Tabell’s Market Letter – January 15, 1982

Tabell’s Market Letter – January 15, 1982

Tabell's Market Letter - January 15, 1982
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TABELL'S MARKET LETTER 909 STATE ROAD, PRINCETON, NEW JERSEY 081540 DIVISION OF MEMBER NEW VORK STOCK EXCHANGE, INC MEMBER AMERICAN STOCK EXCHANGE January 15,,1982 This letter ha.' pen fair..aount pace J!.!..its last.!.ew issues,!ocurn.eJ1ting \V.!t.aJ we. taketo , be tne rather.-aisma,Lnear-term outlook for equity. prices …Expertise in technical-aiuilysis is hardly-a requirement for recognizing the fact that the past week's rather dreary performance could hardly be said to be indicative of any sort of imminent reversal. It is possible, however, to take what is, in one sense, an optimistic view of the current technical picture. That view arises out of the fact that antici- pated weakness in the case of many stocks will produce the broadening of longer-term base patterns. This is in line with our presently-favored market scenario, calling for a major low, one of cycle dimen- sions, to be made during 1982 — in all probability during the first half of the year. If our assumption is correct, it can hardly be improper, even at this early stage, to attempt to look ahead and try to single out what impelling forces might cause a rise off this anticipated low. Candi- dates for the cause of such impetus are not, at this point, all that easy to find. We have in mind, however, one such possible force, the importance of which, we feel, has been insufficiently recognized insofar as financial markets are concerned. That force is the I.R.A., not the terrorist organization, but the Individual Retirement Account. Our suggestion of insufficient recognition is not meant to imply lack of attention. Indeed the only Americans currently unaware that something called an I.R.A. now exists are those who have managed somehow totally to insulate themselves from the modern advertising age. Media of all flavors have been chock-a-block with ads, most of them demonstrating how a 25-year-old, who can manage to scrape to- gether 2000 per year, are, of course, by and can larg etulrines.himsTehlfe into an instant multimillionaire individual retirement account, upon reaching retirement. despite the fact that it is They de- signed to be a mass-mo rket product, is probably one of the more complicated financial instruments cur- rently available. It is, as the ads only marginally point out, entirely dependent for its end result on the level of investment return that will obtain over a long period. Anyone possessing a crystal ball which will forecast the level of money rates over the 40 years between now. and a 25-year-old's retire- mel'!tis.theownerof.,.ae,..pieceof-eq.uipment..iOO..ed…..–'f-heI…a…A-also.,-to-sugg..st-just-one-rnore-in- sufficiently emphasized fact, is an instrument for tax-deferral, not tax avoidance. The value of this tax deferral is an immensely complex function of the age of the individual, future tax rates and a host of other factors. The problems of calculating true anticipated return for an I.R.A., we think, are sufficiently complicated to provide fuel for MBA dissertations for the next ten years. None of the above is to be taken as an argument against the I.R.A. Indeed, we heartily endorse it as one of the more exciting programs to become available to the individual in recent memory. Like most complexities, it can be reduced to basic principles. George Goodman summarized the entire thrust of the U. S. housing program of the past forty years in the sentence, The government wants you to buy a house. The I.R.A. can be summed up in the sentence, The government wants you to save money. In the first instance, it has paid — and very generously — to do )'lhat Uncle Sam wanted — as anyone owning residential real estate is quite aware. We think that for most individuals it will be equally profitable to follow Uncle's dictates as far as retirement planning is concerned. The individual in even a modest 30 tax bracket is, in effect, being handed 600 as an incentive to start an I.R.A. this year. Our own expectation is that this incentive will not be widely ignored. Which brings us to the' effect on financial markets. Some 90 million currently employed Americans are presumably eligible to sock 2000 apiece into plans this year, which, if they all took advantage of the fact, would result in an investment of 180 billion. Now we are fully aware that 100 participation is wildly unrealistic, but what is the proper estimate If it is only 10, 18 billion is a not-inconsider- able sum. Furthermore this 'x'-billion-dollar-infusion is a sum that is likely to rematerialize this year and the year after that. In ,addition, the interest being accrued on this sum remains temporarily un- taxed and therefore also available for future investment. The belief that such sums can become avail- able for deployment with no effect on financial markets is,. in our view, incredibly naive. Yet we have seen few models that attempt to take the I. R.A. 's investment effect into account. More complete discussion of possible I.R.A. effects must await future issues of this letter. In our view, however, those effects could well be considerable enough to provide part of the fuel for the next major upswing in the prices of financial assets. AWTrs ANTHONY W. TABELL DELAFIELD, HARVEY, TABELL Dow-Jones Industrials (1200 p.m.) 846.18 S & P Composite (1200 p.m.) 115.94 Cumulative Index (1/14/82) 1069.73 Lying is herewith defined as the placing of questionable assumptions in footnotes at the end of the text. No stalemen' or expression of opinion or (lny olher mailer herein conlOlned IS, or 1 to be deemed to be, d,reclly Of Indlrectl!., on offer or the sollc!iohon of an offer to buy or sell ony security referred to or menhoned The moiler IS presented merely for the convemenCE of The subSCtlber Whl e we believe the sources of our mformo lion 10 be rehoble, we In no woy represent or guorontee The occurocy Thereof nor of the statementS mode herem Any action to be token by the subSrlber should be based on his own Investlgotlon and Information Jonney Montgomery Scott, Inc, os 0 corporation, and Its officers or employees, moy now have, or moy later toke, posItions or trades m respect to any SeCUrities mentioned m thl5 or any future Issue, and such position may be different from ony views now or hereafter expressed m thIS or any other ISSl)e Janney Montgomery Scoll, tnc , which 15 registered With the SEC as an Investment adVisor, moy give odvlce to Its mvestment odvlsory and other C\.Istomers Independently of any statemenTS mode In thiS or m any other ISiue Furlher Informollon on any security menhoned herCln IS oVOIloble on request

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