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To: Don Green who wrote (17679)	9/5/1998 6:51:00 PM
From: goldsnow	Respond to of 116768

U.S. Companies' 3rd-Quarter Earnings to Increase -- Barely U.S. Companies' 3rd-Quarter Earnings to Increase -- Barely New York, Sept. 4 (Bloomberg) -- U.S. corporate profit growth is expected to slow in the third quarter from the previous three months, amid reduced revenue caused by recessions in Asia and slumping demand worldwide. Companies in the Standard & Poor's 500 Index are expected to increase profits by 2.1 percent from the third quarter of 1997, according to estimates compiled yesterday by First Call Corp. Profits rose 1.5 percent in the first quarter and 3.9 percent in the second, and were forecast to rise 10 percent when the third quarter started. Many analysts misjudged the extent to which slowdowns in Latin America and Asia would shrink U.S. exports, cutting into profits at Boeing Co., Motorola Inc., Tektronix Inc. and many other companies. The drop helped end a decade-long stock rally, spurring a 17 percent slide in the Dow Jones Industrial Average from its July 17 high and a 3 percent fall from a year ago. ''One of the biggest reasons for the market's decline is the downward revision in much-too-optimistic estimates for corporate profits,'' said David Jones, chief economist at Aubrey G. Lanston & Co. ''We'll go through the same thing next quarter.'' Companies already are warning that their third-quarter earnings won't meet analysts' expectations. CMP Media Inc., the world's No. 3 publisher and owner of technology magazines such as InformationWeek, said earnings will be lower than expected because companies reduced their advertising. VLSI Technology Inc., a maker of semiconductors for wireless telephones, said third-quarter earnings would miss estimates because of slow sales. And many banks have warned about losses related to Russia's debt defaults and its ruble devaluation. Chase Manhattan Corp., the largest U.S. bank, said it expects a third-quarter charge of $200 million. Chase shares have plunged 35 percent since July 6, along with other banks, amid shareholder concern that the financial and economic crisis could spread to Latin America, where many U.S. banks have loans. 1998 Forecast Most analysts still expect corporate profits to rise 5.3 percent this year, according to First Call. Jones, who forecasts that 1998 profits will be unchanged to 5 percent higher, said he is considering cutting his outlook to show a decline of as much as 2 percent. S&P 500 operating earnings grew 18.5 percent in 1995, 8.4 percent in 1996 and 11 percent in 1997. ''The market is overvalued, and its lifeline was a rapid rise in corporate profits,'' said David Dreman of Dreman Value Management in Jersey City, New Jersey, which has $6 billion. ''We're looking for relatively flat profits this year.'' Profits also are being cut by a slowing U.S. economy after seven years of expansion. The economy grew at an annual rate of 1.6 percent in the second quarter, after surging 5.5 percent in the first three months of the year. Companies that produce commodities, such as oil, are among the ones where analysts are making the deepest cuts in earnings estimates, according to First Call. Asia's energy consumption plummeted when the recessions set in. ''We've seen numbers decline sharply in energy and basic materials,'' said First Call Director of Research Chuck Hill. Oil Estimates Oil companies' earnings fell anywhere from 15 to 70 percent in the first and second quarter, and analysts expect further declines in the third quarter because oil prices remain low. Exxon, the U.S.'s largest oil company, is expected to earn 61 cents a diluted share in the third quarter, according to First Call, down from 74 cents a share in the year-ago quarter. The company's earnings fell 18 percent to $1.62 billion, or 65 cents a share, in the second quarter, when oil prices averaged $14.67 a barrel on the New York Mercantile Exchange, the lowest for the April-June period since 1986. Crude oil for October delivery fell 12 cents to $14.55 on the exchange today. A bright spot in the third quarter is likely to be the personal computer industry, analysts said. Some expect Intel Corp., for one, to beat estimates because demand for PCs is picking up. Sales of the machines had slumped earlier this year, leaving distributors with a glut of machines. The surplus is gone, and manufacturers such as Compaq Computer Corp. have started buying more chips from Intel, the world's largest maker of the microprocessors that power PCs. ''The probability of a positive third-quarter earnings surprise is quite high,'' analyst Mark Edelstone of Morgan Stanley Dean Witter & Co. wrote in a report to investors this week. Edelstone rates Intel shares ''strong buy.'' For most companies, however, third-quarter earnings gains may be slim, and further drops in shares are anticipated, analysts said. ''It seems wise to hold your fire and see how this plays out,'' said Jim Griffin, investment strategist at Aeltus Investment Management Inc. in Hartford, Connecticut, which has about $50 billion under management. ''People are panicking.'' bloomberg.com

To: Don Green who wrote (17679)	9/5/1998 6:55:00 PM
From: goldsnow	Respond to of 116768

USA POG, USA outlook (not World for "Doom").....Rambus :) Investors Brave Battered Corporate Bond Market After Rout: Rates of Return Investors Brave Battered Corporate Bond Market: Rates of Return New York, Sept. 4 (Bloomberg) -- Some investors are buying corporate bonds -- hoping to reap big gains -- after the market's month-long rout. The gap in yield between corporate bonds and Treasury securities ballooned to its widest in more than seven years this week as investors fretted that plunging stocks presaged slowing growth in the U.S. and weaker company earnings. For those who don't expect the economy to tumble into a recession anytime soon, bonds of companies such as International Business Machines Corp. and Fannie Mae are hard to resist. ''We've been buying to take advantage of the widening,'' said John Bender, who helps manage $7 billion of fixed-income securities at Strong Capital Management in Milwaukee. ''Spreads in some sectors are back to levels we haven't seen since the recession of 1990, but we're not in a recession.'' IBM's 6.5 percent 30-year bonds yield about 135 basis points more than 30-year Treasury bonds, well above the 90-basis-point spread on July 31. Fannie Mae, the nation's largest home mortgage buyer, sold five-year notes Wednesday at 45 basis points over Treasuries. That compares with 28 basis points in early August and 18 basis points in April. In the junk market, Level 3 Communications Inc.'s 10-year notes fell almost 12 points in August. That raised their yield to 11.47 percent -- about 650 basis points above Treasuries and almost double the 350-basis-point spread in April, when investors snapped up the $2 billion sale. Junk bonds posted their worst monthly return in more than a decade in August. 'Bang for the Buck' For many better quality bonds, prices did not fall in August, though they badly lagged the gains in Treasuries, causing their yield spreads to widen. Some investors say long-term bonds are the most attractive because they offer the best potential performance if spreads over Treasuries narrow. ''We're selectively buying in 10-, 20- and 30- years where there's more bang for the buck,'' said James Claire, a senior trader at First Capital Group, a part of First Union Corp. Those looking for signs the U.S. economy remains healthy received some good news today, when the government said the economy added 365,000 jobs in August. The jobless rate remained at 4.5 percent, near the lowest in decades. ''As long as people have jobs and keep spending money, everything will be okay,'' said John Kornitzer who manages the $400 million Buffalo High Yield Fund. ''It's a matter of weathering the storm because it'll look great on the other side.'' Investors with memories of the 1990 junk bond market crash -- when defaults were high and bonds owned by failed savings and loans were dumped on the market -- recall how the market came roaring back. Investors who bought junk bonds during any month of 1990, earned annualized returns over the next 18 months of 12 percent to 35 percent, according to Martin Fridson, high-yield strategist at Merrill Lynch & Co. On the Defensive Even bullish investors say they're being selective, and avoiding companies most vulnerable to an economic slowdown, low commodity prices and competition from overseas. ''We have started buying. But all the companies have one thing in common: They are insulated from anything but the U.S.'' economy, said Peter Andersen, manager of Conseco Capital Management Inc.'s high-yield fund. He said he likes bonds of AMF Bowling Inc., Friendly Ice Cream Corp., Nine West Group Inc. and those of cable companies. ''A slow growing economy is very benign to the high-yield market,'' he said. ''As long as we don't see negative growth, then my outlook on domestic high-yield is sanguine.'' Even if the rebound in junk bonds isn't immediate, some buyers say the fat yields are too good to pass up. ''If you can buy bonds at 12 and 13 percent, why shouldn't you?'' asked Kornitzer from the Buffalo funds. ''Over the long term, you'll make money.'' bloomberg.com

To: Don Green who wrote (17679)	9/5/1998 7:04:00 PM
From: goldsnow	Respond to of 116768

Where to now: Investment in a changing world By John Wasiliev Uncertain and volatile financial markets have a habit of sorting out investors. The big winners almost always follow a clear strategy designed to adapt to market conditions. This applies regardless of whether the approach is long-term investing or short-term trading. The big losers are usually investors who panic or take extreme measures.While brokers and financial analysts frequently suggest that dramatic market corrections present an excellent opportunity to buy shares - based on evidence the market can bounce back quite quickly after a sharp retreat - the danger for those who buy indiscriminately rather than as part of a precise strategy is the high risk of falling into a bear trap. Bear traps are always a hazard in volatile markets immediately after a sharp fall, cautions Colin Nicholson, an experienced share trader who lectures on technical trading at the Securities Institute of Australia. On market price charts, bear traps appear as a rally that follows a major correction which soon afterwards becomes a second fall, usually worse than the first. The most likely victims of bear traps are excited investors who get carried away with shares that appear cheap after the first big market correction. Selling to these enthusiastic buyers are more experienced holders - mostly short- and medium-term traders - who sense a bear trap rally as a chance to get out before the second disaster.The second retreat can sometimes come very quickly when it can have a bigger shock effect than the first. That's because it's regarded as serious confirmation of a bear market. Or the decline can be an erosion that gradually wears down the will of even the most opportunistic and optimistic buyers until it drives them out of the market. However it happens, it should not concern experienced share investors. Over the long term, all bear markets are ultimately pauses of varying time-spans in the relentless upward progress of shares. This is the major reason why share investors with a long-term time horizon and a good strategy can safely overlook market retreats, even bad ones, reckons Janice Sengupta, head of research at financial adviser Godfrey Pembroke. The biggest risk long-term investors face is being spooked by a market panic and selling out. This is why financial advisers have developed various comforts like portfolio diversification strategies that can almost eliminate the risks of negative annual performances. These strategies, Sengupta claims, can ease the psychological problems associated with making share investments while the market is in a bearish mood. "There is no way you can be certain about every share investment you pick," she says, "which is why many advisers emphasise such techniques as diversification and dollar cost averaging during down markets." Dollar cost averaging is a discipline that encourages regular purchases of shares or units in share trusts, say on a monthly or quarterly basis, regardless of market price behaviour. The idea is investors with money to allocate towards shares not only stay in the market but buy more when prices are low which, in turn, allows them to benefit when prices recover.Sengupta says averaging is a way of overcoming the strong reluctance of investors to buy when markets are pessimistic. Also, from a market timing perspective, it probably delivers the best results if implemented when markets are in retreat. A strategy along similar lines with the principal aim of keeping investors in the market when they may not want to be is buying instalment warrants. They offer higher dividends and a staggered purchase price. Disciplined buying strategies are the alternative to kneejerk purchases and provide a feeling of control. Another technique is buying on value assessments of investments and markets. As they retreat, once pricey investments and markets start to show more value. There are various techniques to assess value but the most important rule with any system or strategy is to stick with it. Where share traders in particular often come a cropper, notes Colin Nicholson, is doing the total opposite to what a system requires. For example, the conventional advice in most good trading systems is letting your profitable shares run their course but selling losers as soon as they fail to behave as expected. But when markets collapse, many traders panic and the first shares they sell are their most profitable ones. This leaves them with their losers which they then rationalise holding on to. "This is the worst possible scenario for any trader," says Nicholson. Being objective when you follow a system should not be limited to technical strategies but also extended to fundamental approaches. With value-based strategies, for example, investors need to be aware of possible influences that can change crucial fundamentals like price earnings ratios.Valuations based on future earnings prospects are vulnerable to earnings downgrades, says Andrew Bird, managing director of Aspect Financial, a new internet-based share information service. One thing the market downturn will test is the earnings forecasts of many share analysts. Some of these forecasts may prove to be quite aggressive and reflect more optimistic times. The Aspect Equity Review aspectfinancial.com.au uses consensus earnings forecasts information in its share valuation calculations. The accompanying table shows a selection of prominent shares and how current earnings expectations saw them valued this week. <Picture> The relevant columns to compare are the market price against the model value price. The model price is calculated using a variation of the traditional dividend discount model. It values shares on their expected future earnings over the longer term. The ratio shows how the market price compares with the model value price. The net asset price gives another perspective. The model graphically illustrates why Westfield's owner, Frank Lowy, considered it a good time to sell some of his shares and divide the proceeds among his grandchildren. According to the model valuation of $2.77 calculated from expected earnings, Westfield is generously priced in the market at $7 and more than 2.5 times the model value price. The table also shows that even with the latest retreat, there are still some reasonable valuations on prominent shares. This is despite the fact that since early June, the median valuation of shares in the All Ordinaries Index has retreated from being 25 overvalued to 10 per cent overvalued, according to Aspect's calculations. Bird believes that if the current market reversal confirms a bear market, it could well see lower valuations due to earnings forecast revisions. Because valuation models project earnings into the future, it doesn't take very much of a downgrade to reduce valuations. afr.com.au