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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: William H Huebl who wrote (42795)	8/8/1999 3:38:00 PM
From: Kip518	Read Replies (1) \| Respond to of 94695

August 08, 1999 15:13 WALL ST WEEK AHEAD-Craving cash amid tighter money By Richard Melville NEW YORK, Aug 8 (Reuters) - After years in Wall Street's doghouse, cash, if not quite king, is in hot demand. With U.S. financial markets jolted in recent weeks by the prospect of higher interest rates and bracing for a second monetary tightening by the Federal Reserve, it is hardly surprising that some Wall Street strategists are raising cash. What is more troubling to some analysts are developments on a different cash front. A confluence of factors, ranging from margin calls on Internet stock laden day-trader accounts to a shift in fund flows out of the United States and into other markets, may already be stealing the ready pool of funds that in the past has supported stocks on every market dip. While daily figures on international capital flows are unavailable, one key barometer of international sentiment, the U.S. dollar, has weakened considerably in recent weeks, said Hugh Johnson, chief investment officer at First Albany Corp. "Based on the performance of the dollar and the performance of our financial markets, it's safe to assume we're seeing some kinds of outflows from both our bond market and our stock market," he said. If the outflows represent a meaningful shift in sentiment by international investors toward the United States, that could quickly translate into lower stock prices. "One of the strong tailwinds for U.S. markets has been the inflows of funds from overseas," Bill Meehan, chief market analyst at Cantor Fitzgerald, said. "Not only would that abating have a detrimental effect, reversals could be devastating." The market's retreat over the past few weeks comes at a seasonally quiet time for investors. Second-quarter earnings reports are nearly all in and Dow component Wal-Mart Stores Inc. will report results on Tuesday. On the economic front, the calendar is also light, with Friday's Producer Price Index the highlight. Economists polled by Reuters expect a 0.3 percent rise in wholesale prices and just 0.1 percent when food and energy prices are excluded. Indeed, with respect to both earnings and economy, the news has tended to surprise on the bright side, with growth stronger than expected and inflation still at bay. In some ways, the change in view on the U.S. market, at least from an international point of view, has much to do with the fact that some global laggards -- most notably Japan -- appear on the brink of growth spurts after prolonged slumps. No one can say for certain whether recovery is at hand in Japan, but markets rarely wait for certainties and with U.S. stocks priced richly, the reward scenario offered elsewhere is attracting players. If U.S. stocks enjoy lofty valuations, no group populates the stratosphere like the Internets, even after their precipitous declines over the last couple of months. The losses in the speculative group are why Wall Street's margin debt tab is again raising concerns. New York Stock Exchange member firms' customer margin accounts, which allow investors to borrow against a portion of their portfolios to purchase additional stocks, surpassed $170 billion in April, reaching $178 billion in May before edging back by about $1 billion in June. That represents a 25 percent increase versus December, 1998, growth that outpaced the 19 percent gains in the Dow Jones industrial average, for example. The growth also came after many retail investment firms such as Charles Schwab Corp. were tightening margin rules, requiring investors to put up more cash for trades. With Internet stocks falling sharply -- America Online Inc. has tumbled 50 percent from its highs, eBay Inc. nearly 65 percent and uBid Inc. a bone-jarring 90 percent -- firms may soon be calling on investors to pony up cash to maintain their margin account balances and liquidating positions for those who cannot. That may mean trouble for stocks well beyond those in the choppy Internet seas. "Financial market history says it's usually the good stocks that get hit," Johnson said. "The stocks that precipitate the margin call usually are not a good source of funds." Whether U.S. equity mutual fund investors also opt to ease away from their market-supporting steady investing habits remains an open question. One major question on Wall Street appears all but settled on the monetary front, however. Many now believe an interest rate increase by the Fed is highly likely, perhaps as soon as its August 24 policy meeting, particularly after last Friday's jump in new jobs and wage levels. "That was the final nail in the coffin of Fed policy," James Kochan, bond market strategist at Robert W. Baird & Co., said. "If there were any lingering doubts about whether the Fed would tighten again, they are gone now."