STOCK PRICES CLOSE LOWER

The trouble with using the expectations theory to try to explain the market's strong response to this week's inflation report is that the rise in consumer prices was just about in line with expectations, neither above nor below them. The consensus of economists has been that consumer prices would rise in 1989 by about 5 percent. If anything, the March report was worse (not better) than expected. But excluding food and fuel prices, which jumped, the Consumer Price Index rose at an annual rate of about 5 percent. Loath as it is to start a recession, the Fed is just as wary of losing its credibility as an inflation fighter: Alan Greenspan, its chairman, and his colleagues are caught in a corner between ''tighter'' and ''looser.'' In that bind, the Fed is likely to stay about where it is until it can determine where the greater threat is coming from. As Mr. Greenspan said in Congressional testimony earlier this year, ''If we remain attentive to the course of events and take prudent actions on a timely basis, I am optimistic that we can make further progress toward the objectives of full employment and price stability.''

Full text: New York Times, Apr 21, 1989

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Compaq's Profit Increased 78% In First Quarter

Bond Corp. Holdings of Australia said it plans to buy back as much as 10% of its shares because of sharply fallen stock prices.

Full text: Wall Street Journal, Apr 27, 1989

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Nine Timely, Worry-Free Investments

To comprehend economic statistics, it is necessary to understand the framework that forms them: the US business cycle. This cycle normally takes 3-4 years and is directly related to the performance of investments and interest rates. The business cycle begins when interest rates and inflation are low or falling. As demand for credit increases, interest rates rise because more borrowers are competing to get loans. The cycle ends when inflation and interest rates climb high enough to send stock prices down. Watching interest rates helps an investor develop an idea of what it will cost to borrow money and what rates can be earned on cash investments. Three key government economic figures that should be tracked are the US gross national product, the balance of payments, and the index of leading economic indicators. The consumer price index is a measure of the costs of goods and service. The stock market's behavior sometimes gives advance warnings of economic fluctuations.

Full text: Money, May 1989

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Metropolitan Life buys 10% stake in CS First Boston

Full text: The Plain Dealer, May 4, 1989

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Biotech Firms Are Making a Comeback

The efforts by the savings and loan association industry to raise capital, under the higher capital standards for thrifts imposed by Congress, are discussed. The two difficulties in raising capital are seen as decreased net income and stock prices at solvent thrifts.

Full text: American Banker, May 10, 1989

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