Detroit brokers high on stock market
The economic news may be gloomy in the motor City, but most of the stockbrokers ar bullish. "It's been kind of strange," says Lewis Rowady, vice- president of Smith, Hague & Co., "to come home and watch the news about plant closings and layoffs and all the doom- and-gloom talk, and then to go out and buy stocks. But that's what we've been doing."
James Leonard, assistant research director at First of Michigan Corporation, another local brokerage house, agrees. "Current news has nothing to do with the market -- which is anticipating events six months from now." In fact, he notes, the way the market is absorbing bad news leads him to conclude that the Dow Jones industrial average will peak at or above the 1,000 mark before the November elections.
The average remained relatively close to this mark as it closed the week at 958.19, down 8.53 points. Volume remained robust during the trading.
Not all the brokers in Detroit are bullish over the short term, however, Steve Gasper, director of research at Manley, Bennett, McDonald & Co., believes there are signs the market is close to topping out. He cites the possibility of higher interest rates, worsening inflation, and degenerating business conditions. In addition, he states, speculation in the markets appears to be increasing, while professional traders and floor members ar turning bearish. He concludes, "The number of issues on our buy list continues to shrink as the market moves up."
The reason Mr. Rowady of Smith, Hague is bullish is his feeling thta stocks remain cheap compared with other types of investments. "gold had its day," he explains, "as did art objects and real estate." Now, he continues, "stocks which are not overpriced are going to get their day in the sun."
Mr. Leonard says he remains optimistic over the short term because the market seems to be anticipating a big tax cut as well as some positive news in the fall elections. He says the short-term selling squals, such as happened last Monday when the industrial average lost 18 points, are only temporary.
The selling on Wall Street was prompted by the Federal Reserve System's report that the money supply rose a record $8 billion. And later in the week the nation's largest banks raised their prime lending rates a quarter of a percent higher, to 11 1/4 percent, as a result of Fed tightening.
Despite Mr. Leonard's short-term bullishness, he says, he is concerned about what he feels are some similarities between the market today and the market in 1929. There was a midsummer rally, he notes, during the market's fateful year that drove stocks up 50 percent. This in part was the result of a big short squeeze on Wall Street. Today, he says, there is likewise a large short position on Wall Street and the possibility of a similar squeeze.
On Friday, in fact, the New York Stock Exchange reported that the short position, the total number of stock shares sold short, had soared a record 14 percent. (Short sales occur when individuals believe a stock is going to decline and borrow shares of the issue, which they then sell, in the hopes of buying them back later at a lower price, returning them to their owner.)
Mr. Leonard notes that there was also a large amount of consumer debt in 1929 , as there is today. "This debt will probably be liquidated," he forecasts.
Mr. Gasper, who is pessimistic, short term, is nevertheless bullish over the long term. His main reason for feeling that way is his belief that stocks are cheap and provide some form of inflation protection for investments.
In his current optimism about the market, Mr. Rowady says he continues to recommend the oil stocks, particularly the Canadian oils. He specially is telling his clients to buy Gulf Oil of Canada, Imperial Oil, and Page Petroleum. Despite living in Detroit, he is not that enthusiastic about the auto companies.
Mr. Leonard likes Frank's Nursery Sales Inc., a local concern that has an annual growth rate of 16.6 percent. Another favorite is PHH Group, a large relocation company, with a history of reporting record earnings for the past 30 years. He continues to recommend the NYSE-listed stock.
In the market last week, Pullman was active after agreeing to merge with Wheelabrator-Fyre. E. F. Hutton was also active and higher after announcing it had bought a part interest in Southwest Forest Industries.