forest products industries, says Cornelius Sewell, an analyst with Argus Research Corp. And the company’s earnings have plummeted 30 percent so far this year, mostly due to a drop in rates intended to meet slower demand. (excerpt)
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Bueno, Jacqueline

Full text: [Atlanta Business Chronicle] Sep 03, 1990

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Tokyo Shares Fall Sharply on Rumors of Probe of Possible Stock Manipulation; London Gains

Tokyo stock prices fell sharply in Monday’s afternoon session as speculative shares were sold on rumors that financial authorities had begun investigating the possible stock manipulation behind recent stock price surges of Honshu Paper & Pulp. The Nikkei index of 225 selected issues was down 557.94 points at 25,420.43. The index gained 308.41 points Friday to 25,978.37 as stocks rose in moderately active trading Friday, fueled by buying on speculative issues. Among sharp losers was Honshu Paper, which lost 500 yen ($3.46) to finish at 4,380 yen. The issue rose 1,020 yen in the week of Aug. 23 as rumors on buying by a speculator group prompted buying by dealers and individual investors. However, as rumors on the investigation were spread on the market Monday afternoon, losses extended to other shares that had also been bought on rumors of speculative buying, traders said.
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Full text: [Wall Street Journal] Sep 4, 1990

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Japan Stock Market Suspends 4 Firms on Charges of Manipulating Stock Prices

Officials sent a clear signal that they intend to crack down on improper trading when the Finance Ministry and Tokyo Stock Exchange moved Friday to punish four securities firms — including a Citicorp subsidiary — that allegedly participated in a stock-rigging scheme earlier this year. The ministry said that it will temporarily suspend the licenses of four securities houses — Daiwa Securities Co., National Securities Co., Ace Securities Co. and London-based Citicorp Scrimgeour Vickers Co. — as punishment for their role in assisting a prominent corporate raider’s attempt to artificially inflate the stock of one of Japan’s largest hotel and restaurant chains. In separate statements, the firms acknowledged their roles. The Tokyo Stock Exchange, following a rule in its articles of association that require it to impose concurrent penalties, said it would suspend those same offices’ trading privileges on the exchange for those days. In addition, the exchange summoned representatives of the four firms and imposed fines of 500,000 yen ($3,500) on each company — the maximum financial penalty the exchange can exact.
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Chandler, Clay
Brauchli, Marcus W

Full text: [Wall Street Journal] Sep 4, 1990

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Investors Kept Cool in August Slide, Picking Stocks with Rising Profits

Among the ten stocks that rallied the most, even as the Big Board’s Composite Index — the broadest measure of the exchange’s common stocks — fell 9.06%, are shares of companies showing an earnings turnaround, strengthening their balance sheets, or that are in the energy business. Takeover stocks were the two biggest gainers. Unlike the prestige group of high-growth issues that dominated investors’ attention for the first half of the year, many of the winning stocks trade thinly and are shares of companies reporting better earnings for the first time in a long while. Indeed, some of these stock prices are low because of a history of bad earnings; small price advances produce big percentage gains. Bolt Beranek & Newman, a Cambridge, Mass., technology company, earned 21 cents a share in its fiscal fourth quarter ended June 30, compared with a loss of $1.27 a share in the same period a year earlier. Also, the company plans to buy back $15 million of its long-term debt, and about 700,000 shares of stock, to strengthen its balance sheet. Analysts are wary of recommending the stock yet because of prior losses. But Steven B. Frankel, vice president at Adams, Harkness & Hill, says he is convinced the company has “a storehouse of valuable technology.”
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Torres, Craig
Winans, Christopher

Full text: [Wall Street Journal] Sep 4, 1990

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PAIR FROM U.VA. PONDER TWISTS IN TALE OF RESEARCH AND ROYALTIES

Perhaps more unusual is the attention the U.Va.-patented drug has received in financial journals. Since it went on the market late last year, Adenocard has prompted frequent stock price fluctuations in the relatively unknown company that U.Va. made the licensee of Adenocard. For U.Va., publicity about Adenocard is welcome since its success could bring substantial profits to the school’s research programs. That is because the university gains a share of profits from inventions handled by U.Va.’ s private patent foundation, which in turn gets its operating funds from royalty proceeds. In setting up the non-profit foundation, U.Va. joined hundreds of other universities hoping to cash in on faculty inventions. As a condition of employment, U.Va. scientists seeking patents must do so through the foundation as a form of payback for using U.Va. lab facilities.
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Ruth S. Intress

Full text: [Richmond Times - Dispatch] Sep 4, 1990

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Pinnacle West stock drops in wake of PacifiCorp pact

”If there is the slightest bit of news, traders are poised to begin selling,” said Kazuhiro Nomura, a stock trader with the New Japan Securities Company in Tokyo. ”There is no mood to buy,” one trader said. ”There are no new bullish incentives.”
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Dawn Gilbertson, THE PHOENIX GAZETTE

Full text: [Phoenix Gazette] Sep 4, 1990

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Stocks Quiet On Markets Overseas

”If there is the slightest bit of news, traders are poised to begin selling,” said Kazuhiro Nomura, a stock trader with the New Japan Securities Company in Tokyo. ”There is no mood to buy,” one trader said. ”There are no new bullish incentives.”
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The Associated Press

Full text: [New York Times] Sep 4, 1990

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Trading light, but market edgy/Stock prices drop 2 percent in Tokyo, rise a bit in London

“If there is the slightest bit of news, traders are poised to begin selling,” Kazuhiro Nomura, a stock trader with New Japan Securities Co. in Tokyo. The Hong Kong index closed at 2,014.77, down 13.60 points, while the Hang Seng index finished at 3,066.81, off 20.69 points. Turnover was $100 million. The dollar started its day with a decline in Tokyo, closing at 143.55 yen, down 0.95 yen from Friday’s close.
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Full text: [Houston Chronicle (pre-1997 Fulltext)] Sep 4, 1990

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Hong Kong Ally Gives Wells New Global Cash Tool

Through Hexagon, Wells’ corporate customers can use a personal computer to manage their worldwide cash positions, initiate payments, and get information on foreign exchange rates and stock prices, Wells said. Hexagon is the first product of the Hong Kong bank used by Wells since they signed an alliance last year. Hongkong and Shanghai handles Wells clients outside the United States, and Wells will do the same for the Hong Kong bank’s customers in California.
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RICHARD LAYNE

Full text: [American Banker (pre-1997 Fulltext)] Sep 4, 1990

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CAPITAL: Big Banks’ Market Value Stable in 2d Quarter

A combination of a more bullish interest rate outlook, a broad market rally, and banks’ ability to increase their market capitalization through dividend reinvestment programs also bolstered many banks’ market capitalization between March 31 and June 30, analysts said. Republic on Top “Absent a really severe national recession, I really don’t think we’re going to see a really severe change in the upper Midwest,” said Ben B. Crabtree, an analyst at Minneapolis-based Dain Bosworth Inc. Southeast Is Weak Dominion Bankshares also lost 23.8% of its market capitalization. But Mr. O’Meara said Dominion’s prospects are brighter than Southeast’s. The bank’s stock price was battered in the second quarter, when Dominion reported the results of its examination by the Office of the Comptroller of the Currency. But its second-quarter results indicate Dominion is back on track, he said. First American Slides
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KELLEY HOLLAND

Full text: [American Banker (pre-1997 Fulltext)] Sep 4, 1990

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Stocks Rebound to Finish Mixed as Trading Is Extremely Light

Stock prices closed mixed as some late bargain-hunting blunted the impact of an early sell-off, sparked by a surge in oil prices and further evidence of weakness in the economy. Broader market indexes managed to post modest gains. Standard & Poor’s 500-Stock Index went up 0.53 to 323.09, the New York Stock Exchange Composite Index gained 0.16 to 177.13 and the Dow Jones Equity Market Index added 0.44 to 299.25. One big question in investors minds is the future of corporate profits. Weak dividend payments may be one indication that profits are in a downturn. Yesterday, Standard & Poor’s Corp. said that the number of companies decreasing dividends rose to 81 in the year to date through August, compared with 57 in 1989. Companies omitting dividends rose to 166 compared to 89 for the same period last year. The number of companies boosting dividends shrank to 904 for the period, compared with 1,155 in the same period a year earlier.
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Wilson, David

Full text: [Wall Street Journal] Sep 5, 1990

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