STOCKS TUMBLE Series: BUSINESS DIGEST

DOW DOLLAR BONDS 30 INDUSTRIALS VS. JAPANESE YEN 30-YEAR U.S. 2593.32 144.10 yen 8.97% -39.11 +0.55 +0.02 Wall Street’s four-day reprieve from worries about the economy and the Persian Gulf ended Thursday as stock prices fell sharply in response to higher oil prices and rising interest rates. The Dow Jones average of 30 industrial stocks fell 39.11 points to 2,593.32. The price of light, sweet crude rose 85 cents to $26.77 a barrel on the New York Mercantile Exchange. In the credit markets, the yield on 30-year Treasury bonds climbed to 8.97 percent. Those developments followed Japan’s central bank’s decision to raise its main lending rate to 6 percent, underscoring concern about the Federal Reserve’s willingness to lower U.S. interest rates. PLAZA SALE DENIED. A spokesman for Donald Trump on Thursday denied a newspaper report that Trump plans to sell the Plaza Hotel in Manhattan to raise cash. “Absolutely not. It’s not true,” said Norma Foederer, a spokeswoman for The Trump Organization, referring to the report in the New York Times. “I don’t know where they got that story.” The Times reported that Trump Organization sources said Trump is pushing for a sale of the Plaza. The developer would need the cash to meet a Nov. 15 deadline for a $47.3-million interest payment on casino bonds.
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Anonymous

Full text: [St. Petersburg Times] Aug 31, 1990

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Analysts: USAir Woes Won’t Affect Berkshire

A decline in the common stock price of USAir Group Inc. is not expected to have an effect on Berkshire Hathaway Inc. of Omaha, which holds 358,000 shares of preferred stock issued by the airline, analysts said. USAir’s stock has been hovering in the range of $16 to $17 per share as the management of the nation’s sixth-largest airline tries to come to grips with industry competition and rising expenses, the Wall Street Journal said this week. As long as USAir continues to pay dividends on its preferred stock, Berkshire will not be affected by the drop in common stock value, said Clifford S. Hayes, vice president with Wallace R. Weitz & Co. of Omaha, an investment company.
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Melinda Norris

Full text: [Omaha World - Herald] Aug 31, 1990

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Stocks Fall As Trading Dries Up

One trader said yesterday’s market drop was ”really not very meaningful.” He said the market’s moves next week, when a flurry of economic data are scheduled for release, could be ”much more important.” ”It’s not because you’re bearish or because war could break out,” he said, referring to yesterday’s selling. ”It’s because you’re coming into a three-day weekend and you certainly aren’t going to hold positions until Tuesday.”
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COLE, ROBERT J.

Full text: [New York Times] Aug 31, 1990

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New England Bank Stock Off

”This is a sad day for Massachusetts, as the F.D.I.C. has recommended the liquidation of Bank of New England,” the statement said, referring to the Federal Deposit Insurance Corporation. Lawrence K. Fish, the bank’s chairman and chief executive, later issued a statement saying the ”surprising and harmful rumors that have been circulating about Bank of New England during the last several days are completely untrue.”
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The Associated Press

Full text: [New York Times] Aug 31, 1990

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Market Place; Fund Investors Remain Steadfast

”Over all, the cash outflow in August was just a little larger than July’s net inflow,” said Jane Nelson, a spokeswoman for T. Rowe Price. At the Vanguard Group, Brian Mattes, a spokesman, referred to ”an incredibly small outflow” from stock funds. ”The reaction has been very muted, given the extreme stress the market has been under,” he added. Stock prices fell sharply for much of August, although they recovered to some extent early this week. ”We’re not seeing people aggressively selling their funds,” reported Robert Leo, the director of mutual funds at Shearson Lehman Brothers. ”I think a lot of people are aware this thing can turn very quickly.” Investors’ reluctance to dump stock funds when prices fell stands in sharp contrast to the reaction in 1987, when there was intense selling after the crash and the flow of new purchases dried up. ”Everybody was concerned we’d run into one of those crunches like 1987,” said Mr. [Henry Schmelzer] of New England, ”but it was pretty much business as usual.”
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Norris, Floyd

Full text: [New York Times] Aug 31, 1990

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Japanese Markets Rally After Central Bank Raises Rate

Eishiro Saito, the chairman of the Federation of Economic Organizations, which represents Japan’s biggest companies, noted that the Japanese economy was generally healthy and thus could withstand higher rates. But he added, ”The problem is how the higher rate will affect the U.S. economy and foreign exchange rates.” Mr. [Yasushi Mieno] indicated that the central bank would have to remain ”flexible” and consider further rate increases if the Persian Gulf crisis pushes oil prices even higher. Japan imports nearly all of its energy supply. ”The central bank is catching up with the the market, but they’re not ahead of it,” said Robert Alan Feldman, an economist with Salomon Brothers Asia. ”At this point, three-quarters of a point is not enough, and you could well see another move later.”
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JAMES STERNGOLD, Special to The New York Times

Full text: [New York Times] Aug 31, 1990

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Economic Scene; Thai Stock Boom Grinds to a Halt

Fund II seemed to help this time, too. The S.E.T. index, as it is called, made gains of some 60 points a day early this week, and there was a general easing of concern. On Thursday the index closed at 839.80. Nevertheless, some economists contend that the Government intervened too quickly. ”I think the fund created an artificial bottom faster than necessary,” said Chesada Loha-unchit, managing director of Tara Siam Business Information Ltd., a leading Thai research institute. ”The bottom was very near, but a lot of people with confidence in the market didn’t want to buy before the bottom. I think the authorities were too nervous.” The main worry, he said, is inflation in real estate, ”which has a lot of froth.” But compared to 1979, he said, when imported crude oil filled 80 percent of Thailand’s energy needs, the figure today, after natural gas development, is 40 percent, representing only 9 percent of total imports. Thailand also has a new Finance Minister, Virabongsa Ramangura, who when appointed Monday was in Vientiane, Laos, finishing a contract to advise the Laotian Government. In the face of rising oil prices, he said, he would concentrate on more austerity in Government spending and perhaps, finally, a tax overhaul. A nonpartisan technocrat and economic adviser to former Prime Minister Prem Tinsulanonda, Mr. Ramangura said he was known as an ”austerity economist.”
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Erlanger, Steven

Full text: [New York Times] Aug 31, 1990

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COMPANY NEWS; Simmons Near Limit On Stake in Lockheed

In an letter to Lockheed sent on Wednesday, J. Landis Martin, the president of NL Industries who is also Mr. [Harold C. Simmons]‘s top aide, said Mr. Simmons ”was prepared to invest an additional $350 million from presently available funds to effect additional purchases in Lockheed stock.” The letter was contained in a Securities and Exchange Commission filing. ”In the heat of August, Mr. Simmons has roused us from our lethargy,” said Howard A. Rubel of C. J. Lawrence, Morgan Grenfell Inc. in New York. ”He hasn’t gone away.” George J. Podrasky Jr. of Duff & Phelps Inc. in Chicago said Lockheed’s stock price fell today because the investing public ”isn’t taking him seriously until he comes up with a cold-cash offer for the whole thing.”
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GREGORY A. ROBB, Special to The New York Times

Full text: [New York Times] Aug 31, 1990

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Gulf jitters, oil prices hit stocks

NEW YORK – Stock prices closed sharply lower Thursday as investors fled the market, wary of developments in the Persian Gulf and the inflationary implications of a renewed jump in oil prices. The latest uncertainty over the Persian Gulf came on reports that Iraq’s air force commander said Baghdad would send warplanes and missiles against Israel and Saudi Arabia if war broke out between Iraq and U.S.-led forces in the Persian Gulf. The comments caused jitters about a military flare-up. With many U.S. traders likely to be absent today ahead of the three-day weekend, “Some traders unloaded positions,” said Alice Sadlo, vice president at McDonald & Co.
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CHRISTINA TOH-PANTIN

Full text: [Houston Chronicle (pre-1997 Fulltext)] Aug 31, 1990

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Stocks retreat on compounding of investor fears

Stock prices closed sharply lower Thursday as investors fled the market, wary of developments in the Persian Gulf and the inflationary implications of a renewed jump in oil prices. The Dow Jones industrial average closed at 2593.32, down 39.11, as losing stocks led gainers 2 to 1. The average had been down 20 to 25 points much of the day, but computer program trading in the last half-hour dragged the market lower. The blue-chip indicator was down nearly 54 points before regaining some ground.
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Chicago Tribune wires

Full text: [Chicago Tribune (pre-1997 Fulltext)] Aug 31, 1990

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TIME NOT TO PLAY

Pentland PLC, the British consumer goods group that had announced its intention to sell its huge 36.2 million-share block in Reebok International, now says it is taking its $489 million Reebok stake off the market until the Stoughton-based sneaker company’s stock price gets pumped up. In June, when Pentland said it would sell off its huge Reebok holdings, the sneaker stock was trading around $18; Reebok promptly enacted a “poison pill” antitakeover plan, and the shares now trade around $13. Furthermore, Doubleday was hoping to publish a conventional business book, drawn from [Mitch Kapor]‘s personal experiences as the founder of Lotus Development Corp., while Mitch wanted to write a more analytical treatise about innovation. “That’s not the book Doubleday wanted to do,” says [Michael Schrage]. Kapor was vacationing in Hawaii and unavailable for comment.
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Alex Beam, Globe Staff

Full text: [Boston Globe (pre-1997 Fulltext)] Aug 31, 1990

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Rumor Devastates Bank of N.E. Stock

It was common knowledge yesterday that the Bank of New England was about to be closed by federal regulators. It seemed as if everyone, from cab drivers to Wall Street investment bankers, was betting that the bank was going to be seized today. It wasn’t true. But rumors of the bank’s demise, which peaked when a Congressional candidate from Springfield yesterday issued a press release lamenting the bank’s fall, pushed BNE’s stock to a new low and forced federal bank regulators to release an unusally blunt denial. “It’s ridiculous,” said Lenora Cross, a spokeswoman for the Office of the Comptroller of Currency, Bank of New England’s chief regulator. “This is a categorical denial. The rumors are just not true.” (excerpt)
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Bailey, Doug

Full text: [Boston Globe] Aug 31, 1990

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Economic, gulf worries send stock prices down

The near-term price of light, sweet crude rose 85 cents to $26.77 a barrel on the New York Mercantile Exchange, while in the credit markets, the yield on the Treasury’s bellwether 30-year bond climbed to 8.98 percent by late afternoon from late Wednesday’s 8.92 percent. U.N. Secretary General Javier Perez de Cuellar arrived in Jordan for talks with Iraq’s foreign minister, but the market saw few other hopeful signs. Reports that Iraq has set new conditions for allowing foreigners to leave the country also increased trader pessimism. The sharp decline in the Dow Jones average triggered one of the New York Stock Exchange’s “circuit breakers” designed to prevent a price freefall. The mechanism bars stock sales connected to index-futures arbitrage until the prices of the stocks involved rise.
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Full text: [Austin American Statesman] Aug 31, 1990

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THE MARKETPLACE

Economic worries growNEW YORK Wall Street’s four-day reprieve from worries about the economy and the Persian Gulf ended Thursday as stock prices fell sharply in response to higher oil prices and rising interest rates. The Dow Jones industrial average fell 39.11 to 2,593.32 after gaining 149.01 points over the previous four sessions. Bond prices closed mostly lower. The price of the Treasury’s benchmark 30-year bond fell 17|32 point, or about $5.31 per $1,000 face amount.
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Full text: [Anchorage Daily News] Aug 31, 1990

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Retail Deposits Showing Gains from Gulf Fears

The Persian Gulf crisis and resulting drop in stock prices are touching off a consumer flight to safety, providing a boost to retail deposits, bankers report.
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Kantrow, Yvette D

Full text: [American Banker] Aug 31, 1990

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Stock Price Makes Barry Run

A hypothesis that the standardization of payments in the US at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month is presented and tested. The hypothesis also asserts that returns generally will be greater following the month of December and will vary inversely with the stringency of monetary policy. Empirical results using stock index returns for 1969 to 1986 support the hypothesis. This analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the January effect. The results also are consistent with a previously documented empirical regularity in the Treasury bill market.
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Bennett, Robert A.

Full text: [United States Banker] Sep 1990

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Stock price makes Barry run (Barry F. Sullivan, Chairman and CEO of the First Chicago Corporation – interview)

A hypothesis that the standardization of payments in the US at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month is presented and tested. The hypothesis also asserts that returns generally will be greater following the month of December and will vary inversely with the stringency of monetary policy. Empirical results using stock index returns for 1969 to 1986 support the hypothesis. This analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the January effect. The results also are consistent with a previously documented empirical regularity in the Treasury bill market.
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Bennett, R.

Full text: [United States Banker] Sep 1990

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Turn-of-Month Evaluations of Liquid Profits and Stock Returns: A Common Explanation for the Monthly and January Effects

A hypothesis that the standardization of payments in the US at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month is presented and tested. The hypothesis also asserts that returns generally will be greater following the month of December and will vary inversely with the stringency of monetary policy. Empirical results using stock index returns for 1969 to 1986 support the hypothesis. This analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the January effect. The results also are consistent with a previously documented empirical regularity in the Treasury bill market.
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Ogden, Joseph P.

Full text: [The Journal of Finance] Sep 1990

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The Intertemporal Relation Between the U.S. and Japanese Stock Markets

A high correlation is found between the open to close returns for US stocks in the previous trading day and the Japanese equity market performance in the current period. In contrast, the Japanese market has only a small impact on the US equities, accounting for only 1% of the changes in US open to close returns. High correlations among open to close returns are a violation of the efficient market hypothesis. In trading simulations, however, the excess profits in Japan vanish when transactions costs and transfer taxes are included. Although the results are statistically significant, they are probably not high enough to profitably trade on in the US. In addition, there is no relation between the performance of the Japanese market and the close to open return in the US.
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Becker, Kent G.
Finnerty, Joseph E.
Gupta, Manoj

Full text: [The Journal of Finance] Sep 1990

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The Effects of Stock Splits on Bid-Ask Spreads

The effects of stock splits on bid-ask spreads for New York Stock Exchange listed companies are examined. Percentage spreads increase after splits, representing a liquidity cost to investors. These spread increases are directly related to decreases in share prices following splits and can explain part, but not all, of the observed increase in return variability after splits. The evidence thus suggests a liquidity cost of stock splits that must be weighed against any other perceived benefits of splits. Such a liquidity cost may validate that stock splits are a signal of favorable information about the firm. It also is shown that the observed increase in return variability after splits is, in part but not entirely, the result of increases in spreads.
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Conroy, Robert M.
Harris, Robert S.
Benet, Bruce A.

Full text: [The Journal of Finance] Sep 1990

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