Between bites of rye toast at the New York Stock Exchange lunch club, James W. Fuller was jawboning with a friend about the latest on the Ivan Boesky insider trading scandal. Abruptly, the friend pushed a basket across the linen-covered table. ``Speak right into the bread, Jim.''
The two laughed uproariously and swapped a few more insider-trading jokes.
It appears that Wall Street has gotten past the worst of its ``arbigate'' worries. After a two-day, 56-point selloff early in the week, the Dow Jones industrial average recovered nicely to close at 1,893.56, up 19.97 points in five sessions.
Most takeover stocks rebounded as Drexel Burnham Lambert brushed aside concerns (at least for now) that its junk-bond operations would grind to a halt. Drexel reassured Revlon Group that it can raise the $4.1 billion needed bid for Gillette.
Other signs that the investment world is still spinning: Sir James Goldsmith, the British financier, suddenly dropped his bid for Goodyear, placidly accepting a cool $93 million in profit for his efforts. And Asher Edeleman is once again stalking Lucky Stores.
But the Boesky brouhaha is never far from the surface.
The investigation continues, and Wall Street remains livid with the Securities and Exchange Commission for allowing Mr. Boesky to sell $440 million in stock just before his announced settlement.
Prefacing his comments with a few choice words, a New York Stock Exchange specialist pointed out that ``Boesky's the only one making any money these days - even after they caught him.''
But Mr. Fuller, president of the Bull & Bear mutual fund group, notes that ``a panic-type situation provides great opportunities.''
He adds: ``You have to be very careful in here, people are still nervous. Keep focused on the economics, the fundamentals, while everyone's concerned about the next [insider trading] shoe to drop.''
Few Wall Street hands, he observes, took notice of an upward revision last week in third-quarter gross national product growth to 2.9 percent from 2.4. But these kind of numbers confirm his ``tremendously bullish'' outlook.
As he sees it: Inflation has been curbed; interest rates are relatively stable; corporations continue to slash costs and restructure; and the lower dollar may finally be slowing imports and giving domestic companies a pricing edge in overseas markets.
The last point, the rejuvenation value of the so-called ``J-curve effect,'' has made the ``soft cyclicals'' attractive. Specifically, paper, forest products, and chemical stocks hold high spots on many money managers' buy lists.
Bull & Bear's investment policy chief, Edward (Ted) Webb Jr., likes them. Steven G. Einhorn, a Goldman, Sachs & Co. market strategist, recommends an overweighting of paper and chemicals.
And Standard & Poor's Outlook newsletter is putting chemicals on its best-buy list for the second year running.
``The dollar's drop is giving chemical earnings a big boost [up 25 percent or more over the last 12 months], and we expect to see further progress in 1987,'' says Arnold Kaufman, the Outlook editor.
Yet another fan is a Prudential-Bache analyst, Leonard Bogner, who follows 12 chemical companies.
The J-curve is starting to ``juice'' chemical shipments, he says. Mr. Bogner sees net annual earnings of the chemicals group growing at 12.6 percent on average over the next five years. That's more than 40 percentage points better than the 8.5 percent annual earnings growth he predicts for the S&P 400.
But the stocks in the S&P chemical group have already chalked up a 36 percent gain this year. That's far above the 13 percent rise in the S&P 500. Forest and paper stocks are also high risers. Aren't these stocks getting a bit ripe?
``Major trends tend to last several years, not several months,'' says Mr. Webb at Bull & Bear. ``Over the years, my biggest mistake has been selling too soon.''
But not everyone is convinced that the chemicals are in a long-term up trend.
``I see signs that earnings in chemicals may soon be peaking, perhaps in a quarter or two,'' says Charles I. Clough Jr., director of investment policy at Cowen & Co. in Boston.
Chemical companies won't see raw material (oil) prices drop in 1987 as much as they did this year. Nor will the dollar fall as far, Mr. Clough predicts.
And production at textile mills is ``slowing dramatically,'' since department store shelves are packed with a full inventory of clothing.
Textile fibers are a major product for many chemical companies, and Clough sees fiber orders ``getting sloppy'' and prices weakening in the next couple of quarters.
Finally, he observes that overall chemical production is rising faster than shipments. Therefore, ``inventories are rising somewhere.'' Clough allows that these are generalizations.
Some chemical producers have niches that enable them to buck these trends. But over the long haul, he favors paper over chemical stocks.
Paper company stocks are coming off a 14-year low relative to the S&P 500, Clough says. And he concludes that demand and profitability look ``much more sustainable in paper than in chemicals.''
Bogner at Pru-Bache recognizes that some of the favorable forces driving chemicals might peak in the spring, so he's recommending a shift to ``value added'' chemicals.
That means companies with proprietary products, broad technical know-how, or global distribution that can increase unit sales in a slow-growth business world. He singles out Ethyl, Hercules, Monsanto, Products Research & Chemical, and Witco as undervalued stocks fitting the ``value added'' mold.
The only cumulonimbus lurking on the investment horizon, says Bull & Bear's Fuller, is protectionist trade legislation. Indeed, with the Democratic Party now gaining control of both houses of Congress, political pundits predict the passage of tough trade legislation next year.
Pru-Bache legislative analyst Susan A. Lynner expects a push for oil import fees, textile quotas, restrictions on Canadian lumber and autos, and Japanese goods.
In preparation for the 1988 presidential election, the Democrats could develop an omnibus ``new-style protectionism'' trade bill to ``bolster American industries and crimp importers,'' she writes in a recent research report.
``The net effect could be a severe escalation of trade tensions.''
Or as Fuller worries: ``Investors don't pay enough attention to politics. Congress may write a protectionist bill that gets us into a trade war and a recession. If that happens, all bets are off.''
Of course, President Reagan could veto the bill. Or regional politics could untrack extreme proposals. Or the Democrats might tone down their enthusiasm for trade barriers as they assume more responsibility for the nation's economic course. Or an improving trade deficit could defuse protectionist support.
Says Fuller, ``I just hope the J-curve starts taking effect in time.''
Although such technical matters are in the long-term thinking of many Wall Street hands, the Boesky case is certain to remain a watershed in the takeover, arbitrage, and high-powered trading wars.
Some analysts worry that the scandal sullies the image of the free-enterprise system. But SEC commissioner Joseph Grundfest says he is ``confident that our investigation will only increase confidence in Wall Street.''