Viewing Month: August 1978

Tabell’s Market Letter – August 04, 1978

Tabell’s Market Letter – August 04, 1978

Tabell's Market Letter - August 04, 1978
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r —- I TABELL'S MARKET LETTER ' I 909 STATE ROAD, PRINCETON. NEW JERSEY 08!540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGe – — spectacular upside performance,-the August 4, 1978 , late June and crashed ahead to new highs, In the process producing an all-time volume record. There appears to be little room for equivocation\ln characterizing the present equity envi ronment, It began last February at 742 on the Dow, and it is called, simply, a Bull Market. In last week's letter, we discussed our own group of Vestal Virgins or high-capitalization growth stocks. In this week's Issue; we discuss the technical patterns of these stocks, which we have attempted to summarize in the table below. We obviously had no idea, a week ago, that these stocks would prove to be the upside leaders In the fir.,-,orks display which featured last week's trading. As It so happens, the sort of technical pattern we had planned to discuss, the very long-range picture, remains essentially unaltered by the recent strength. In trying to summarize varying chart patterns for a group of different, albeit related stocks, It Is necessary to begin with a fixed reference point. That reference point In the case of growth Issues Is the 1974 low, a low which for most of them, was reached following a severe decline from an egregiously exploited level to two years earlier. The price action of these stocks, of course, has varied widely since that low, In some cases, the recent price Is not too far different from that bottom, and, In other Instances, prices are now above their 1974 levels by a factor of as much as 200, Subsequent to posting their lows In 1974, most of these Issues scored a peak,which has not since been equalled, and then moved sharply lower. The level of that peak Is shown in the third column of the table. Quite obviously, over a four-year period, a great deal of backing and filling has taken place be- tween the two limits. The key question is whether or not this backing and filling represents long-range accumulation, In other words, a base formation process, Indicating higher upside objectives. We have tried to suggest what these upside objectives could be in the fourth column. We are are-pretty'astounding,;and-we'fe-el'constrafnedespecially-nnrrnphasfze caveat required in letters of this type that the obj ectlves are based solely on technical factors and that further information is available. We feel compelled further to stress that the objEctives do not become valid until breakouts take place. It is also necessary to point out that overhead supply from the 1972-1973 tops for these stocks is Indeed massive and, In many cases, that supply Is either just above current levels or clustered around the breakout points upside, raising the real posslb!1ity of false breakouts which could be turned back by the heavy supply. Recent Price 1974 from 1972-1973 Low Post 1974 Range Objectives – Supply, — Avon Products Burroughs Coca-Cola Disney Eastman Kodak IBM Johnson &Johnson McDona1ds Corp. Pol aroi d Proctor &Gamble Sears -Roebuck Xerox 60 83 45 44 64 286 85 60 52 91 26 61 20 68 125-180 120-140 65 120 260 105-120 22 48 104 66- 74 18 70 140 90-120 60 120 275 125-145 155 300 510 300-350 74 100 215 100-125 22 70 125 60- 70 16 (Broken Out) 95-132 105-140 68 110 165-' 100-115 22 40 80 46- 58 50 88 155 150-170 '-are In short, what we are talking about here are, In most cases, potential technical patterns. We p o t e n t i a l 'patterns' tnem;-albng wltli -the 'rathe– Impressivitu-pslde – objectives, as a follow-up to the question we raised last week. At that time, we attempted to demon- strate that growth Issues as a class were fundamentally cheaper In relation to the market than they had been for some time. We are trying, this week, to show that, technically, the possibility of a substantial reboand from these depressed levels exists. Before that potential can be realized, It seems to us, however, a fundamental alteration In the supply/demand pattern which has characterized the stock market In the past few years will have to take place. These Issues are, after all, Institutional-quality holdings, and It will require institutional money to move them Significantly from their current price level. It is demonstrable, we think, that such institutional cash flow has been notable by Its absence in recent years, and the imminence of Its return remains a largely unanswered question. That In tum Is the subject of yet another letter. Dow-Jones Industrials (l200 p.m.) 890.94 ANTHONYW. TABELL S & P Composite (l200 p.m.) 104.05 DELAFIELD, HARVEY, TABELL Cumulative Index (8/3/78) 688.14 No 510tement or expreulon of opinion or any other matter herlJln contained IS, or IS to be deemed to be, directly or Indirectly, on offer or the soliCitation of on offer to buy or sell any security referred to or mentIOned The matter IS presented merely for Ihe of the subscriber While '/'Ie believe the sources of our informa- tion to be relloble, we ,n no way represent or guarantee the accuracy thereof nor of the statements mude herein Any oellon to be tolcn by the subscriber should be based on hiS own Investlgollon and information Janney Montgomery SCali, Inc, as a corporation, and lIS offlclJrs or employees, may now have, or may leiter toke, pos.hons or trades In respect to any seCUrities menlloned In Ihls or any future Issue, and such POSition may be different from any views now or hereafter expressed In thiS or ony other Issue Jonney Montgomery Scotl, Inc, which '5 registered With the SEC as on Investment adVisor, moy give adVice to Its Investment odvlsol'Y, and othel customers ,ndependently of any statements mode In thiS or In any other Issue Funher mformatlon on any security mentioned herein IS aVailable on request

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Tabell’s Market Letter – August 11, 1978

Tabell’s Market Letter – August 11, 1978

Tabell's Market Letter - August 11, 1978
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r—– – TABELL'S I,' MARKET LETTER L- – – ——– l 909 STATE ROA.D, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBEA NEW STOCK EXCHANGE. INC MEMBER AMERICAN STOCK E)(CNANGE August 11, 1978 ' , A!; rE!aders ,wlll,Je 1Lwl're,'Yehaye been considerillgJn ,this space for the past two weeks the w.;history and prospects Qi-instituiIOilCl1g;owth lssues- twoweeKs -ago fhatthe – of these issues over the past six years had been less than spectacular, since, on average, they had lost almost 2/3 of their value between 1972 and 1974, and, through year-end 1977, their recovery had been modest indeed. In the course of this washout, the price being paid for a dollar of earnings on Our average of 12 of these issues declined from 2.8 times the multiple for the S & P 500 in 1972 to 1.5 times last year, despite the fact that earnings, by and large, had continued to rise. Last week we analyzed the technical pattern which had been produced by this price action, suggesting that the sharp decline, followed by four years of lateral trading, had produced the potential for impressively higher prices. We noted, however, that the realization of that potential would re- quire fundamental alteration of recent supply/demand patterns. It is thos e supply/demand patterns that we want to discuss this week. In other words, having covered where growth stocks appear to be at the present time in the marketplace, it is perhaps useful to examine just how they got that way. We think the answer is available in a study of recent institutional trading tendencies. The key word here is institutional. The stocks we are discussing are, by and large, among the largest institutional holdings and have, in the past (occasionally to excess), been among their largest purchases. It is, ultimately, institutional buying patterns which will determine the course of prices for thes e stocks. It is appropriate for purposes of this study to use pension fund activity as a proxy for all institutional activity. Private, non-insured pension funds are the largest single category of insti- tutional investors (181 billion of assets), the fastest growing (They have more than doubled their as!;etsJn ten yeara.),and relatively the most flexible in terms of percentage of common stocks —h-'eld IUs demonstrable that SWings-ill common -stock activitYbytn-ese-funds can, oy their ……- I – massiveness, have profound effects on the equity market. Indeed, the sharp rise in institutional growth issues to 1972 can largely be explained in terms of pension fund actiVity. In 1963, pension funds had 38 of their assets at book value in equities. In 1973, the peak year, that number had reached a peak of 64. This stage, of course, could be reached only in one way, by a substantial infusion of pension fund cash flow into the equity market. That cash flow, representing largely contributions by companies and employees, is huge and has been grOWing. In 1977, it reached the record figure of 21 billion, a new source of investment funds equivalent to 2.7 of the total market value of all NYSE-listed stocks and 11.59 of the total market value of all 1977 trading. As we noted, it was necessary, in order to build up equity holdings, for funds to inject large portions of this increase in book value into the stock market, and this indeed they did during the early 1970's. In 1971, the largest year of such activity, 8.9 billion, or 95 of pension cash flow, entered the equity market. Subsequent years saw a sharp dropoff in common stock purchases. In 1974. the year of the market low, they had dropped to2.4 bUlion. They recovered in 1976 to 7.2 billion but dropped off again sharply in 1977 to 4.5 bUlion. Most of this decline took place in the second half, and, in the first quarter of 1978, (incidentally, the quarter in which the year's lows were made) pension funds were net sellers of equities for the first time since the figures have been compiled. In terms of cash flow, this drop off is even more substantial. In 1977, only 21 of book-value increase went into the equity market, and for 1978 the figure will probably be less. At current rates of cash fl!,, a a!most 'w money — a figure 9.5 billion above the level of 1977. Under the pressure of this sharply'reduced level of equity purchases, the percentage of pension fund assets invested in common stocks had declined, by last year, to 1969-1970 levels. The key question for the intermediate term is whether the funds' relative aversion to equities will continue or whether it will reverse itself in the near future. This is a prospect which we intend to treat next week. ANTHONY W TABELL DELAFIELD, HARVEY, TABELL Dow-Jones Industrials (1200 p. m.) S & P Composite (1200 p.m.) Cumulative Index (8/3/78) 886.00 103.63 790.86 No statement or eXpreSSion of opinion or any other matter herefl'l confaned IS, or IS 10 be deemed 10 be, dIrectly or mdlrectly, an offer or the ,o/fcrtotron of on offer to bvy or sell Clny security referred 10 or mentioned The molter IS presen1ed merely for the conve!len'e of the subscrIber While we believe Ihe sources of our Informotlon to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements mude here,n Any octlon 10 bl!! token by Ihe subSCriber should be bosed on hiS own mveshgolu;n and Informotlon Jenney Montgomery Scott, Inc, os a corporetlon, and Its officers or employees, may now hove, or may later toke. POSitiOns or trodes In respect 10 any seCUrities mentioned In Ihls or any future Issue, and such pOSlhon moy be dlfferen! from any Views now or hereafter exprened In thu or any other Inue Janney Montgomery Scott, Inc, which IS registered With the SEC as on Investment adVisor, may give adVice to lIS Investment adVisory and othe. t1Jslomers Independently of any statements mode In thiS or In any other Isue Further Informotlon on any security mentioned herein IS ovollable on request

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Tabell’s Market Letter – August 18, 1978

Tabell’s Market Letter – August 18, 1978

Tabell's Market Letter - August 18, 1978
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';0;;;0 TABELL'S MARKET LETTER 909 STATE RO….D, PRINCETON. NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK eXCHANGE August 18, 1978 ' stocks will be aware that we tried, last week, to correlate their price'history over the pa'sflecadeor's'Q'wlth of penSion fund activity. The theory was that the major area of demand for these stocks was in- stitutional and that penSion funds, being the largest and fastest-growing category of investment institution, might, by their buying and selling activities, exert an important effect on the levels of growth-stock prices. The figures we cited did indeed show a rough correlation. The proportion of pension fund assets invested in common stocks rose from 47 in 1967 to 64 in 1973. This increase paralleled a sharp rise in growth stocks over a roughly similar period. In the past five years, the percent- age of pension assets committed to equities has declined to 53 and will probably show a further dip this year. Further, the trend toward equity disinvestment has accelerated sharply, with pen- sion funds having been actual net sellers of equities during the first quarter of 1978. This pro- cess, in turn, has coincided with the growth-stock bear market of 1972-74 and the subsequent sideways action and general underperformance by these issues. Now since annual pension cash flow has continued to rise (indeed to astronomical levels) since 1973 at the same time that the percentage of assets committed to equities has been reduced, it is axiomatic a large amount of money has wound up being invested somewhere. That some- where, on the basis of abundant evidence, is the fixed-income securities market. The past five years, as we all know, have been characterized by riSing and historically attractive yields for long-term bonds. Quite obviously the generous returns available in this area have attracted large sums for new investment. growing.-1nteresLwitltil,l,th.,.. …,.I, financial community in the general practice of fixed-lncome money management. Another effect has been a recent tendency on the part of many commentators to equate the course of stock prices with that of interest rates, an attempt, our readers will be aware, we have tended to view with some skepticism. At any rate, it seems clear that 9 bonds are now being regarded as the same sort of panacea for all investment ills that growth stocks were supposed to be some five years ago. At the height of the growth-stock craze, there was a rationale for investment in these issues. It suggested that, while current income in these issues was miniscule, eventual growth in divi- .dends would produce an attractive long-term return and, more importantly, a rising stream of income which would protect the holder against inflation. As is the case with most popular invest- ment theories, there was nothing wrong with this one other than the fact that it was ultimately carried to excess and, at growth-stock yields of 1 or less, lost a great deal of its viability. With yields on the same stocks now at the 3 1/20/.,-4 level, it would not appear rash to suggest that, at least, it might be reexamined. In the above paragraph, we brought into this diSCUSSion, for the first time, the word inf lation, and, ironically, the inflation growth stocks were supposed to protect us against has accelerated sharply at the same time the stocks themselves have fallen from favor. It Is a truism that, at a 10 inflation rate, the return on a 9 bond is negative. Moreover, it Is also true that,even at a 5 inflation rate, the true return on a 9, 20-year bond is roughly 2.26 in real terms. This Is not a figure to inspire dreams of avarice ….. ,—-''-liMany analysts have but it is arguable, we think,that, over the very long term, equities have Indeed provided just such a hedge. We would be willing to defend the proposition that the long-term, course of equity price levels may be Intimately tied to the rate of inflation and to institutional investors once more coming to perceive the necessity for stock investment in an inflationary era. It would thus, we think, be Impossible to conclude this series of letters without expressing some thoughts as to the prospects for inflation and the longer-term price level. These thoughts will be the subject of next week's letter. Dow-Jones Industrials (1200 p.m.) S & P Composite (1200 p. m.l Cumulative Index (8/17/78) 904.54 105.10 802.70 ANTHONY W TABELL DELAFIELD, HARVEY, TABELL No statement or e)(presslon of opinion or ony other molter herem contained IS, or 15 to be deemed to be, directly or mdlrec1Ir,' an offer or the sol,c,totlon of on offer to buy or sell any security referred to or mentioned The matter IS presented merely for the converlena. of the subscriber Whl e we bellevlI the sources of our information to be relioble, we In no woy represent or guorontee the occurocy thereof nor of the statements mode herem Any aC1lOn to be token by the subscriber should be based on hiS own investigation and InfOrmalion Janney Montgomery Scan, Inc, us a corporation, and Its offICers or employees, may now have, or may later toke, positions or trodes In respect to any seCUrities mentioned In thiS or any future Issue, and such pOSItion may be different from any vIews naw or hereafter expressed In thiS or any other Issue Janney Montgomery Scali, Inc, which Is registered With the SEC as on mllestment adVIsor, may give adVice to Its Investment odYl5ory ond othel customers Independently of any stotemenls mode In thiS r In any other Issue Further information on any security mentioned herein IS ovadoble on request

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Tabell’s Market Letter – August 25, 1978

Tabell’s Market Letter – August 25, 1978

Tabell's Market Letter - August 25, 1978
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 08540 DIVISION OF MEMBER NEW YORK. STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE ,– Butwes tWirfd I86K';'t!le-lafld-ls brignt-;— – … August 25, 1978 Arthur Hugh Clough Practical men, who believe themselves to be quite exempt from any Intellectual influences, are usually the slaves of some defunct economist John Maynard Keynes — The General Theory of Employment, Interest and Money In our ongoing discussion of the prospects for Institutional growth stocks, we touched last week for the first time on economic prospects, more particularly the prospects for continued Inflation. What we tried to suggest was that, In an ongoing inflationary enVironment, yields on fixed-Income securities which have, over the past couple of years, been sopping up massive amounts of Investment funds otherwise available for equities, might be less attractive than they would appear at first blush. This would also be true in an environment which featured continued real expansion — the sort of at- mosphere In which well-managed and well-situated companies could continue to grow and prosper. In thinking about these two phenomena — Inflation and real growth — we do not feel It Is an undue flight of fancy to consider a couple of recent political manifestations. The first of these Is the overwhelming passage last June of Proposition 13 in California. What Thirteen, and the like proposals which will proliferate on state ballots this November, seem to indicate, is an awareness, not heretofore obvious, on the part of the electorate of the magnitude of its tax burden. It was almost inevitable, given the combined effects of Inflation and a progressive tax structure, that such an awareness would one day materialize. The California vote seems to point out quite clearly that the day of raised consciousness with regard to taxes has arrived. At the same time, also out of California, we have been hearing more and more of a not-at-all- Arthur 'fu)fessor Laffer's particular contribution the alsmal science-Is the Laffer Curve, a refinement of the obvious truism that, at some point, as the rate for a given tax Increases, the total revenue from that tax tends to decrease. This revelation was promptly seized upon In certain sectors of Congress, most notably by Rep. Kemp of Buffalo who used It to justify a proposal for a massive Individual and corporate tax reduction, and by the Republican party In general which has now just about Incorporated it as official gospel. The specific Kemp-Roth proposal Is now dead for this session, but anyone who thinks we have heard the last of the Idea is, we suspect, misreading the entrails. The general proposition that taxes should be reduced without offsetting cuts in spending has produced some rather deliCious pOlitical Ironies. Democrats not known for their fealty to fiscal rectitude have accused the Republicans of offering a free lunch, and Paul Samuelson, In a recent Newsweek column, came on sounding like Herbert Hoover. Republicans, meanwhile, are regularly and reverently Invoking the name of John F. Kennedy, under whose aegis the last Similar tax cut was adapted. The Republican claim, of course, Is that a massive tax reduction would result In sharply Increased economic activity and, ultimately, little or no loss In total tax revenue. The Democratic opposition, on the other hand, has forecast massive deficits and resultant accelerating inflation. What neither side will admit Is that, given the current state of the art of economic analysis, no one Is quite sure just what the actual results of a Kemp-Roth type tax cut would, In fact, be. For our own part, we are willing to concede something to both camps. We think, In other words, cutSIn spending.,., Is a .real fact of life . We Will,., moreover, agree with both contenders in the debate. We think that such cuts would be both stimula- tive and inflationary — in proportions we would not care to forecast. What we see, in other words, is the sort of environment in which equity Investment rather than the fixed-Income Investment now embodied In the conventional wisdom of institutions might turn out to be the most rational and conservative investment policy. There Is no evidence at the moment that institutions as a class feel this way, and, indeed, the most recent figures, as we noted last week, indicate just the oppOSite. This perception, however, Is one which could well change radically as time goes on and economic prospects become clarified. Dow-Jones Industrials (1200 p.m.) 898.04 SSP Composite (1200 p.m.) 105.04 ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Cumulative Index (8/24/78) 807.47 No statement or expreulon of opinion or ony other motter herem contained IS, or IS to be deemed to be, dlrcCtly or indirectly, on offer or the SOllCltotlon of an offer to buy or sell any secuflly referred 10 or mentioned The motter IS presented merely for the converlenct of the subscriber While -He believe the sources of our Informo lion to be relloble, we In no woy represent or guarantee the accuracy thereof nor of the statements mude herein Any actIOn 10 be token by Ihe subSCriber should be bosed on hiS own Investlgallon and Informotlon Janney Montgomery Scoll, Inc, as a corporation, and lIs officers or employees, may now have, or may later toke, positions Of trodes In respect to any securities mentioned In Ihls or any future usue, and such position may be different from any views now or hereafter In this or any other Issue Janney Montgomery Scott, Inc, whICh IS registered With the SEC as on Investment adVisor, moy give adVice to Its Investment adVISOry and other cuslomers mdependently of ony olements made In thiS Of In any olher ISsue Further Information on any security mentioned herem IS available on request

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