Tabell’s Market Letter – November 25, 1988

. . \- TABELL'S MARKET LETTER 600 ALEXANDER ROAD. CN 5209, PRINCETON. NEW JERSEY 08543-5209 MEMBER NEW YORK STOCK EXCHANGE, INC MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 9872300 November 25, 1988 The anCIent Chinese wish, liv.!.J.!..)nteresting-1!mehas en vari(msJyc1JpeJI …i!sJ!.. is' -'- – – -cut'se-anda-'-bles-slng. In –ariy case. Insofar as the stock market in 1988 IS concerned. the teImmology is irrelevant. In terms of price action, the year has been one of the least interesting in recent memory. For the DJIA, the high, scored last month, has, so far, been 2183.50. The low, posted back m January, was 187q .14, making the year's range to date 16.2 from low to high. If these boundaries hold for the remaining fIve weeks of 1988. the year wlll rank 80th in terms of distance between high and low Qut of the 92 years SInce the Dow was first computed. Since late February. the trading area's confines have been even narrower, its lower lImit becoming the May low of 1941.48. This translates to a low high difference of 12.5. Only one year (1909) since 1897 has produced a narrower trading range. From a financial point of view. though. however uninteresting stock-market action may have been, the times in general, we think. are intereshng—perhaps as interesting as any in recent memory. We are just thirteen months past an–event many of us thought we would never, in our hfetimes. witness—a market crash comparable to that of 1929. Once the shock of this event wore off, forecasts that its aftermath might be as unpleasant as that of its precursor began to emerge. They are still being heard today, and it is possible. of course, that may turn out to be true. Yet the aftermath of the 1987 break has been not the plunge to new lows of late 1930, but the almost stupefymg dullness alluded to above. Most of us, although few now are old enough to remember it, have a general Impression of 1929 and its aftermath. The pre-crash stock market, we are told, was an era of speculative frenzy. Bernard Baruch described it as crowd behavior. quotmg Schiller. Anyone taken as an indiVIdual is tolerably sensible and reasonable—as a member of a crowd, he at once becomes a blockhead. 1I Likewise, runs the popular belief, there existed a total fallure to recognize the seriousness of the situation. The entire financial community. in other words, found itself deluded. John Kenneth Galbraith, who coined the phrase, conventional wisdom, described this failure as what causes men who know that things are going quite wrong to say that things are fundamentally sound. 1—-As . oneooks…oockon–thehistor-Y4Jfte -pa&t-thlr-teen-men th si-it is-possible–toquestlOn-whether–I' the sort of conditions Baruch and Galbraith were talking about applied during 1987 and. perhaps more importantly. whether they apply today. Even if they do apply, the differences. it seems to us. are notable. We have always, in discussing the history of the Great Depression. emphasized our belief that it should be divided Into two parts—the crash itself, which was essentially a market-related phenomenon. and the long, dreary aftermath of 1930 – 1932, where the truly tragic damage was done. In those discussions. we allowed for the possible repetition of the first part—the 1929 crash. ThlS indeed took place a bIt over a year ago. We have always felt that a similar after'math however was not necessarily called for. We, therefore. remain unsurprised that it has not yet occurred. That an atmosphere of speculation, in some ways like that of 1929, eXIsted in early 1987. and indeed still exists in at least one area today. seems to us obvious on the face of it. Certainly, the takeover frenzy. which has actually reached new heights in the post-crash period, appears to be a classic example of man's periodic rediscovery of leverage as a mear13 of achieving instant riches. And indeed those riches have, in fact. been achieved. The accretion of profIts in takeovers, LBO's, etc. for all the participants involved has been astronomical and widely advertised. As far as this phenomenon is concerned. we are certainly willing to apply Baruch's further recommendation that. in the midst of this sort of behavior, it is necessary to keep repeating to oneself that two and two make four. We find ourselves, in short. as skeptical as the next person as regards the viability of the takeover boom. Yet. if the Baruch dictum were true, we should find ourselves. in this Skepticism, a lone voice crYIng in the wilderness. Instead, we find ourselves drowned out in the collective shouting. It is dIffICUlt to pick up a financial page these days without running across an article or column in which some learned savant roundly condemns the takeover mama. Indeed, even USA Today. this week, accused Wall Street of pigging out on takeovers. Warning signals. by the time they have reached that pUblication. can ha!.!ly.be saie! !.ohave gone unheard …. . -,.– .. . ……… …………. ,… . -.. There is, moreover, an obvious and significant difference between the partlCIpants In the takeover frenzy today and the margin buyers of 1929. It is. by and large, instItutIOns who are buying today's .Junior Subordinated Deferred-Interest 18 1/4's and acquirmg companies who are issuing them. We have already witnessed changes in overall market behavior as equity ownership has come to be dominated by institutions rather than indIviduals, and it is likely that the unwinding of the merger manIa will be dIfferent from the previous era's margin lIquidation. ThRt there may emerge some unpleasantness, if this whole structure ever begins to come apart. goes without saying. Whether it will take a form similar to the stock price debacle which occurred 60 years ago remains an open question. Dow Jones Industrials (1200) S & P 000 (1200) Cumulative Index (11/23/88) AWTebh 2073.43 267.22 3804.33 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. No statement or expression of Opinion or any other matter herein contained IS, or IS to be deemed to be. directly or Indirectly. an offer or the soliCitation of an offer to buy or sell any secuflty referred to or mentioned The matter IS presented merely for the convenience of the subSCriber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor 01 the statements made herein Any action to be taken by the subscflber should be based on hiS own investigation and Information Delalleld, Harvey. Tabe!! Inc. as a corporation and Its officers or employees, may now have, or may laler take, positions or trades In respect to any secuflbes mentioned In thiS or any future Issue. and such position may be different from any views now or hereafter expressed In thiS or any other Issue Delafield, Harvey, Tabe!! Inc, which IS registered With the SEC as an Investment adVisor, may gIVe adVice to ItS Investment adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further Information on any secunty mentioned herein IS available on request