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YIELD PRESAGES A BEAR MARKET

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A digest of investment opinion from the world's leading financial advisers.

- Dow yields below 3 percent historically have produced bear markets, according to data compiled by Young Research & Publishing (320 Thames St., Suite 352, Newport, RI 02840). While yields around 4.5 percent have been the norm, recently the Dow was yielding around 3.7 percent. For the Dow yield to rise to its 4.5 percent average, it would have to fall about 800 points to 1,900, or its dividend would have to rise 25 percent - an unlikely possibility.- Dividends are also key to the strategy of Merus Capital Management in San Francisco. Merus buys only undervalued, out-of-favor stocks with secure dividends that have increased steadily over the years. Merus has turned this slow-but-steady philosophy into 19.7 percent average annual returns over the past decade. Recent large holdings: Ahmanson, Briggs & Stratton, Chevron, Citicorp, Great Western Bank, Texas Utilities, Weyerhaeuser and Wisconsin Electric.

- Demand for crude oil continues to increase. And with prices still only half what they were in 1985, allowing for inflation, there seems nowhere for oil company profits and stock prices to go but up. Bernard Puchi, Salomon Bros.' crack oil analyst, likes to track the majors as asset plays, preferring those trading for around 60 percent of net asset value. Current favorites: Amerada Hess ("the most undervalued major"), Atlantic Richfield ("the consummate domestic integrated oil") and Ashland ("in its comeback's final stages").

- There are few familiar names among the 20 large public American companies with average annual sales growth of more than 100 percent during the past five years, according to Financial World Magazine (P.O. Box 10750, Des Moines, IA 50340). But all have annual sales of more than $300 million. The five fastest growers: JWP (up 178.6 percent annual five-year growth), CVN Companies (up 164.3 percent), Standard Shares (up 160.8 percent), J.P. Industries (up 143.8 percent) and Businessland (up 141.6 percent).

- There are basically two reasons for a given bond's price to rise. The first is that interest rates are falling. The second is an upgrading in the bond's rating. "Obviously, by owning bonds before an upgrade occurs, you outperform the market," observes Prescott, Ball & Turben in Cleveland. "With that in mind, we present six likely candidates for upgrades in the next one to two years: BankAmerica, Dresser Industries, MCI, Mellon Bank, Phillips Petroleum and San Diego Gas."

- Both population growth and economic growth will slow through the year 2000, predicts John Somers of Teachers Insurance & Annuity Association in Manhattan. "But it won't stop altogether. I believe we are close to the bottom of the current slump in the commercial real estate cycle." Somers is particularly bullish on raw land. "Well-located land is in severely short supply. Anti-growth sentiment and complex environmental issues are mounting and promise to impose increasing discipline on new development."

- Freebie of the Week: In the noble cause of "removing the mystique and breaking down the barriers that separate investors from investment counseling," Thomson McKinnon Securities is offering a free "Economic Primer," a generic description of what stocks and bonds do before, during and after economic expansions and contractions. This publication has been adopted by a number of university economics programs. For your copy, write Thomson McKinnon, 504 Warren St., Hudson, NY 12534.

(Investor's Notebook reflects the opinions of professionals. It does not endorse specific investments, and no endorsement is implied or should be inferred. For more information, contact the individual firms cited.)

Copyright 1989 Universal Press Syndicate

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