Viewing Month: August 1992

Tabell’s Market Letter – August 07, 1992

Tabell’s Market Letter – August 07, 1992

Tabell's Market Letter - August 07, 1992
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-..- TABELL'S MARKET LETTER 5 VAUGHN DRIVE, eN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 August 7, 1992 A spate of profit-taking interrupted the improving technical market action which had featured the second half of July. Through -Monday,-the Slandard&l'aOrs-SOO haaextende,CiiS,iieakof newalilirile-high..–cIOs'ng at '42J.09;com(Oriiibly abovelheJanu.ry – – – level of 420 which had been Ihat indicator's prior record. The Dow reached 3395.40, a shade below its June lSi peak of 3413.21. By week's end bOlh averages had retrealed modestly from these levels. Last week we cited, along with the S & P, a number of financial statistics which were setting records. One area which we lacked the space to discuss was interest rates, especially short-to-intermediate-tenn interest rates. Such rates have been plummeting and Ihe prices of fixed-income inslrumenls correspondingly rising. An almost-hundred-basis-poml drop in Treasury-Bill yields has taken place since Apnl, bringing Ihal rale close to Ihe even-three-percent level. Placing further pressure on savers, the rate for 9O-day certificates of deposit has moved under three percent in the past couple of weeks. Relatively short government bonds have moved ahead two and three points, affording a short-term windfall to conservative investors. Meanwhile there continues to be talk of even further Fed easc. The inlerest-rale fall, Ihough, is hardly a new phenomenon. The most recenl phase of a long-Ierm plunge in rales can be daled as having begun some 40 months ago, in March-April 1989. T-Bills at Ihat lime sold 10 yield over 9 and CD rales were close 10 10. The drop since then is actually the longest-in-duration interest-rate drop in over forty years and is now approachmg being the second-longest swing an rates–either up or down–in that same forty-year period. Let us make that statement a little more specific. It IS our practice to measure swings in market statistics by the application of a percentage filter, lracing each rise and fall of a given percentage withoul a like reversal over Ihe duralion of Ihe series. It is perfectly possible 10 apply Ihis lechnique 10 interest rates, and we Ihus applied a 20 filter to Ihe monthly average of 3-monlh Treasury-Bill rales smce 1950. From Iheir April, 1989 average of 9.19, bill rales fell to an average 3.65 for July 1992, a sixly-percenl drop. The closest previous approximalion 10 Ihis decline was a 52 drop in rales, from 11.01 105.27 between September, 1984 and September, 1986. That, however, only took 24 months. There have been three largely unmterrupted upswings in rates which have equalled or exceeded the present downswing in duralton In Ihe forty monlhs between June, 1954 and Ootober, 1957, rales rose from 0.63 (really) 103.70 an almosl sixfold increase. They set an all-lime record by rising steadily from August, 1960 (2.14) 10 Oclober, 1966 (5.44), advancmg for no fewer – than -74 -months. There-also-occulTed-a39-monthupswing-from JanulI',197J. to-April ,…..1980.-which-took-billrates- from-4,42- -to- – – 14.98 All of these swings. though. can, as we have pointed out, be seen as components of a much longer-tenn pattern. 1nterest -rate cycles have been sludied and identified back 10 Ihe eighteenlh century, and the presence of cyclical swings having a length of Iwenty years or more has been recognized. In June, 1920, Moody's AAA Industrials provided a yield of 6.47, the high of a rise Ihal had occupIed Ihe enllfe early part of the 20lh century. By December, 1940, Ihat rale had been cui by Iwo Ihirds to 2.28, and long-bond rales did not move much off Ihat levellhroughoul World War II. 35-40 years laler, in October, 1981, long rales peaked just under 15. They have been falling ever since—to current levels approaching 8 . It is, in our view, important to recognize that the current swing 15 only ten years old, and, if history is any guide, the current trend toward lower interest rates could go on for at least another decade. This is not to say, of course, that the current extended rate-drop referred to above could not undergo a fairly protracted correctIOn at almost any time. The table at left attempts to illustrate Approximate Yield at Original Issue For Maturing Treasury Debt Maturity 6 Months 1 Year 3 Years 5 Years 10 Years 20 Years 1992 3.96 4.67 7.74 8.51 10.69 5.59 1993 7.66 8.93 11.58 7.11 1994 5.74 7.73 11.50 7.70 1995 7.92 9.62 8.12 a currenl phenomenon produced by falling interest rates. As older debt matures these days, It becomes difficult to invest funds received at Ihe original yield. The table shows, for debt maturing In December, 1992 to December. 2001 what the approximate yield was at the time of original issue. Thus 1996 1997 1998 1999 2000 2001 6.48 7.15 8.99 9.09 7.83 8.25 7.38 7.48 7.52 8.73 10.08 12.30 13.38 the purchaser at issue of six-month bills maturing this December had been receiving a 3.96 return on his money, the original purchaser of a 1-year note, 4.67 and so on. The subsequent rows show comparable figures for debt matunng in subsequent years. The bottom row shows the returns for Current 3.77 4.05 5.31 6.78 7.12 7.45 instruments purchased today. The table demonstrates that It is baSically Impossible for the holder of maturing debt of lengths up to ten years to remvest his proceeds at a like return. This has. of course, produced pressure on other investment media. The popularity of bond funds suggests that CD and other short-term money is actively chasmg higher yields. There IS lIkewise some evidence that investors are seeking higher returns ID the equity market. Implicitly, of course, these investors are counting on capital gains. smce stock yields by and large. do not approximate. those available, even today, on fixed-income securities. The implications of such expectations for the current technical conditIOn of the stock market are. of course, yet another topic. ANTIIONY W. TABELL, CMT Dow Jones Induslrials (1200) Siandard & Poors 500 (1200) Cumulallve Index (8/7/92) 3355.96 422.14 761506 DELAFIELD, HARVEY, TABELL No statement or expression of opinion or any other mailer herein contained IS, or IS to bedeemed to be. directly or indirectly, an oHer or the soliCitation of an oHerto buy or sell any secUfity referred to or menlloned The maner IS presented merely for the convenience of the subscflber While we believe the sources of our information to be reliable, we In no way represent or guarantee the accuracy thereof nor of the statements made herein Any action to be taken by the subscflber should be based on hiS own investigation and Informallon Delafield, Harvey labelllnc, as a corporation and ItS officers or employees. may now have, or may laler take, positions or trades In respeclto any secufilles mentioned In thiS or any futurE'llssue, and such position may be different from any views now or hereafter expressed In thiS or any other Issue Delafield. Harvey, labellinc ,WhiCh IS registered With the SEC as an Investment adVisor may gIVe adVice 10 Its Investment adVISOry and other customers Independently of any statements made In thiS or In any other Issue Further Informallon on any sec'Jrrty menlloned herein IS ava11able on request

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Tabell’s Market Letter – August 14, 1992

Tabell’s Market Letter – August 14, 1992

Tabell's Market Letter - August 14, 1992
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-……….. – TABELL'S MARKET LETTER 5 VAUGHN DRIVE. CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC (609) 987-2300 ;. August 14, 1992 There is little that is proprietary in the field of financial commentary. Nor. In a sense, should there be, since market analysts sameare, essetially-;Call commenting onth -phenomenon. -Manyfate,-amOnthor 5'0ago -we did a studyf the percentage decfis – of individual issues between their highs of the first quarter of 1992 and their lows of the second quarter Quite frankly that project was stimulated by reports in the press of a similar study done by Bob Farrell at Memll Lynch. Not surprismgly, our own results were similar. Our numbers showed that the average such decline for the 3699 stocks we looked at was 27.3—31.3 for the 1738 over-the-counter stocks in the survey. 37 of the stocks in our UOlverse had declined 30 or more, including almost half the GTC Issues. A good deal of media comment on this particular phenomenon has emerged in the past couple of weeks. Essentially. all this comment can be summarized by noting the simple fact that a lot of stocks have gone down a lot. The question. however, is of just what use this particular piece of knowledge IS likely to be for the investor. It IS probably no accident that the manifestation of widespread interest in the occurrence of numerous individual stock declines has taken place coincident with somewhat improved performance by the Standard and Poors 500, which. after lagging dunng the first half of the year, finally started achieving new all-l1me highs The S & P Composite has become, of course. the benchmark by which portfolio performance tends to be judged. Thus the managers of portfolios which were not close to ali-time highs acquired a vested interest 10 provmg that the market was not really doing all that well. Thus the notice given the phenomenon of many deep declines. All of which raises a number of interesting questIOns How do we measure performance And If performance is not all that great based on comparison to one average. does It make sense to find another less-well-performing statistic to which one can compare and look better The answers are not simple They are made yet more complex in our VIew by the fact that a valid performance comparison will, or should. be different, dependlOg on the investor who 15 maklOg the comparison. The reason for the popularity of the S & P 500 as a benchmark IS that it probably is. in fact. a valid gauge for the large institutional investor. The reason for tlus IS its capitalization weight. If one accepts thaLlargecapitalizatton mphes aJareJloating-supply–ndthusa hrladand liqUid market, thel,uesthaLpos.e..thegreatest welght – in the S & P wll1 be those easiest to buy in the quantlttes that the large investor will need to hold. Indeed. for many such Investors, only a subset of the S & P can be considered for potentIal investment In meamngful amounts. In the case of the individual Investor, even the relatively large individual investor, precisely the opposite is the case. Certamly every one of the 500 Issues 10 the Composite IS available to him as a potential purchase candidate. So IOdeed are a large number of others. It IS our own View that, as we move into the 1990's, thIS sort of flexibility may well prove an advantage to personal portfoiios enJOYlOg the rewards of competent management. Yet It IS hardly valid enttrely to discard the S & P as a performance measurement For. after all, the larger-capitalizatIOn Issues are III fact readily available to the smaller investor. If there is reason to suspect that such issues may be among the better performers. there IS no reason not to make them the core components of an individual portfolio. Indeed just such a strategy was. we know by hIndsIght. the correct one dunng most of the 1980's. Unttl a year or so ago. at least. the better relative performance of large-capitalIzatIon issues was a favorite tOpIC of discussion in market letters. Even gwen the spurt In smaller stocks in the latter half of 1991. secondary-Issue performance over the past year has not yet become dramatically better than the achon of higher-quality Issues If the S & P IS where the action IS, III other words, it is, arguably, the place to be Another complexity of performance measurement anses from the necessity for nsk adjustment A major contnbution of modern portfoho theory to the lllvestment process has been the recogruhon of the necessity for such adjustment and the formalization of quanutatlve techniques for perfonnmg it. This IS not to say that the concept of nsk has not been around for some time. Benjamin Graham many years ago paid a great deal of attentIon to risk, although he defined It quite differently, belIevmg it was essentIally embedded In a given company's financial statements rather than, as today's theonsts would have it. a product of price volatility Our own favorite explanation of risk in the investment-decision-making process is embodied in a story we heard years ago It Involved an elderly widowed lady and her IOvestment advisor. The lady in question possessed a highly limited amount of capital whIch. If IOvested conservatIvely, would just barely prOVide a sufficient IOcome for her to survive in extremely modest circumstances for the rest of her days Theadvisor persuaded her to take her entire stake and bet it on a horse runrung that day. a horse. moreover. that was a l00-to-l shot. And the horse won! r r The little old lady was now nch beyond dreams of avance and spent the rest of her years liVing In luxury At that pOint. the teller of the tale would pause and ask hiS listeners to reflect on whether the adVisor had, In fact. acted to the lady's best mterest Mathematical models, of course. also tell of he pitfalls In achIevmg perf01 mance via fIsk-taking. but the fable IS. In our vie\\-. perhaps more IllustratIVe All at thiS is simply by way of suggesting that mearnngful assessment of investment performance is not as easy an effort as It appears on the surface. Indeed It is a highly complicated task. and its results wl11 vary from indiVidual to todlVldual. This IS not to suggest that performance measurement IS a less than useful exercise. It requires. however. a fair amount of thought and preCISIOn ANTHONY W TABELL. CMT DELAFIELD. HARVEY. TABELL Dow Jones Industnals (12 00) 331462 Standard & Poors 500 (12 00) 21908 Cumuiall\'e Index (8/13/92) 755282 No statement or expression 01 Optnlon 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 secUrity referred to or mentIoned The matter IS presented merely for the convemence of the subscnber Wh!le we beheve the sources of out Informat!on to be reliable we!n no way represent or guarantee the accuracylhereof nor olthe statements made herein Any actIon to be taken by the subSCriber should be based on hiS own !nvesllgat!on and InformaMn Delafield. Harvey, Tabellinc. as a corporallon and Its officers or employees. may now have, or may laler take, pos!llons or trades In respecllo any secUrities mentioned In thiS or any future Issue. and such pos!tlon 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 Independently of any statements made In thiS or In any other Issue Further Information on any security mentioned herein IS available on request

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Tabell’s Market Letter – August 21, 1992

Tabell’s Market Letter – August 21, 1992

Tabell's Market Letter - August 21, 1992
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TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS. INC 1609) 987-2300 August 21, 1992 On occasion, something appearing in this space produces reader response, and we are always glad when this occurs. Approximately a month ago, we-publishelfa piece-which nOled that,- in our vieW; there seemed-toexist a widespread popular– belief that the rate of inflation in the United States was greater than was actually the case. To prove our point, we CIted the recent history of the Consumer Price Index. A reader sent us a comment thereon which we thought both stimulating and provocative. A portion of that comment is quoted below. I am aware of what government statistics on inflation reflect, but I some times wonder whether or not the CPI truly is indicative of the upper income people with whom you generally deal. My guess is that the prices ofso-called luxury automobiles have risen in the last six years far more than 4 percent. I believe that most professional fees (particularly those for lawyers and accountants) have rISen more than a 4 percent annual rate. The price of .. meals (and) the price of travel, in my opinion have… risenfar more than 4 percent. It may well be that the factors that make up the CPI, andfor the average American, have not risen more than 4 percent. but I do believe that the factors that many of us who are blessed to be in the upper income levels pay for have risen more than 4 percent. As noted above, we thought this to be an astute observation, and It is possible to respond to it on a number of levels. The facile and cynical response, of course, would be to say that it is difficult to work up a great deal of sympathy for the nch because the cost of their BMW's and divorces is increasing. Such an answer, though, would be neither honest nor responsive to what is essentially a valid point. Thus we can move on. Our first thought is to note one distinguishing characteristic of the relatively affluent segment of the popUlation to which our reader refers. Its members are more likely than not to be investors. This letter is, of course, written for investors, and It has always been our contention that investment should be based on facts. It IS indeed a fact, as we noted in our letter. that the rate of increase in the CPI, whatever that index mayor may not describe, has, over the past six years, been just over four percent. Investment decISIOns should be based on recognition of that fact. This, we suppose, was really the point we were most desirous of making. The next observation that should be made is that the fact that some of (he items our reader cites hav Qeen rising fasteL '!hanthe general price level is not indeed;Surprlsfrig. It is basic ec-;;oic iaw-that those items possessmg a high labor content (and professional fees have a close-to-100 labor content) are the least susceptible to productivity improvement which is, basically, the result of capital expenditure. (As we recall, our college economics textbook cited the price of haircuts as an example of this phenomenon, something we ruefully remember when thinking the 35-cent cost of a trim in our youth.) Which leads to yet another point. Services, precisely that sector of the economy in which productivity gains are supposed to be limIted. are becoming an increasingly important component of the economic mix. Purchase of services accounted for well over half of all personal consumption expenditures last year. When manufacturing constituted the most important part of gross naltOnal product, significant productiVIty gains were possible and could make important contributions to economic growth. As the service sector becomes mcreasingly important, there emerges a real question as to whether we will be able to continue to manifest the same rate of growth. Note that we are posing a question rather than making a forecast. (Gary Shilling has identified service sector productivity as being one of the great potential growth areas of the 1990's. If this is 50, it will, it seems obvious, generate investment opportunities in abundance.) Perhaps the question our reader IS really raising here, then, is one not of rising prices, but of the prospects for continued economic growth. If we are to continue the tradition of little or no productivity gam in the service sector, then, as that sector becomes an increasingly important part of the economy, longer-tenn growth prospects become limited. It is this sort of thing that observers of the economic scene are talking about when they discuss the modest change over the past decade in what is really the economic bottom line—real disposable personal mcome per capita. It is what they are talking about in a more immediate context when they discuss the rather strange behavior of the economy in its current recovery from recession—the double-dip (or is it a triple-dip) pattern that has been widely noted. To carry this argument further, let us look at the sorts of expenditures our correspondent is referring to from the consumption as well as the production side. A century ago, the primary economic concern of even the more affluent American did not center upon automobiles vacation travel or an accountant to do his tax return. It focused rather on simply earning enough to feed his family. The rising standard of living which has been the centerpiece of our economIc hIstory has e55enttally consisted of an Increasmg proportIon of luxury It goods In the consumer-spending pattern and the consequent decreasmg percentage expenditure on baSIC necessIhes If a charactenstlc of less-than-essentIal goods 10 the American economy is gOlOg to be a continued increase in theIr relative pnce. the logIcal economIc result. it seems to us, will be a scarcity of such goods TIns IS one way of describing a falhng or stagnant standard of livtng. ThIS tn turn is characteristic not of an tnflationary—but a deflationary —economy, one where we would be lookmg at the really unthinkablemdecreasing prices. This is a not Impossible prospect If productiVIty gains at the historical rate become unattainable in an expanding service sector. ANTHONY W TABELL, CMT Dow Jones Industnals (1200) 3291.12 DELAFIELD, HARVEY, TABELL Standard & Poors 500 (1200) 41691 CumulatIve Index (8120192) 7542.08 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 security 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 of the statements made herein. Any action to be taken by the subscriber should be based on his own investigation and information. Delafield, Harvey, Tabell Inc. as a corporation and its officers or employees, may now have, or may later take, positions 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, Tabell 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 security mentioned herein is available on request.

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Tabell’s Market Letter – August 28, 1992

Tabell’s Market Letter – August 28, 1992

Tabell's Market Letter - August 28, 1992
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TABELL'S MARKET LETTER 5 VAUGHN DRIVE, CN 5209, PRINCETON, NEW JERSEY 08543-5209 MEMBER NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC (609) 987-2300 August 28, 1992 The market weakness which has characterized August so far comes almost as a relief in an equity environment which, for 1992 , I dte-t least, has generated little exclt-mellt. To be su, the tren.d for the firs! five months of the year -vas tortously upward. The. – – year-end rally began on December 10 at 2863.82 and (with a not-unimportant six-week pause in March-April, of which more later) had, by June 1st, produced an almost-20 advance to 3413.21. However, the advance, by almost any measure, was tepid. Breadth peaked in February. Until recently, the Standard & Poors 500 had lagged well behind the DnA. And most investment managers had difficulty duplicating even the action of that average. It constituted, therefore, almost an event when, on Monday, the average managed to close a whopping 5.42 down from its June 1st high and almost 5 below where it had hegun August, the month's peak having heen reached on August 3rd at 3395.40 It was the market's third biggest fall since the low of Octoher 1990, exceeded only by a couple of 6-plus declines in January and October- December of 1991. DOW JONES INDUSTRIAL AVERAGE MID-1991 20 POINT INDU The drop. however, was not without technical significance, as the 20-point cbart of the Dow above should illustrate. As the chart shows. the advance from the December low was in a VIrtual straight line almost to the 3300 level. The March-Apnl pause lD a narrow lOO-pOlDt trading range looked as if it might be ready to foster a correction, and, indeed. that bane of technicians, a false downside breakout, took place. April and May, however, saW another sharp runup. The 3400 level was first reached. as noted above, on the first day of June. After stalling in July, the average made another run at 3400 in August (accompamed, finally, by an all-time high in the S & P 500) but failed to make any further progress. Now the Dow has moved fairly deciSively below ItS June-July low. and the potential top fonnation is fairly broad. The one constructive element that exists IS that March-April trading area at 3300-3200 which could wrnd up providing support. It was. indeed. after a fairly deep penetration into that area that the market bounced in the latter part of this week. If 3200 is cannot hold. however, the likeliest pOSSibility would be a probe of the late-1991 trading area at 3000-2850. This could be a somewhat less-than-pleasant experience. Against this background, there exist, in our view, a number of further negatives, not the least of which is the pronounced downward bias of the month of September. We mentioned above the fact that breadth peaked back in February. This means that there now eXlSts a divergence of 138 days, something that, historically. has not boded well for market prospects. On the plus Side, breadth acted sufficiently well Ln early August so that, even after having retreated, our druly breadth index remains comfortably above its lows of Apnl and June. Such short-term positive divergences, however. tend to have limited significance. From a valuation pomt of VIew, we find the S & P 500 selhng, at yesterday's levels. at almost 24 times trailing 12-month – earnrngs, and 18 times estimated results for 1992. The pie ratio IS a more modest 15 if we apply it to estimated 1993 results, but there is some room for doubt as to whether the consensus estimate for 1993 is attainable. given the anemic nature of the recovery to date. A glance at yesterday's paper, for example, shows durable-goods orders down sbarply from a year ago. With this sort of phenomenon nOW becoming commonplace, can one expect corporate profits of record proportions in 1993 This diatnbe sounds more pessnnistic, perhaps, than It 15 intended to be. It needs to be stressed that our own experience include plenty of markets whtch have found themselves in a worse technical condition Our intent. simply, is to raise a few caul10n flags in a market whose 1992 dullness may have lulled investors ANTIIONY W. TABELL. CMT DELARELD.HARVEY,TABELL Dow Jones Industrials (12'00) 3263.83 Standard & Poors 500 (12.00) 414.38 Cumulative Index (8/27/92) 7518.58 '- 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 security 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 of the statements made herein. Any action to be taken by the subscriber should be based on his own investigation and information. Delafield, Harvey, Tabell Inc. as a corporation and its officers or employees, may now have, or may later take, positions 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, Tabell 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 security mentioned herein is available on request.

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