Surging in the wake of Germany's long-awaited interest rate reduction, the Dow Jones average vaulted 70 1/2 points yesterday to close at 3,375.22. At this point the Dow indicator stands only 38 points below its all-time high of 3,413.21 set in May.
MIDMONTH COMMENT: "The Dow Jones average will fall 50 percent or more during the next two years." (Investment manager Morris Markovitz in Barron's, dated yesterday. See below for summary.) . . . "With low interest rates, low inflation and the dollar now climbing, it's dangerous to be out of the market." (Frank Cappiello, investment adviser) . . . "High institutional cash will bring heavy stock demand at month-end; what's more, there's too much bearishness around and that's bullish." (William Waters, Merrill Lynch) . . . "Fuel provided by lower interest rates has now run out but since long-term rates have yet to bottom, the bull has at least nine more months to run." (Hoggett's Market Opinion Journal)
TUMBLE AHEAD! Referring to the first quotation above, here are excerpts from Markovitz's article: "Awful bear market trend may not be fully sustainable until the Fed tightens credit, but once the bear arrives the carnage could be devastating. . . . Dow Jones dividends are running 150 percent of earnings, with growth impossible and bankruptcy inevitable if any firm pays out more than it earns. . . . Current situation reminds me of 1988 when I was wildly bullish, based on 'too low' dividend payout. Conditions today are reversed. . . . Money pouring into mutual funds because of low interest rates can't keep flowing strongly. Buying pushes the market up, but it can fall of its own weight."
BALTIMORE BEAT: Legg Mason's Gerald Scheinker (486-8010) will mail "Investor's Dozen Buy List." Included are Telefonos de Mexico, Philip Morris and Schering Plough. Quote from the pamphlet: "In order for everyone to get rich, some must get rich first." (Deng Xiao Peng) . . . Investment Counselors of Maryland says, "One pattern stands out: In the 12 months following a presidential election, stocks made a substantial move in one direction or the other, but at this point election expectations are not a big factor in determining stock or bond prices."
NEW ANGLE: "Trying to beat the market over time is hard for even the best managers, but there is one remarkably simple, successful strategy. Pick the 10 highest-yielding Dow Jones stocks. Because a stock's yield rises as its price drops, you are, in effect, buying the 10 most out-of-favor Dow stocks. Buy equal amounts of each, say $1,000 per stock, hold them 12 months, then rejigger the portfolio on the same principles. Result? From 1973 through 1991 this list had a total return (gain plus income) of 1,926 percent vs. 30 Dow stocks' total return of 516 percent." (U. S. News & World Report, Sept. 14).
STOP WORRYING: Many people who plan to retire are frightened by scare articles telling them that their retirement funds will be hit by a 20 percent withholding tax after Jan. 1. Partly true, but you will be taxed only if you personally take distribution of the check. To avoid the tax, have your employer transfer your retirement funds directly into an IRA account at a bank, brokerage firm, etc. Then you have many choices. Ask a broker or financial planner.
SEPTEMBER SONGS: Your federal and Maryland estimated third quarter income tax payments must be postmarked by midnight tonight . . . Potomac Electric Power stock is listed under "Stocks for Superior Long-Term Total Return" in a recent issue of S. & P. Outlook . . . "We estimate that dividends on the S. & P. 500 stock index will climb 4-5 percent this year after less than a 1 percent gain in 1991." (McGraw Hill) . . . On a call-in show on WBAL Radio's "Lunch With Allan Prell," 12 of 15 callers told us that they were having a hard time economically and nine of the hard-pressed people said they plan to vote for Bill Clinton.