Bigger bond yields send shivers through stocks

THE BALTIMORE SUN

When the 30-year government bond yield climbed to 8.04 percent yesterday, the Dow Jones industrial average and other indexes began to sink. The Dow finished the session at 3,855.30, down 36 points. Adding to the gloom, investors feared that tomorrow's newly-issued five-year Treasury note might yield as much as 7 1/2 percent, providing tough competition for stocks.

LOOKING BACK: 65 years ago this week -- in October 1929 -- the stock market crashed and set off The Great Depression. In "The Great Crash," John Kenneth Galbraith writes: "Often in late October, as the panic of 1929 began, there were no buyers for stocks. . . . Great blocks of stocks were offered for what they could bring. . . . One office boy jokingly put in an order for a medium-priced stock at $1 a share and got it. . . . The market degenerated into a wild, mad scramble to sell. . . . Outside the Exchange, a weird roar echoed through the streets. . . . Air holes, which bankers were to close, opened wide. . . . In one brokerage house an employee fainted, was revived and put back to work again."

LOOKING AHEAD: "We'll go through Dow Jones 4,000 like a hot knife through butter." (John Cleland, market strategist). . . . "The market has been resilient but I don't know how many more interest rate hikes it can take. If rates continue to rise, we'll have a problem." (Edward Nicosi, market analyst). . .. "Investors should now focus on cyclical stocks such as autos, railroads, metals and paper companies, which are likely to benefit from the global economic recovery." (Smart Money, November). . . . "Significant paper losses by individual investors will trigger a barrage of tax selling this year." (Jim Weiss, IDS Advisory Group)

WHAT'S NEW: "Under new legislation, interstate banking will be freed from many existing limits. No longer will major banks be subject to the economic vagaries of a small geographical area. With banking consolidation, there's more opportunity for capital

appreciation in bank stocks" (Rex Rehfeld, Gruntal & Co., Baltimore). . . . "Frequent fliers accustomed to using miles for upgrades will be increasingly stranded in coach. Most airlines have changed their upgrade policies so that it's tougher for passengers to bump their way into business or first class" (Smart Money, November).

HOPEFULLY HELPFUL: "Money market fund investors looking to avoid those dangerous derivatives should stick with funds that invest only in Treasury notes and bills. Other money market funds -- like Community Bankers U.S. Government Fund, which recently failed -- may invest in risky instruments." (William Donoghue, publisher, Donoghue On-Line).

DON'T BE BASHFUL: Money, November issue, runs a cover story, "Seven Questions To Ask Your Stock Broker To Insure He/She Will Make You -- Not Just Your Broker -- Richer." (1) What is your educational and professional background? (2) How much commission will you earn on this trade? (3) Will my transaction help you win a contest? (4) How long should I hold this investment? (5) Can I get my money out quickly? (6) Will I have to pay account management fees? (7) What service can I expect from you?" (Coming next week: What to hope for in the answers.)

GOOD ADVICE: "Earnings are more important than cash flow for long-term investors. If a company's earnings rise steadily, the value of its stock cannot help but rise. If the trend for corporate profits is up, the stock market is sure to do well over a five-to-10 year period, in spite of sell-offs that can occur in any given year." (Peter Lynch, legendary former manager, Fidelity Magellan Fund)

WHAT'S IN OUR NAME? "In 1867 E. A. Callahan, a stock exchange employee, invented a telegraphic device that could be used to report transactions. Sixteen years later, Thomas Edison improved it and began manufacturing what is now the classic 'stock ticker,' used well into the 1930s. In today's world of instant communication and high-speed computers, the glass-domed stock ticker -- which once chattered incessantly in smoke-filled 'boardrooms' of brokerage offices -- is obsolete." (R. M. Smythe & Co. stock catalog.)

AUTUMN ITEMS: Four whimsical investment principles I overheard somewhere: (1) No stock is completely worthless; you can always use it as a horrible example. (2) The value of making a mistake is that you recognize it when you make it all over again. (3) If seasonally adjusted, the Great Lakes would never ZTC freeze over. (4) Don't confuse wisdom with a bull market. . . . "Advice to interviewers: Wait at least three seconds after each time the candidate stops talking before speaking. Your silence may compel the other person to continue talking, and you'll get helpful insights" (Peter Scott-Morgan, employment counselor). . . "If any investment salesperson says, 'You must act now,' hang up" (Consumer Reports, October). . . . "A company cannot cost-cut its way to lasting prosperity.' (William Miller, economist). . . . Maryland is ranked 21st in the United States under "Second Quarter Increases in Personal Income" (Commerce Department). . . . National Business Employment Weekly, now on newsstands, runs a valuable story, "At Work, Should You Ever Burn Your Bridges?" Answer: Yes. Details Thursday.

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