Some standard bull-vs.-bear signals looked topsy-turvy last week

By , Staff writer of The Christian Science Monitor

Sometimes, it's not easy to follow Wall Street's logic. Gold soared to an 18-month high last week -- a real boon to gold-mining stocks. But before one joins the gold rush, consider what may have triggered it.

Some say investors are getting jittery about Mideast tensions, with Libyan jets intercepting American jets and Soviet ships hovering nearby. People buy gold as a haven when a crisis looms.

OK. But shouldn't those concerns also push up oil prices, since a military conflict could disrupt oil shipments? But no, last week oil prices fell to a five-year low -- which in turn sent airline stocks flying.

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Wait a minute. Weren't airline stocks suffering because of the fare wares?

The rationales change daily on Wall Street. Airline stocks? Lower fuel costs might offset the fare-war losses. Oil prices? Too much oil and too little demand offsets fears about Mideast conflict.

What about gold? Some analysts say it's not a concern over Libya. Rather, investors worry about inflation. With the economy now moving along briskly (industrial production was up sharply in December), inflation becomes a worry. Gold is also viewed as an inflation hedge.

If these explanations are boggling, one may take comfort in the straightforward rise in computer stocks. Last week Digital Equipment, Apple, Honeywell, and industry leader IBM all reported much improved earnings in the last quarter.

The over-the-counter market chalked up good gains, too. The NASDAQ composite index rose to a record high last week. Meanwhile, the Dow Jones industrial average showed moderate strength, rising to 1,5xx.xx, up xx.xx points in five trading sessions.

The Dow has been kind to many investors lately. A notable exception, however, have been bank trust departments.

The majority of bank trust managers have had trouble outperforming the market averages. But the San Francisco-based Bank of California (BankCal) has an Income Equity trust fund that stands as a exception.

Since 1975, the fund has risen 417 percent (including reinvested dividends). During the same period, the S&P 500 climbed 141.2 percent. Last year Income Equity rose 33.9 percent (S&P 500: 31.8).

The secret? Most fund managers seek growth, but BankCal's Roger Newell looks for ``dumpy, household names.'' He buys out-of-favor plodders with a good, steady dividend. And he follows a strict ``relative yield'' strategy.

Mr. Newell buys stocks with a high current yield (stock price divided by dividend) relative to the current yield of the overall market. He tracks about 200 stocks, and each stock has a buy-and-sell range based on its yield relative to the S&P 400.

For example: GTE shares sold for about $48 last week, giving it a dividend yield of 6.6 percent. The market yield of the S&P 400 was 3.5 percent. Therefore, GTE's yield was about 190 percent of the market yield. Historically, Newell knows that GTE's relative yield ranges from 130 percent to 215 percent of the market.

Two weeks ago, GTE was trading at about $45, and its relative yield was about 200 percent. The price jumped last week when the company agreed to merge the money-losing Sprint subsidiary with U.S. Telecom. It's still close enough to the upper end to be a buy, he says.

Newell's strategy is not new. But he knows of no one who adheres so strictly to the trading-range signals, ignoring analysts and investor sentiment. ``Part of our success lies in the ability to take the emotion out of the buy-or-sell decision.''

In effect, Newell's methods enable him to capitalize on the rise and fall of otherwise very stable companies. Patience is crucial. ``But if a price movement doesn't occur, at least we get a decent dividend return,'' Newell says.

The prime risk is that a falling price could indicate major problems within the company, thus jeopardizing the dividend. Newell hedges with a team of seven analysts who monitor the safety of company dividends. Interest rates

Percent Prime rate 9.50 Discount rate 7.50 Federal funds 7.94 3-mo. Treasury bills 7.10 6-mo. Treasury bills 7.21 7-yr. Treasury notes 9.12* 30-yr. Treasury bonds 9.37* *Yields; source: Bank of Boston

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