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WALL STREET, CALIFORNIA | TALK OF THE STREET

November 19, 1996

Excerpts from current market commentary by analysts at major and regional brokerages, editors of investment newsletters and portfolio managers

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Edward Nicoski, market strategist, Piper Jaffray Inc., Minneapolis

[Stock market] leadership has been narrow and for that matter quite unusual. Energy and financial issues, which represent inflationary and deflationary forces, respectively, have both dramatically outperformed the market during the past year. This represents only the third time during the last 30 years that we have witnessed this occurrence. It would seem highly unusual (in theory anyway) to have these two sectors continue to lead the market forward together for any sustained period, but technically speaking, both sectors continue to display quite bullish charts from a long-term perspective.

Nonetheless, from a short-term standpoint, the energy sector may experience a consolidating "time-out" as energy prices recently broke below a steep uptrend dating back to mid-1996. The [weakened] economic forces that may cause energy stocks to pause, however, should prove to be quite bullish for lower interest rates, and for financial [stocks] and the market as a whole. There has been a very strong correlation between the performance of financial issues and the health of the overall market since the inflation peak back in 1980. There is no reason to believe that this relationship will change anytime soon.

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Richard Geist, editor, Geist's Strategic Investing newsletter, Waban, Mass.

We have now made it through the two most difficult months of the year for the stock market, September and October, and this bull market remains very much alive. The next set of negative predictions will swirl around a collapse in the market after the presidential election.

While another correction is certainly possible--and you should keep some cash to average down in the event of a sharp pullback--I believe the small-cap [small stock] market will come to life and surpass its larger brethren in late-1996 and early-1997. Investor confidence is increasing without undue speculation, and as large-cap earnings slow, money should chase performance into the higher-risk arena. We continue to stay nearly fully invested.

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Glen Ring, editor, Trends in Futures newsletter, Cedar Falls, Iowa

My suspicion is that the [U.S.] stock market is poised to accelerate into a blow-off run. The Dow index rallied through the seasonally weak October time frame. This, along with the September close above the August high, has happened only three times in modern history. Such action is typically reflected in the strongest of bull phases.

The 22-year advance in the Dow has now taken on a parabolic shape. Indications are that the macro-degree acceleration phase began in early- to mid-1995. If so, the blow-off phase--if the market follows traditional patterns--should complete within about a two-year period. This means by mid-1997 the bull move in stocks is likely to be near, or have already reached, an extreme.

Attitudes in the final stages of a parabolic bull move tend to reach manic levels. It is reasonable to expect the 22-year bull move in stocks to generate a mania at least resembling that seen in 1979 and 1980 as the gold market reached an extreme peak. At the end of the boom in precious metals there were reported instances of people running in the streets screaming about buying gold or silver.

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Paul Matthews, principal, Matthews International Funds, San Francisco

Skepticism is a necessary ingredient for a sustainable bull market and there can be little doubt that there is a high level of skepticism regarding developing Asia [and its stock markets]. The cover of a recent Far Eastern Economic Review featured the headline, "Tired Tigers," with a sweating, paunchy cat working out on a treadmill. The cover reminded us of a cover last year of a major U.S. magazine which trumpeted "The Death of Hong Kong." [Yet] Hong Kong has been one of the most rewarding major markets in the world since that cover was published.

We are not indifferent to the issues that critics of Asia raise. Issues of competitiveness, regulation and political stability are constantly on our minds. What is important to keep in mind is that by the time the popular media highlights issues, these issues have most likely been reflected in the markets for some time. Looking forward, we expect [Asian] corporate earnings to improve as a cyclical slowdown in exports gradually turns around. We believe that economic growth levels of between 5% and 7% are very healthy and we are pleased to see such a high level of skepticism, which ignores the many fundamental strengths of the Asian Tigers.

--Compiled by Times staff writers Debora Vrana and Tom Petruno

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