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'Lucky insiders,' Fed money gauge, new accounts - a range of views

This week, we bestow our Lucky Insider Award to the nine insiders [officers and directors] of Warner Communications who brilliantly unloaded $7.7 million worth of Warner common stock earlier this year. The insiders liquidated this stock in August, September, and October as the issue began soaring up in response to market enthusiasm over the company's Atari video game sales. Then on Dec. 8, the company abruptly fired the president of its Atari unit and simultaneously announced that its fourth-quarter sales and earnings would be well below previously announced estimates.

Surprise! Surprise! Warner's stock collapsed, plunging nearly 30 points.

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The Lucky Insider Award is bestowed periodically on officials of companies who make unusually well-timed purchases and sales of their company's common stock.

- The Institute for Econometric Research, Fort Lauderdale, Fla.

It is almost certain that M-1 has permanently lost its role as a primary target of monetary policy. M-1 [cash and money in demand deposit and NOW accounts] has been important for monetary policy because of its close and predictable relationship to total spending. One characteristic of M-1 that was important to this relationship was its fixed rate of return - zero on currency and demand deposits and 5 1/4 percent on NOW accounts. After Jan. 5, this distinctive characteristic will be lost because the Depository Institutions Deregulation Committee has authorized a Super NOW account for depository institutions, to be offered beginning on that date. This account has no transaction limit, (i.e., unlimited check writing), no interest rate ceilings, and a $2,500 minimum average balance. The effects this new account will have on M-1 and M-2 growth rates are extremely difficult to predict accurately at this time. Therefore, both aggregates will be unstable indicators of Fed policy actions. Thus, the Fed has a regulatory-induced justification for continuing to ignore M-1 and M-2 in the months ahead and for paying more emphasis on financial market conditions.

- Wells Fargo Bank, San Francisco

While banks savor the prospect of drawing millions of dollars away from the money market funds (with the new money market accounts), they may be left with a bitter aftertaste should their passbook customers make the switch, too. At $320 billion, passbook savings exceed money fund assets by a substantial margin of some $90 billion. Bankers hope that passbook depositors' reluctance to move into money mutuals will again be in evidence and will offset the obvious appeal of the new accounts. However, nothing can be taken for granted, and the possibility that tens, if not scores, of billions of dollars will be moved from passbook savings to the new alternative is a very real threat to banks. For every $1 million of passbook savings that do move up, banks may have to attract up to $2 million in new deposits just to break even.

- United Business Service Company, Boston

The most recent reduction in the discount rate by the Federal Reserve, to 8 1 /2 percent, suggests that the central bank may now be prepared to take bolder initiatives in the financial area - something it has tried to avoid. The move was made while money market rates were sticking at higher levels, and it thus seems more stimulative than other rate reductions. It also came in the face of sharp increases in the money supply, perhaps also suggesting that the Fed's apparent departure from the monetary path is more serious than many have thought.

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- Moody's Investors Service, New York

The general assessment today that recovery will be evident in the spring has a disquietingly familiar ring - it's what people were hearing this time a year ago. Much has happened during the past year, however, to make it more likely that the forecast will be realized this time around. Both interest rates and inflation rates have fallen, while the stock market rallied sharply - a prerequisite for any economic upturn. Business conditions are still quite weak, and the possibility of yet another round of production cutbacks and layoffs cannot be dismissed. Nevertheless, recent developments hint at increases in output within the next few months. Real GNP in 1983 is expected to rise 2.8 percent, after falling 1.7 percent in 1982. Even with this improved situation, however, the unemployment rate could remain at double-digit levels throughout next year.

- Irving Trust Company, New York

Residential construction activity is one area of the economy that is clearly headed upward and a brisk advance is expected throughout 1983. Despite this evidence of strength, there are some impediments that will retard a complete housing recovery to the 2 million pace reached five times during the '70s. A less-than-complete housing recovery will be a factor leading to a subpar expansion.

During November, housing starts rose to an annual rate of 1.43 million. This solid gain marks the sixth time in the last seven months that [the rate of] housing starts exceeded 1 million units. From the cyclical low point in housing starts in October 1981, starts are up 67 percent. This gain is impressive and is in line with gains of past housing recovery periods.

The 1983 outlook for residential housing is also encouraging. The number of housing units is expected to climb from the 1982 pace of slightly over 1.4 million starts.

- Barnett Banks of Florida Inc., Jacksonville

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