TABELL'S MARKET LETTER 600 ALEXANDER ROAD, eN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NEW YORK STOCK EXCHANGE, INC, MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 December 23, 1988 As is customary at this time of the year. last week's letter contained a review of 1988 – – -'-. stock-market-' aetion..,,–In-'-summary-;-we '-pointed–out -that -the- aftermath of-the -October1-1981coliapse consisted of aratherlackluster'lradiri'g range with a moderate upward bias, but featurIng substandard breadth and declining volume. We are required. thIS week. to assess the implications of this past history for future major behavior—in other words. to produce a forecast for 1989. For the first part of last year, there was one plausible, and rather ominous. interpretation of the market action which was taking place. One could overlay a chart of the October, 1987 market crash on the one which had taken place 58 years before and discover that the fall and subsequent recovery in 1929-30 and in 1987-88 were almost exact duplicates. WIdely heard at the time was one of this letter's most unfs vrite terms. bear-market rally II We have pointed out repeatedly, that the bear-market rally is, like the unicorn, essentially a mythical beast. Those who persist in believing in this particular mythology love to cite 1929 -30 as an example, despite the fact that it is the only case of a bear-market rally of that sort of magnitude in aU of stock-market history. By mid-year, however, the 1929-30 analogy had fallen apart. That advance lasted six months. and the market then plunged to new lows. Today, fourteen months after the 1987 crash, we fInd ourselves, despite all that is wrong with current market action, within a few points of post-crash highs. As we reached the second half of last year, and the 1929-30 similarity began to disappear, another historical comparison came to attain plausibility. After a sharp break In the fall of 1946, the market. as was the case last year. remained in a narrow trading range, this one with a lesser upward bias than the present case and with even worse market breadth. The 1946-49 analogy becomes even more apt when one considers investment psychology. There was, in those post-World War II days, an extant conventional wisdom which insisted on the absolute inevitability of a post-war depression. It is certainly arguable that a like conventional wisdom exists todav, a universally-held pessimism which can be explained by the single word. debt. The belief that the budget deficit and the resultant buildup of government debt possesses the potential for unmitigated disaster, has attained the status of revealed truth, along with the belief – – that -th e 'tlal1e-dllfictrnl1rs't-be -rlfd uce-d-tnorlllfr 't1Jpreventna tiona1anKruptcyi-iticsof-nj;-;;e..-. ——o-1 private debt structure fume over the proliferation of leveraged buy-outs and the utter asininity of some forms of financing for those buy-outs. And. as far as the quality of existing loans is concerned, we all know about thIrd-world debt and the savings-and-Ioan industry. There exist only a few voices crying in the wilderness with countervailIng views. Milton Friedman produced a Wall Street Journal article a couple of weeks ago entitleci Why the Twin Deficits are a BleSSIng. Yes, Blessing is the word the man used. The appellation, it should be noted, was created, not by some sort of kook, but by a Nobel-Prize winner. There have appeared, from time to time, like comments. pointing out such items as the fact that the U.S. Government debt is not historically excessive when looked at in terms of national Income and that the deficit is not all that different from those shown in recent years in other countries. It has also been pointed out that, even with the recent growth in corporate leverage, the average U.S. corporation today displays a more conservative balance sheet than its counterpart in Japan or West Germany. Comments of this sort tend to be buried deep in the financial pages, while the headlines feature politicians assuring us of our imminent destruction by the deficit. Now it is true, of course, that the conventional wisdom in this case could turn out to be right, and. if it is, the economy—and, presumably, the stock market—are in deep trouble. This remains a risk, and we are not willing at this point, to predict whether that risk will turn to reality. What we do think, however, is that the perception of that risk is so widely held that it is likely to color market action for most of 1989. This leads for a forecast for the upcoming year, which calls, unfortunately. for more of the same. We expect. in other words, the 1988 trading range to continue, possibly with the same sort of upward bias it possessed over the past year, so that modest new highs above the 2183.50 close of last October will likely be attained, although we do not expect, at this stage, an approach to the August, 1987 high of 2722.42. On the low side, 1989 could see a test of the tradIng range's lows, but we doubt this would 'involve anything as low as the October-December, 1987 bottom in the 1700's. More likely would be a test of the January-May lows in the mid-1900's. We are. in short, looking for a continued rebasing period. and we are willing to work on the assumption that it is likely to occupy all of the upcomIng year. Should evidence to the contrary emerge during the year. we hope to be able to recognize it and suggest appropriate revisions in investment policy. ANTHONY W. TAflELL DELAFIELD, HARVEY, TABELL INC. Dow Jones Industrials (12 00) 2169.46 S & P 500 (1200) 277.77 Cumulative Index (12/22/88) 3860.75 AWTebh WE WISH YOU ALL A HAPPY AND PROSPEROUS NEW YEAR' No statement or expression 01 oplmon or any other matter herem contained IS, or IS to be deemed to be, directly or Indirectly, an offer or the soliCitation 01 an offerlobuy or sell any securrty relerred to or mentioned The matter IS presented merely lor the convemence of the subscriber While we believe the sources 01 our Inlormabon to be reliable, we In no way represent or guarantee the accuracy thereof nor 01 the statements made herem Any acllon to be taken by the subscriber should be based on hiS own Investlgallon and Information Delafield, Harvey, Tabelllnc, as a corporation and Its officers or employees, may now have, or may laler take, poslbons or trades In respect to any securities 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, Tabellinc ,WhiCh IS registered with the SEC as an Investment adVisor, may give adVice to ItS Investment adVISOry and other customers Independenlly of any statements made In thiS or In any other Issue Further information on any secunty mentioned herein IS available on request

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 (6091987-2300 December 30, 1988 For some years now. we have studied the familiar seasonal tendency of the stock market to stage —.-year-end rally, and-it-I!as-been the'custom ofthiSlerferTo poiiitiufSomeofthe col'iCfiisioM — – – – – that can be derived from a study of this phenomenon, Since 1897, when the Dow Jones Industrial Average was first computed, a rally. however small, has begun in December and continued into the new year in 89 of 91 cases, the two exceptions occurring in the mid 1970's. The following facts about the year-end rally may be noted. 1. The year-end rally often has been of great magnitude, occasionally continuing through the entire subsequent year without a 5 correction being recorded. It has frequently continued. with only minor interruptions, for as long as six months into the new year. In many cases, with 1987 being the most recent, the rally continued into February, March or beyond. However, on other occasions. it has been of only a few day's duration, reaching a top extremely early. This was the case in 1988, when an extremely dynamic year-end rally peaked on January 7, the fourth trading day of the year, and an 8 112 correction followed. In the bear-market years of 1960. 1970, 1973, 1974, 1981, and 1982, the rally reached a peak by the first week in January, and, as noted above, the 1976 and 1977 year-end rallies did not carry into January at all, the only two in market history so to fail. 2. There has been a persistent tendency for the rally to begin early in years when the market has been up, and late in years when the market has been down. In recent upward years, 1967, 1975, 1979, 1980, and 1985 are examples, the rally commeneed from early December. In recent downward years, 1962, 1966, 1969, 1977, and 1981, the rally began late in the year. 1986 was an exception, an upward year where the year-end rally started on December 31. The 1987-88 year-end rally started on December 4, (1987 was an up year), and the 1988-89 rally almost certainly began in November, with the December low occurrIng on the second day of the month at 2092.28. -of3. The impo;t;nfthing to wath in ;connectio;-With the market action -in the early months th new year is that December low. This low has been broken in 52 years out of the past 88. However. in 30 of these 52 cases, it was broken in January and February. For example, in 1970, 1973. 1977, 1978, 1981, and 1982, the December low was broken in early January. Since 1937, it has never been broken later than mid-March with four exceptions 196 1974, 1981, and, of course, 1987. Thus, if the market is able to hold above its December low for the first 2 112 months of the year, chances become good that this low will not be penetrated. 4. In years when the December low has been broken, the subsequent trend has been downward two-thirds of the time. 1962, 1966, 1969, 1973, 1974, 1977, and to some degree, 1984, are typical cases. 1965, 1978, 1980, and, most recently, 1982 are exceptions. 5. The magnitude of the rally is an important clue as to the year's market trend. For example. an advance of 10 or more from the December low has been followed by an upward or neutral market in 40 of the 46 years that such an advance has occurred. An advance of less than 10 from the December low before an identifiable correction takes place has been followed by a downward market 10 30 of the 42 years. Last year's year-end rally was over 16. In each year from 1985 to date, the year-end rally has been well in excess of 10. In 1962, 1970, 1973, and 1977, as examples, it was less than this figure. 6. The length of time for which the rally continues -into the new year is important. For example, in 27 years, the rally continued into March or later. In 23 of these 27 years, the eventual trend was upward. In 1964, 1972, 1975, 1976, 1985, and 1986, the year-end rally continued into March and in 1961, 1967, 1971, and 1980, into February. Although 1988 was technically an up year, the rally, as noted above. peaked in early… January. This year so far. the advance from the tDecember low has been under 5. If the rally extends itself to 10 (approximately 2300) In the early new year, it would be a bullish sign. Likewise. continuation of the advance in February-March would be a positive indication. Dow Jones Industrials (12 00) S & P 500 (12 00) Cumulative Index (12129188) AWTebh 2180.89 279.10 3902.53 ANTHONY W. TABELL DELAFIELD, HARVEY, TAB ELL INC. No statement or expression of opinion Of any other mailer herein contained IS, or IS to be deemed to be, dlreclly or Indirectly, an offer or the solicitation of an offer to buy or sell any secUrity referred to or menlloned The matler IS presented merely lor the convenience 01 the subscrtber While we believe the sources of our Information to be reliable, we In no way represent or guarantee the accuracy thereof nor oflhe statements made herein Any acllon to be taken by the subSCriber should be based on his own investigation and Information Delafield, Harvey, Tabelllnc, as a corporation and tts officers or employees, may now have, or may later lake, posilions or trades In respect to any secUrities 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, Tabelllnc, which IS registered With the SEC as an Investment adVisor, may gl\o'e adVice to ItS Investment adviSOry and other customers Independently of any statements made In thiS or In any other Issue Further Information on any security mentioned herein IS available on request