The stock and bond markets began the second half of 1993 on a tentative note. But gold bugs took the plunge, driving the precious metal up $9 an ounce, to $387.40.
The Dow Jones industrial average dropped 5.54 points to 3510.54 in heavy trading on the New York Stock Exchange. But there were more winners than losers among NYSE-listed stocks. Broader market indexes slipped. The Nasdaq composite index of over-the-counter stocks inched down 0.36 to 703.59.
One day away from important news about the nation’s job growth and just ahead of a three-day holiday, it’s not surprising that stock and bond markets showed no clear direction. Long-term bond prices dropped slightly. But the short-term end of the spectrum strengthened, despite inflationary pressures in gold and rain-soaked agricultural commodities.
Applying macroeconomic explanations to the gold market can be misleading. Gold has become a short-term trading vehicle for speculators in a dull global financial market. Big-ticket British investor James Goldsmith was said to be buying gold, sparking some of the demand.
Gold may be climbing, but oil prices are falling. The inflationary effect of short-term gold price moves is muted.
Despite the lower German interest rates, the dollar slumped in foreign exchange trading. The German rate cut had been widely anticipated, and more downbeat economic reports in the United States prompted some dollar-selling.
Warning: Diversify
Peter Anderson, investment chief at the giant Minneapolis mutual fund and money-management firm IDS Financial Services, has this word of caution for investors in the second half of the year: diversify.
Anderson says the risks and rewards of owning stock in 1993 will be “asymmetrical.” In other words, the risks are worse than the rewards. Bad news will punish stocks far more than good news will bless them.
For that reason, Anderson is keeping 15 percent of the equity money he manages in cash, up from 7 percent normally. And he’s holding about 50 stocks, up from the 40 normally in his portfolio.
“I’m trying to guard against an individual stock blowing up on us,” he said.
Uncommon value
Speaking of blowing up, one of this year’s list of 10 “uncommon value” stocks announced Thursday by Lehman Brothers is Oak Brook-based CBI Industries, the global construction contractor. Like many basic-industry companies, CBI is in a position to rally when world economies pick up.
One thing that could make CBI an appealing selection is the drubbing the stock took in May after its first-quarter earnings came in 60 percent below Wall Street estimates. The stock dove 14 percent when the earnings were announced May 4, to $24.37, and proceeded to hit $21.75 a few days later before starting a rebound.
CBI closed at $26 Thursday, up $1. The stock has a 365-day high of $33.87.
Cash flow
Much is made these days of the amount of cash resting in mutual funds and other large pools of managed money. Professional investors are getting a lot of cash from investors and not finding convincing places to put it, despite record levels of new issues of stocks and bonds by corporate America.
Now comes word that corporate America isn’t finding convincing places to put its cash, either. Standard & Poor’s reported that 784 companies raised their dividends in the first half, up from 679 in the first half of 1992. S&P expects 1,500 public companies to raise their dividends this year.
With interest rates down, investors are favoring stocks with rising dividend yields. In the tepid U.S. and world economies, the opportunity for winning internal corporate investments is reduced. Why not hand the cash out to stockholders and let them figure out what to do with it?
