Tabell’s Market Letter – February 23, 1990

TABELL'S MARKET LETTER 600 ALEXANDER ROAD, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (6091 987-2300 February 23, 1990 –'—O;;fWi;;thdtshl;rt;mai-;!.;i!letended – – — to feature anthropomorphic bulls and bears, This week's featured Michael Milken, and the cover article's subject was the bankruptcy of Drexel Burnham Lambert. I1A new era had arrived, the story proclaimed, replacing. we were told. the old era of the Roaring Eighties, If this is so, it is appropriate that the old era's demise should be announced in a mass-circulation magazine. for the salient characteristic of the 80's. as an era in securities markets. was that the decade's financial excesses. as never before in our view, took place under the glare of the media spotlight- This aspect is somewhat at variance with the way market historians tend to think about economic boom-and-bust cycles. For us, the seminal work on past manias has always been Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds. Published in 1841, it records the history of such events as the Mississippi Scheme, the South-Sea Bubble, and the Holland-Tulip-Bulb Mania Extraordinary the 1980's may indeed have been, but we are not sure the words popular and delusion are precisely applicable to the present case. The former adjective seems inappropriate since public participation in the decade's financial debauchery was conspicuous by its absence. Individuals, by and large, have continued to be net sellers of common stock, and they are estimated to own directly less than 5 of all outstanding junk bonds. Nor can it be said that the public at large was deluded about what was going on. In the 1920's, by all accounts, Wall Street leadership was generally admired prior to the crash, while. this time around, the purveyors of corporate America's mountain of debt found themselves regularly being excoriated on the nation's editorial pages. The editorial-writers had, in short, seemingly for the first time, discovered greed—not the most attractive of human characteristics but nonetheless one that has often emerged, both in the financial community and elsewhere. hh….-,…..—ene;Coul-d-';–indeedtnot—even-go….to–the-movie8thout -being…informed…of…..the-;iniquities-,….,.,..,,–…..,.)– of Wall Street—the movie of that title presenting Michael Somebody-Or;Other (Why do all Hollywood leading men these days seem to be named Michael) portraying the slimiest villain since the era of Peter Lorre and Sydney Greenstreet. Publishers, too, joined in the furor, in which slots on the best-seller lists were regularly occupied by tomes exploring the seamier aspects of the financial community7 ranging from The Predators' Ball to Liar's Poker. The best of these. unsurprisingly, was fiction—The Bonfire of the Vanities 7 in which Tom Wolfe presented us with the bond salesman as tragic hero, Oedipus Rex on Wall Street. It is certainly not our intention here to justify the assorted outbursts of financial lunacy which came to characterize much of the industry over the past ten years. Our readers are aware that we have, with some regularity, been critical of a good many of them. We offer the thought, however, that the denouements of past boom-bust cycles have tended to be quick, with the publicity coming after the peak, while. in this instance, much of the media hype took place on the upside. Likewise, present difficulties will probably take time to resolve. The resolution of the junk bond situation, for example, will. of necessity. take place over many years, as we learn what the actual default rate on the 200 billion of paper outstanding will turn out to be, This protracted process is unlikely to be the sort of thing which produces front-page news. All of this may explain why the stock market reacted to the Drexel collapse with, essentially. a yawn. Markets. it seems. were already discounting the news that Time breathlessly reported. We, ourselves, after more than two years of rising prices. are, as readers know, less than sanguine about the market's immediate prospects. Nonetheless, our worst-case scenario does not envision anything more than a routine cycle bear-market. The new era, in other words, may well include the welcome retirement of the securities industry from front-page status. – …..- . . – – – – ANTHONY W, TABELL DELAFIELD, HARVEY, TABELL INC, Dow Jones Industrials (12 00) S & P 500 (1200) Cumulative Index (2/22/90) 2554.73 324 42 4733,26 AWTebh No statement or expression 01 opinion or any other matter herein contained,s, or 15 to be deemed to be, directly or indirectly, an offer orthe soliCitation 01 an offer to buy or sell any security reterred to or menlloned The matter IS presented merety for the Convenience of the subSCriber While we believe the sources of our Information to be reliable, we ,n no way represent or guarantee the accuracy thereof nor olthe statements made herein Any acllOn to be taken by the subscriber should be based on hiS own Investigation and Information Delafield, Harvey, Tabellinc ,as a corporation and Its officers or employees, may now have, or may later lake, positions or trades In respect to any securities mentioned In thiS or any luture 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 Ihe SEC as an Inveslmentadvlsor, may give adVice to lis Investment adVISOry and olher customers Independently 01 any statements made In thiS or In any other Issue Further Information on any security menlloned herein IS available on request