The stock market's strength in the face of all this gloomy economic news hasn't surprised Asset Allocation Review (P.O. Box 329, Washington Depot, CT 06794). "Classic market bottoms usually occur after prices have declined in anticipation of a recession, and the Federal Reserve changes its role from one of inflation fighter to economic stimulator. In this sense, recent events are quite bullish. We believe history is repeating itself here, although the time lags will be longer."
- Even if the stock market continues to rise, some stocks will go in the opposite direction. In 1989, for example, when the Standard & Poor's 500 rose 316 percent, 214 individual New York Stock Exchange issues fell 25 percent or more. Such laggards are the province of the Overpriced Stock Service (1620 Montgomery St., Suite 200, San Francisco, CA 94111), which made 38 percent on its money in the past 12 months by selling stocks short. Its favorite short-sale candidates now: AMR, Delta Air Lines, First Interstate, Home Depot, Northrop, Security Pacific, Tyson Foods, Wells Fargo.- Although some British banks have troublesome loans, their overall difficulties are nowhere near as nettlesome as those of U.S. banks. Steven Hueglin of Gabriele Hueglin & Cashman suggests American investors can take advantage of this relative health by buying the preference shares of two major British banks: Barclays and Royal Bank of Scotland. Preference shares are similar to U.S. preferred stocks. They trade on the New York Stock Exchange, where these two issues recently yielded more than 12 percent.
- Growth was the key word for stocks in the '70s, while quality was what attracted equity investors in the '80s. In the '90s, says Phoenix Growth Fund's Robert Chesek, a synthesis of these two concepts - "quality growth" - is what stock buyers should be concentrating on. "In the '90s, strong balance sheets, consistent earnings and high return on capital will be what you want to own long-term." Chesek's favorite such stocks: Bristol-Myers Squibb, Calgon Carbon, Golden West Financial, Medtronic, Merck, PepsiCo, Washington Federal S&L, Waste Management.
- "In both of the '80s recessions, bond yields were as high as they were recently," notes Money Advisory (300 East Blvd., B4, Charlotte, NC 28203). "Then they fell 16 percent and 26 percent, respectively. A repeat performance, assuming the economy is now in recession, could see long government bond rates fall as low as 6.7 percent. We have repeatedly stated that 30-year Treasury bonds would be the premier investment of the early '90s. We still believe it."
- Generally, when housing prices have tripled in the previous five years, sell or don't buy, advises economist Michael Evans of Washington, D.C. "But if housing prices have risen more slowly than inflation for three years in a row, it's a good time to buy. Assuming this real estate decline won't last more than three years, which none has in the past 40 years, then a turnaround in housing prices should have begun by midyear. "
- Investors in annuities can avoid early withdrawal penalties by carefully considering whether they'll need their money before retiring, says Financial World magazine. "Compare annuities with other investment options, too. Defined contribution plans at work, such as 401 , can be a better deal, particularly with matching contributions from your employer."
Investor's Notebook reflects the opinions of professionals. It does not endorse specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.