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Goldman Sachs Weekly May 1995 - July 1996 [binder] [3]
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Goldman Sachs Weekly May 1995 - July 1996 [binder] [3]
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FOIA Number: 2019-0568-F
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This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group: Clinton Presidential Records
Subgroup/Office of Origin: National Economic Council
Series/Staff Member:
Gene Sperling
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Goldman Sachs Weekly May 1995 - July 1996 [binder] [3]
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3
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MARKET COMMENT
X X Chain-weights -- who cares? Economists more than investors X X
Edward F. McKelvey (212) 902-3393 New York Economic Research
Note 4:22pm 8/01/95
Summary
Z
Although growth, inflation, and changes in productivity will
look a bit different on revision, the adoption of chain-weighted
indexes carries no significant implication for monetary policy
and financial markets. In particular, the timing of inflection
points in inflation looks quite similar to those of by fixed-
weight indexes. This implies that potential growth will be
revised in a fashion similar to recorded growth and that Federal
Reserve policy has not been unduly misled by bad data.
Meanwhile, it does not appear that financial markets have been
duped by a productivity improvement that will vanish with the new
numbers, as has been suggested in the financial press.
Z
The change probably cautions against putting as much stock
on quarterly growth rates as financial markets now do. Beyond
that, it is an event more likely to affect the lives of
economists than the investment community at large. For an extra
measure of purity in the calculations, economists will trade away
a system where components of real GDP now add up to the total and
therefore lose some of the precision now used in calculating
growth contributions of individual sectors.
Chain weights who cares?
...
In the U.S. financial press, the forthcoming shift to chain-weighted
measures of real GDP, prices, and productivity has been characterized as
a sea change with significant implications for Federal Reserve policy
and for financial markets that have allegedly been duped into seeing a
phantom improvement in labor productivity trends. While the change does
drastically alter the way in which these important aggregates are
calculated, it does not alter the underlying reality of productivity
change or when inflation tends to accelerate. It is hard, therefore, to
see how Federal Reserve policy would have been any different if guided
by such figures or why the financial markets should not have behaved the
way they have in recent years. In this regard, the following points
seem relevant:
CompuServe Mail (950802133348 476362.600000 EHA101-2) Page 1 of 5
1.
The revisions do not seriously alter the cyclical profile of
changes in the inflation rate. Quarterly comparisons of year-to-
year changes in the chain-weighted GDP price index show that it
began to accelerate at about the same times as did other fixed-
weight price measures, such as the CPI and the GDP fixed-weight
index. These are the price indexes that Federal Reserve policy
makers trust most when setting and evaluating their policy moves.
Thus, a chain-weighted measure would have given Fed officials no
significantly different signal about when inflation might be
heating up. In essence, this suggests that the downward
adjustments to real GDP growth are roughly matched by a similar
downward adjustment to potential growth, indirectly supporting
the assumption made in the last comment that differences in
growth would largely reflect differences in labor productivity
gains.
2. Financial markets have not been duped into seeing
productivity growth that was not there. As noted in the previous
comment, the improvement in trend productivity growth in the
early 1990s, while undoubtedly smaller than now reported, still
looks significant when measured from one cycle peak to the next.
For bond market investors, this properly prolonged the phase of
this business cycle when inflation was seen as receding and
yields on long-duration fixed-income securities were dropping.
For stock market investors, the productivity improvement has
shown up as a substantial and sustained increase in corporate
cash flow and earnings per share, particularly for the largest
publicly traded firms. Whether the productivity improvement was
from 1% per year to 2% per year or something less is secondary to
the question of how this increase affected the financial
conditions of the firms benefiting from it. On that score, the
Commerce Department's statistical shift offers no new
information.
3. The change does caution against putting too fine a point on
growth rates for individual quarters. Most economists are
stunned by the unrelenting tendency of financial markets to
behave as if the economic data dished up by the federal
government and various private organizations are highly precise.
For example, although the data are routinely trashed as
inaccurate and subject to extensive revision, differences of as
little as 0.5 percentage point between published and consensus
estimates for real GDP growth are treated as meaningful errors in
forecasting. Yet the standard error of the forecast is about
three times this size and the cumulative revision to any
quarter's figure averages 1.3 percentage point (without regard to
sign). Now comes the shift to chain weights, a move which
underscores the basic principle that constructing any aggregate
of disparate goods and services is an inherently arbitrary
exercise and changes growth rates by more than 0.5 percentage
points in 7 of the last 10 quarters.
4. We have not heard the end of statistical improvements to
economic data. The shift to chain weights addresses only one
problem -- the substitution bias presently in real GDP -- whose
CompuServe Mail (950802133348 476362.600000 EHA101-2) Page 2 of 5
resolution has no significant bearing on policy making and
financial market behavior. This because it does not change any
underlying economic activity. only the characterization of that
activity. Other, knottier questions have yet to be resolved and
could be much more influential. For example, the debate is still
hot on the appropriate metric for various goods and services in
the consumer price index which are inherently hard to measure,
such as magnetic resonance imaging and other state-of-the-art
medical technologies. Answers to these questions are more
important because the consumer price index is used to adjust
social security payments and many private transactions as well.
Economists more than investors
The answer to the question of who cares about this revision is that
economists probably care a lot more than investors. Economists should
have more confidence that the new figures provide a more intuitively
sensible picture of aggregate growth and inflation in any given period.
They will pay for this, however, by losing a system in which components
of real GDP add up to the total. This means that assessments of how
much any individual sector contributed to growth must necessarily be
inexact. For investors who follow the macroeconomic data, the change
will create some uncertainty at first and uproot current perceptions
about growth in the recent past. Within a few months, however, it would
be astonishing if there were any discernible effect on financial
markets. Important Disclosures (code definitions attached or available upon reque
ECONOMY : No disclosures
CompuServe Mail (950802133348 476362.600000 EHA101-2) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950802133348 476362.600000 EHA101-2)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent US from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950802133348 476362.600000 EHA101-2)
Page 5 of 5
*** Goldman, Sachs & Co. -- Research Portable Lite FAX X I X
To:
GENE SPERLING
From: Melisse Dornier -- tel: (212)902-6807
Re:
Investment Research ideas
... Daily Financial Market Comment
Date:
1-Aug-95 09:21
I thought you would find the enclosed of interest.
Please refer to the end of this document for important disclosures.
Transmitting 4 pages in addition to this cover page.
Delivered by CompuServe Mail (950801132122 476362.600000 EHA90-2)
XXX
Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MARKET COMMENT
X X Chain weights -- a less substantial productivity improvement X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 6:02pm 7/31/95
Summary
Z Chain-weighted measures of real GDP imply that the secular
trend in labor productivity has probably improved less than
currently reported, although on this score the current business
cycle still looks much better than its three predecessors.
Chain weights -- a less substantial productivity improvement
In two previous comments (dated last Wednesday and Thursday), we showed
how the chain-weighted measures of GDP and associated price indexes to
be introduced this December remove the 'substitution bias' now boosting
growth in real GDP and suppressing increases in the GDP deflator and
thereby provide more sensible readings on growth and inflation. At the
same time, the Bureau of Labor Statistics plans to introduce parallel
changes to estimates of labor productivity. Judging from how the new
methods change patterns of growth in real GDP, we conclude:
1. Productivity improvement in this cycle has been less
substantial than now reported. The current business cycle has
been noted for a much-better-than-expected performance of labor
productivity, which most investors would attribute to heavy
business investment in technology. In support of this view,
official figures on output per hour worked in the private nonfarm
business sector show a 2% annualized increase between the last
business cycle peak (third quarter of 1990) and the first quarter
of 1995. This follows three cycles stretching over more than 15
years in which productivity gains from cycle peak to cycle peak
never exceeded 1% per year, as shown in the table below. Prior
to the mid-1970s, productivity rose at an annual rate of nearly
2.5%, as also shown in the table.
Forthcoming revisions to real GDP, if paralleled in the private
nonfarm business sector, will reduce the current trend in productivity
by 0.4 point, to 1.6%. At the same time, increases in the three prior
cycles would be lifted somewhat and those for earlier years would be
lifted substantially. Thus, the impression that this cycle represents
a return to the good old high productivity days, would be diluted but
CompuServe Mail (950801132122 476362.600000 EHA90-2) Page 1 of 4
not completely eliminated.
2.
The surprising late-cycle persistence of this productivity
trend has been mainly a figment of the statistical imagination.
Normally, gains in productivity tend to fade as a business cycle
wears on and the extra resources pressed into production become
more and more marginal. However, as currently reported,
productivity growth was just as strong in the four quarters
ending with the first quarter of 1995 -- the fourth year of
expansion -- as it has been throughout this cycle. Revisions are
apt to take more out of the last three years than out of the
first year of expansion and the preceding half year of recession.
This means that the current cycle will end up looking more like
its predecessors as far as the tendency for productivity gains to
fade is concerned.
Productivity Growth By Cycle:
How Chain Weights May Change History
(annualized percentage change)
As Currently
As It Might
Reported
Be Revised
1960Q2-1969Q4
2.4%
2.8%
1969Q4-1973Q4
2.3
2.9
1973Q4-1980Q1
0.6
0.7
1980Q1-1981Q3
0.3
0.9
1981Q3-1990Q3
0.9
1.0
1990Q3-1995Q1
2.0
1.6
Our next comment on the forthcoming revision to the GDP accounts will be
our last on the issue of shifting to the chain-weighted system of
measurement. In it, we will offer reasons why market behavior should
not be affected as well as other concluding observations. Important Disclosures (
ECONOMY
: No disclosures
CompuServe Mail (950801132122 476362.600000 EHA90-2)
Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950801132122 476362.600000 EHA90-2)
Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent US from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950801132122 476362.600000 EHA90-2) Page 4 of 4
XXX Goldman, Sachs & Co. -- Research Portable Lite FAX x x x
To:
GENE SPERLING
From: Melisse Dornier -- tel: (212)902-6807
Re:
Investment Research ideas
... Weekly Economic Update
Date:
31-Jul-95 09:14
I thought you would find the enclosed of interest.
Please refer to the end of this document for important disclosures.
Transmitting 5 pages in addition to this cover page.
Delivered by CompuServe Mail (950731131438 476362.600000 EHA138-9)
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
WEEKLY ECONOMIC UPDATE
X X Probability of Fed ease only slightly above 50% X X
Edward F. McKelvey (212) 902-3393 New York Economic Research
John Youngdahl (212) 902-8124 New York Economic Research
Note 7:31am 7/31/95
Summary
The government's first estimate of second-quarter real GDP depicts an
economy in somewhat better shape than generally thought, with 0.5%
annualized growth at the upper end of expectations and inventory
accumulation a bit slower than anticipated. This week's data should
continue the pattern of demand improvement and lagging response from
the production side of the economy.
Chances of another easing by the Federal Reserve have dimmed somewhat
as recent soundings on the U.S. economy have improved, particularly on
the demand side. The chance is still slightly above 50%, however,
because the improvement is apt to be gradual.
The Economy
The government's first estimate for second-quarter real GDP depicts an
economy in somewhat better shape than we and many other analysts had
generally thought. Real GDP inched up at a 0.5% annual rate, at the
upper end of the range of expectations, and inventory correction
subtracted 1.6 percentage points from growth. The 2.1% annualized
increase in real final sales was a full percentage point above our
estimate and only 0.5 point less than the increase posted for the first
quarter. Auto production cutbacks sliced nearly 1.5 point from the
second-quarter estimate; production schedules indicate that this sector
will be approximately neutral in the third quarter. Thus, our 1.7%
estimate for annualized growth in the July-September period certainly
does not look aggressively high at the present time, and it could be a
touch too low.
Whether an upward revision is warranted will be somewhat clearer by the
end of this week. As we see it, figures scheduled for release this week
will continue to portray an economy where demand is gradually improving
but production continues to lag. On the demand side, this morning's
report on consumer spending should show a healthy 0.5% - -- 0.4% real --
increase in outlays for June. Auto companies are apt to report further
sales gains for motor vehicles in July (Tuesday), and factory orders for
CompuServe Mail (950731131438 476362.600000 EHA138-9) Page 1 of 5
June should be flat following a 1.4% increase in May (Thursday, 8:30).
Although new home sales were probably down in June, this followed a huge
19.9% jump in May (Wednesday, 10:00).
Production indicators, on the other hand, should be more subdued while
still showing some improvement relative to the past couple of months.
Thus, purchasing managers are likely to continue indicating a
contraction in industrial conditions in July, but at a slower pace than
in May or June (Tuesday, 10:00). Net hiring by business firms is
estimated to have been about 75,000 in July -- below the 125,000 or so
needed to keep the unemployment rate from rising but above the 59,000
average for the second quarter (Friday, 8:30). Only in the construction
sector, where the increase in demand has been most visible, is there a
clear reason to expect an increase in real outlays (Tuesday, 10:00).
Unless these indicators produce some high-side surprises, there will be
little reason to think that growth in the third quarter is far
outstripping our estimate.
Monetary and Fiscal Developments
The pressure for additional Fed monetary easing has abated substantially
this month, though another slight interest rate cut remains possible
before year-end. In the three weeks since Fed policy makers decided to
shave their federal funds rate target a quarter-point, the evidence of
rebounding demand has grown far more impressive and widespread. Sales
of new and existing homes, motor vehicles and other retail items, as
well as orders for capital goods have all shown appreciable strength
since April. This news has undoubtedly reassured the central bank's
leaders and senior analysts that the sharp second-quarter growth
slowdown was a mid-cycle pause, rather than the start of a severe, self-
reinforcing economic downdraft. Such periods are typically
characterized by only modest Fed rate adjustments; in the seven periods
of brief (one- or two-step) easing since 1972, the median cumulative
change in fed funds was only 50 basis points.
The recovery in U.S. production of goods and homes is likely to be
gradual, so that the intense strains on productive capacity that existed
at the outset of 1995 will not quickly return. Fed officials,
therefore, possess flexibility to take an additional modest step to
stimulate spending in the event that the data look weaker down the road.
Enactment of a long-term budget plan that credibly points toward deficit
elimination would provide encouragement for such a step as well. That
said, it continues to appear that those who are expecting on a more
aggressive credit relaxation in the near term will be disappointed.
Upcoming Economic Releases
Date Indicator/Event
Data For
Estimate
Last Report
7/31 Personal Income
Jun
+0.4%
-0.2%
Personal Consumption
Jun
+0.5%
+0.7%
8/1 Purchasing Managers IndexJul
47.0%
45.7%
Construction Spending
Jun
Up
-1.5%
Domestic Vehicle Sales
Jul
Up
12.6 mil.
8/2 Leading Indicators
Jun
+0.2%
-0.2%
New Home Sales
Jun
Down
+19.9%
CompuServe Mail (950731131438 476362.600000 EHA138-9)
Page 2 of 5
8/3 Factory Orders
Jun
0.0%
+1.4%
8/4 Civilian Unemployment
Jul
5.8%
5.6%
Nonfarm Payrolls
Jul
+75,000
+215,000
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950731131438 476362.600000 EHA138-9) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class 8 Shares
0S
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950731131438 476362.600000 EHA138-9) Page 4
of
5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent US from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950731131438 476362.600000 EHA138-9) Page 5 of 5
XXX Goldman, Sachs & Co. -- Research Portable Lite FAX x x x
To:
GENE SPERLING
From: Melisse Dornier -- tel: (212) 902-6807
Re:
Investment Research ideas
... Wkly U.S. Bond Market Comment
Date:
28-Jul-95 12:17
I thought you would find the enclosed of interest.
Please refer to the end of this document for important disclosures.
Transmitting 5 pages in addition to this cover page.
Delivered by CompuServe Mail (950728161738 476362.600000 EHA118-9)
*** Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
WKLY U.S. BOND MARKET COMMENT
X
X Yield curve shifts hint investors no longer defensive X
X
John Youngdahl (212) 902-8124 New York Economic Research
Note 12:04pm 7/28/95
1. ECONOMIC AND MARKET OVERVIEW
A parade of reports suggesting improved potential for a second-
half economic reacceleration has kept U.S. bond yields at the higher
end of their recent range. Statistical evidence continues to indicate
that the abrupt first-half business slowdown -- which dragged real
GDP growth down to only 0.5% annualized last quarter -- will prove
to be a pause that refreshes the expansion, rather than the start of
a cumulating downturn. Total final sales gains decelerated only
modestly in the April-June period, to 2.1% in real annual terms from
2.6% during the first quarter. Nonfarm inventory growth, mean-
while, was pared by one-third as a result of relatively swift and
aggressive efforts at eliminating unwanted stocks. Encouragingly,
spending on big-ticket items has strengthened to an appreciable
degree over May and June, mitigating the risk of prolonged
stagnation or sluggishness in output. Orders for new durable goods
edged down 0.1% in June, but this was completely attributable to
declines in the civilian aircraft and defense industries, whose
bookings are highly volatile and typically have little influence over
near-term economic behavior. Elsewhere, U.S. hardgoods industries
saw a 0.8% expansion in new orders, led by a 2.5% rise for capital
equipment to a new high.
Demand for housing has also experienced a notable recovery, with
existing homes sales up 6.5% during June. Along with the improve-
ment in buyer traffic and sales of new units, the increased turnover
rate for existing dwellings should help to stimulate consumer
spending on household durables in the months ahead. Both major
monthly consumer polls, meanwhile, have shown firmness, parti-
cularly the Conference Board measure, which gave a July result
virtually indistinguishable from the first-half average. It is
reassuring for the growth outlook that respondents are not reflecting
heightened concerns about job availability; in fact, the differential
between those seeing jobs as plentiful versus hard to get is at one of
the most optimistic levels in the past decade. A 42,000 drop in
weekly jobless insurance claims, moreover, tends to confirm
suspicions that a sharp rise in those filings early this month was
related to seasonal auto industry plant shutdowns rather than a
CompuServe Mail (950728161738 476362.600000 EHA118-9) Page 1 of 5
surge in corporate layoffs.
Inflation news continues to be generally benign. The fixed-weight
GDP price index increased 2.7% at an annual rate last quarter,
versus a 3.3% gain in the prior period. In addition, a 0.7% rise in
total employment costs as well as private wages and salaries between
March and June implies little current pressure on unit labor costs.
TREASURY YIELD INDICATIONS
(Semi-annual yields, late morning)
2-yr.
3-yr.
5-yr.
10-yr.
30-yr.
7/28/95
5.89
6.03
6.19
6.45
6.89
7/21/95
5.88
5.98
6.15
6.41
6.88
7/14/95
5.73
5.82
5.94
6.18
6.62
2.
FEDERAL RESERVE POLICY
Chairman Greenspan and his colleagues should be feeling much
better about their policy course these days, now that the signs of
revived spending on homes, autos, and other interest rate-sensitive
items are proliferating. In general, information received since early
July has eroded the probability of another small rate cut occurring
later this year, although at this point such a step remains more likely
than not. As long as efforts toward dramatic long-term budget
deficit reduction are moving forward, and domestic business activity
does not seem uniformly robust or inflationary, Fed leaders will
want to prevent market participants' hopes for additional monetary
easing from being dashed.
Even more doubtful than a month ago, however, is the potential for
a sustained period of Fed rate cutting. Modest mid-expansion Fed
rate reductions are not at all uncommon; since 1972, there have been
17 previous periods of official monetary easing, and fully seven of
those occasions -- 40% -- comprised only one or two steps, with a
median federal funds rate change of 50 basis points. Barring an
unanticipated shock to domestic confidence or a melt-down in
demand overseas, the present interval will probably fall into that
class.
3.
FISCAL AND POLITICAL DEVELOPMENTS
The Congressional Budget Office has not yet issued its midyear
update on fiscal deficit projections, but an official has said the
expected 1995 shortfall is now $160-$165 billion, down from a $176
billion estimate issued six months ago. The lower figure fits with
our latest assessment, and reflects the strong tax revenue results
from April through June. With deficit forecasts for 1996-2002 also
likely to be lowered, the burden of key lawmakers in meeting the
objectives laid out in the budget resolution would seem to be less
onerous.
A new national poll shows that, despite a relatively low overall
popularity rating, President Clinton today would be favored by a
CompuServe Mail (950728161738 476362.600000 EHA118-9)
Page 2 of 5
plurality of voters over the front-runner among Republican
presidential candidates, Senate Majority Leader Dole. That
advantage is said to exist even if an independent candidacy by
former General Colin Powell or civil rights advocate Jesse Jackson
is included. While it is still extremely early in the campaign, these
soundings undermine Dole's claim to be GOP's best hope for re-
capturing the White House, and they may create agitation among
rank-and-file Republicans for an expansion of their choices. One
current non-entrant who could benefit from such disappointment is
House Speaker Gingrich, the main architect of the 1994 election
landslide. Gingrich enjoys high popularity among elements of the
party that have been fairly unenthusiastic about Dole and the others
now in the race, particularly religious conservatives and young
activists.
4.
MARKET OUTLOOK AND COMMENTS ON VALUE
The patterns of bond market behavior and economic :information
over the past few weeks are consistent with an incipient change in
the broad U.S. yield trend from down to up, though this deterio-
ration will likely be irregular and relate mostly to the long-duration
sector at first. In contrast to its first-half paradigm, the Treasury
yield curve now exhibits steepening propensities when the overall
market is weak, and it has been flattening in rallies. This change
hints that investors are no longer pursuing defensive portfolio
strategies, and might therefore need to reduce exposure to long-
term issues if a resumption of moderate-to-firm GDP growth deters
Fed policy makers from undertaking substantial further monetary
easing.
5.
UPCOMING ECONOMIC RELEASES
Date
Indicator
Data For
Estimate
Last
7/31
Personal Income
June
+0.4%
-0.2%
7/31
Personal Consumption
June
+0.5%
+0.7%
8/1
Purchasing Managers Index
July
47.0%
45.7%
8/1
Construction Spending
June
Up
-1.5%
8/1
Domestic Vehicle Sales
July
Up
12.6 MM
8/2
Leading Indicators
June
+0.2%
-0.2%
8/2
New Home Sales
June
Down
+19.9%
8/3
Factory Orders
June
0.0%
+1.4%
8/4
Civ. Unemployment Rate
July
5.8%
5.6%
8/4
Nonfarm Payrolls
July
+75,000
+215,000
Regards,
John M. Youngdahl, GOLDMAN, SACHS AND CO.
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950728161738 476362.600000 EHA118-9)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950728161738 476362.600000 EHA118-9)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners; and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by US to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950728161738 476362.600000 EHA118-9) Page 5 of 5
*** Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212)902-6807
DAILY FINANCIAL MKT COMMENT
X X FOMC Not As Optimistic On Inflation As Thought X X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 5:32pm 7/19/95
Summary
-
Though unsurprising in most respects, formal monetary policy
testimony by Chairman Greenspan underscored the improb-
ability of substantial further Fed easing this year. Monetary
policy prospects have been tied largely to inflation, and senior
officials currently expect only a slight ebbing in the rate of
price gains through 1996.
Greenspan Testimony Reinforces Improbability Of Major Monetary
Easing
There were not many surprises in the monetary policy update from
Chairman Greenspan on Wednesday, though at the margin his
remarks reinforce our belief that no more than a slight further
monetary easing should be expected over coming months. The Fed
chief's prepared statement and answers to panelists' questions had
three primary messages:
1. The U.S. economy is presently very sluggish but appears to have
passed its point of maximum downside risk. Recent information
indicates that demand for homes, vehicles, and other durable
goods has firmed since the early spring, and these areas are
likely to continue improving over the balance of 1995 in view of
lower market interest rates and rising equity wealth. Negative
effects on demand and production from past interest rate hikes
are now waning, according to the FOMC 'Humphrey-Hawkins'
report. Real GDP should gradually gain speed, to around 2-1/2%
by 1996. The Fed remains sensitive, however, to the potential
for ongoing inventory adjustments to have negative feedback
effects on household incomes, confidence and spending.
2. Prospects for additional interest rate cuts rest primarily on
inflation developments. In this regard, it should be noted that
policy makers expect consumer price gains to remain close to or
slightly above 3% during 1996 (2.875%-3.25% as a central
tendency), a somewhat less optimistic official view than we had
anticipated. Thus, as things stand the FOMC anticipates only a
CompuServe Mail (950720132650 476362.600000 EHA86-2) Page 1 of 4
partial rollback of the recent increase in price pressures, from
2.6% during 1994 to about 3-1/4% this year. That suggests Fed
leaders may want to be cautious about pushing rates much lower
in the near term, unless they are provoked to do so by persis-
tently disappointing economic news.
3. The Fed will weigh the effects of budget policy in setting its
monetary course, but is not specifically promising to trade
monetary easing for a deficit reduction accord. Greenspan said
he does not believe any of the anti-deficit plans now on the table
represent a major risk to future economic growth, in part
because he believes market yields would automatically adjust in
a manner to mitigate such influences. Central bankers are
prepared, however, to modify their approach in the event that
fiscal policy actually becomes a drag on demand and output.
The tone of these comments, combined with the emphasis on
inflation discussed above, indicates that Greenspan wishes to
avoid creating an impression of an explicit tie between near-
term monetary policy judgments and budgetary developments.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950720132650 476362.600000 EHA86-2) Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950720132650 476362.600000 EHA86-2)
Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950720132650 476362.600000 EHA86-2) Page 4 of 4
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212)902-6807
MISC. ECONOMIC COMMENT
X
X Housing starts data firmer than flat headline suggests X X
Economics Group (212) 902-3393 - New York Economic Research
Note 8:53am 7/19/95
HOUSING STARTS (JUNE)
-
Key Statistics:
3-Month
12-Month
Jun
Trend
Trend
Housing Starts
-0.1%
+0.7%
-0.7%
Single-Family Housing Starts
+3.9%
+0.8%
-1.2%
Building Permits
+2.3%
+1.0%
-0.4%
Conclusion:
Despite flat month-to-month result, report generally consistent with
other evidence that housing sector is due to gradually recover from
a sharp early-year setback.
Key Points:
(1)
Housing starts slipped 0.1% last month, but this was entirely
due to a 13.5% plunge in the volatile multifamily sector. New
construction on single-family dwellings rose 3.9% and was
revised up by 2.5%, so that the level of these starts -- which
provide the greatest contribution per unit to construction
outlays -- was the highest since February.
(2)
Building permits rose 2.3% in June, their best gain since
December. Permits were essentially flat in the multifamily
area, at a level well above that for starts, suggesting that
groundbreaking on new apartments and condominiums will
pick up again fairly soon.
(3)
Together with the improvement in buyer traffic at new
housing developments and brightening of builders' attitudes
regarding sales prospects, these figures support expectations
CompuServe Mail (950719132139 476362.600000 EHA161-2) Page 1 of 6
that residential construction activity will bottom out fairly
soon after a steep slide during the first half of 1995.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950719132139 476362.600000 EHA161-2) Page 2 of 6
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
X
I Homebuilders appreciably more optimistic about sales X X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 4:57pm 7/18/95
Summary
-
Homebuilders have become materially more optimistic about
sales prospects since the beginning of the year, and are
reporting the highest levels of buyer traffic in nearly a year.
This bodes well for housing starts and residential construction
outlays in the third and fourth quarters.
Improved Builder Sentiment Bolsters Case For Second-Half Housing
Rebound
The July survey of U.S. homebuilders provides the most upbeat
readings on current and potential demand for new dwellings in
about a year, as the direct result of more favorable mortgage
financing rates. As shown in the table below, the seasonally-
adjusted index of traffic of prospective new home buyers at
developments this month was the best since August 1994, and
dramatically improved from reports earlier this year. In addition,
builders' expectations for sales over a six-month horizon have
brightened to a considerable degree since the turn of the year. The
percentage of respondents expecting good sales results for single-
family homes is up to 36%, versus 19% last January. With respect to
townhouses and condominiums, the improvement in perceptions is
even more dramatic: 20% and 18% forecast good sales for those types
of units, respectively, compared to only 4% six months ago.
Traffic of Prospective Home Buyers at Developments
(Percentages, seasonally adjusted)
Period
High
Average
Low
Index*
---
94
Q1
29.9%
44.2%
44.2%
104.0
Q2
22.5
48.7
48.7
93.7
Q3
19.4
41.8
41.8
80.6
Q4
14.6
39.7
39.7
68.9
95
Q1
8.3
33.6
33.6
50.2
Q2
11.7
36.2
36.2
59.7
July
14.9
38.8
38.8
68.6
CompuServe Mail (950719132139 476362.600000 EHA161-2)
Page 3 of 6
Now that the inventory-to-sales ratio for new homes has begun to
decline, the gains in traffic and sales expectations could feed
through fairly quickly to housing starts. We expect, for example,
that data for June on Wednesday will show a 5% rebound in such
starts, to a 1.30 million annual unit rate, which would be a four-
month high. That said, it is highly doubtful that home production
will soon recover to the levels witnessed in late 1994. After more
than four years of economic expansion, during which mortgage rates
reached multi-decade lows, there should not be all that much pent-
up demand for new housing.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950719132139 476362.600000 EHA161-2) Page 4 of 6
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950719132139 476362.600000 EHA161-2) Page 5 of 6
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950719132139 476362.600000 EHA161-2) Page 6 of 6
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
MISC. ECONOMIC COMMENT
X X Trade data underscore risk of negative Q2 real GDP X X
Economics Group (212) 902-3393 - New York Economic Research
Note 9:08am 7/18/95
INTERNATIONAL TRADE BALANCE (MAY)
Key Statistics:
3-Month
12-Month
May
Average
Average
Total Trade Balance
-$11.4B
-$10.9B
-$9.9B
Merchandise Trade Balance
-$16.5
-$15.9
-$15.0
Services Trade Balance
+$5.1
+$5.0
+$5.1
Conclusion:
Worse-than-anticipated international trade report for May heightens
risk of a negative advance real GDP growth estimate on July 28.
Import penetration of U.S. market remains surprisingly persistent.
Key Points:
(1)
The overall U.S. trade balance held steady at -$11.4 billion
during May, as a 1.3% rise in exports was completely offset by
a 1.1% further increase in imports. Through two months, the
nominal trade deficit during the second quarter has risen
about $1 billion on average from the January-March level,
implying that government estimators will assume a material
widening of the net exports gap when initial GDP estimates
are assembled later in July.
(2)
Demand for U.S. exports has held up well, rising 16.1% on a
year-to-year basis during the latest three months for which
data are available. The big surprise is that the upward import
trend has not yet flagged, despite a deteriorating domestic
economy and lower dollar exchange rate.
(3)
This report suggests that the foreign sector remains a drag on
CompuServe Mail (950718150911 476362.600000 EHA101-2) Page 1 of 6
business activity, hampering the efforts of U.S. firms to
resume moderate production growth in the near term. The
data support expectations of only a gradual pickup in growth
over the balance of 1995.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950718150911 476362.600000 EHA101-2) Page 2 of 6
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
X
X FOMC midyear forecasts likely to call for soft landing X x
John Youngdahl (212) 902-8124 - New York Economic Research
Note 5:21pm 7/17/95
Summary
-
The FOMC's midyear estimates for economic growth and
inflation during 1995 probably will be little changed from those
they issued last February. Tentative projections for 1996,
meanwhile, can be expected to show optimism about a rollback
of the first-half retail price inflation acceleration.
Official Fed Forecasts Likely To Renew Call For Economic 'Soft
Landing'
One of the obligations conferred upon the Federal Reserve by the
Full Employment and Balanced Growth Act of 1978 (the so-called
'Humphrey-Hawkins' law) was to provide Congress twice each year
with estimates for various measures of economic activity, employ-
ment and inflation. At the recent FOMC meeting, therefore, the 11
voting members of that group as well as seven nonvoting district
bank presidents submitted their individual forecasts for these
several items, from which 'central tendency' estimates were deter-
mined. The results of this internal Fed poll will be publicly released
on Wednesday, coincident with Chairman Greenspan's appearance
before the House subcommittee charged with overseeing the central
bank's monetary policies.
Last February, the FOMC 'central tendency' forecasts for real GDP,
consumer prices and unemployment anticipated a material slowdown
in economic growth from the 4%-5% pace of late 1994, and a
moderate increase in retail price pressures from last year's actual
2.6% rate (measured on a fourth-quarter to fourth-quarter basis).
Events have unfolded in a manner broadly consistent with those
official expectations and, therefore, adjustments made at the July
5-6 policy review meeting were probably fairly modest. In the table
below, we present some guesses as to how the revised Fed outlook for
1995 might appear, and also some thoughts regarding the first
tentative signals that the central bank will send out regarding the
outlook for next year.
A modest downward revision to expected 1995 real GDP growth
CompuServe Mail (950718150911 476362.600000 EHA101-2) Page 3 of 6
seems appropriate at this point to take account of the abrupt
slowdown last half, during which it appears that aggregate U.S.
output rose only about 1-1/2% annualized. This will probably
involve merely reducing the 3.0% upper end of the 'central tendency'
zone by a half-percent, though the 2.0% lower bound could be edged
down to 1.75% as well. In view of the 3-1/4% annual rate of
consumer price gains over the past two quarters, the 3.0-3.5% range
suggested by the FOMC for that measure last February should be
retained. Regarding unemployment, it makes sense to allow for a
modestly higher assumption for yearend than the 5.5% figure
published in February, given that the rate now stands at 5.6% and
a pickup in new labor force entrants from the 0.2% annual trend
over the last six months is virtually certain.
Tentative judgments for 1996 will likely reflect the consensus Fed
view that a moderate U.S. economic expansion will be maintained
for the foreseeable future, with receding inflationary risks. This
could be signalled with projections of 2-3% real GDP growth and
2.5-3.0% consumer inflation. The longer-range unemployment rate
forecast will likely be for about 5.5-6.0%, which would be generally
consistent with most official and private sector assessments of full
labor resource utilization in this country.
Expected FOMC 'Central Tendency' Forecasts
(Fourth-quarter to fourth-quarter change)
1995
1995
1996
(February)
(July)x
(Tent.)*
Real GDP
2.0-3.0%
2.0-2.5%
2.0-3.0%
Nominal GDP
5.0-6.0%
4.5-5.5%
4.5-5.5%
Consumer Price Index
3.0-3.5%
3.0-3.5%
2.5-3.0%
Civ. Unemployment#
About 5.5%
5.5-5.75%
5.5-6.0%
X- Projected for the July Humphrey-Hawkins report.
#- Fourth-quarter average level.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950718150911 476362.600000 EHA101-2)
Page 4 of 6
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950718150911 476362.600000 EHA101-2)
Page 5 of 6
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.P.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950718150911 476362.600000 EHA101-2) Page 6 of 6
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
WEEKLY ECONOMIC UPDATE
X
X
Outlook for U.S. growth rebound gains support X X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 8:33am 7/17/95
Summary
- We continue to look for a gradual pickup in U.S. economic
growth over the next few quarters, a view that has been
reinforced by recent spending and production data. Inflation,
meanwhile, is more likely to be sustained at the modestly higher
rate experienced in the past six months, rather than recede back
to 1993-94 levels.
- Policy testimony by Chairman Greenspan on Wednesday will
probably attempt to deflect pressures for lower interest rates
away from the Federal Reserve and onto congressional budget-
ers, through emphasis on the domestic economy's generally
positive underlying fundamentals as well as the desirability of
more balanced federal fiscal accounts.
The Economy
The July/August edition of 'The Pocket Chartroom', which goes to
print within the next day or two, contains the following main points
about recent, current and prospective business activity:
1. Real GDP appears to have been unchanged last quarter.
Increases in consumption, business fixed investment and
government purchases were probably entirely offset by a
substantial deceleration of inventory building and a sharp
setback in home construction outlays. Probabilities versus the
0% best-guess for GDP at this point are skewed slighly to the
upside, though this sense is based in part on our estimates of a
0.3% rise in total business inventories during May (Monday,
10:00), and a narrowing in the foreign trade deficit to $9.5
billion that same month (Tuesday, 8:30).
2. Annualized real growth in the second-half still looks likely to
average 2% or a shade higher, with a pattern of gradual
improvement. By the fourth quarter, the economy could once
again be expanding at close to a 3% clip. At the same time, our
estimates for 1995 farm production have been lowered to take
CompuServe Mail (950717135341 476362.600000 EHA34-9) Page 1 of 5
account of unfavorable weather conditions in the midwest.
Government estimation techniques initially will lodge a majority
of this year's crop and livestock losses into fourth-quarter
agricultural inventories, temporarily suppressing national income
results for that period.
3.
Consumer price inflation will hold more or less steady at around
3-1/2% (annual rate) over the balance of 1995. Retail prices for
goods other than food and energy fell 0.1% last month, as firms
striving to slim their bloated stocks of those items turned to
aggressive price discounting, particularly for apparel. This held
the core CPI to only a 0.2% rise for the second straight month.
It is doubtful that such a favorable underlying price perfor-
mance can be sustained, however, now that inventory-to-sales
ratios have ebbed to more acceptable levels. Factors expected to
contribute to price firmess over coming months include: a
persisting pass-through of earlier strength in unfinished goods
costs, faster hikes in charges for services, and rapid inflation
among nonoil imports, which is related to the dollar's decline in
foreign exchange markets over the past year.
Monetary and Fiscal Developments
On Wednesday at 10:00, Fed Chairman Alan Greenspan will deliver
his sixteenth formal monetary policy report to the Congress. This
session has the potential to be one of the more contentious, as
lawmakers fret about the abrupt slowdown in hiring and incomes
this year. To minimize congressional criticism of the Fed regarding
interest rates, Greenspan can be expected to stress three points:
1.
Domestic business activity seems to have moved past its weakest
point, and is headed for better growth. Retail sales have risen
an average of 0.8% the past two months, and industrial pro-
duction edged up in June, with gains among both consumer goods
and business equipment. This pattern of improved transactions
volumes would be further supported by an expected 5% increase
in housing starts for June (Wednesday, 8:30).
2. Reduced federal budget deficits are crucial to achieving material
and lasting interest rate cuts. The Fed chief has argued
tirelessly for increased government spending restraint, and no
doubt he will be congratulatory regarding the emphasis top
legislators have placed this year on achieving fiscal balance by
sometime early next decade. In stressing the importance of these
legislative efforts, Greenspan can hope to give them a boost and
also alleviate focus from his institution as the primary or sole
source of potential additional interest rate relief.
3. Fed officials stand ready to adjust monetary conditions as
necessary to sustain the expansion. The quarter-point rate
reduction two weeks ago was a precautionary step in that
direction, but more aggressive actions are possible if either
external shocks or fiscal tightening make the economy more
vulnerable to a downturn. Greenspan can cite the low June price
index results as evidence that the Fed possesses flexibility to
CompuServe Mail (950717135341 476362.600000 EHA34-9) Page 2 of 5
take stronger actions if the growth rebound fails to materialize
or proves to be weak.
Upcoming Economic Releases
Date
Indicator/Event
Data For
Estimate
Last
7/17
Business Inventories
May
+0.3%
+0.8%
7/18
Intl. Trade Balance
May
$-9.5B
$-11.48
7/19
Housing Starts
June
+5.0%
-1.3%
7/19
Greenspan Testifies: Humphrey-Hawkins Policy Report
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950717135341 476362.600000 EHA34-9)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950717135341 476362.600000 EHA34-9)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950717135341 476362.600000 EHA34-9) Page 5 of 5
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212)902-6807
WKLY U.S. BOND MARKET COMMENT
X
I Yield outlook hinges on business activity developments X X
John Youngdahl (212) 902-8124 New York Economic Research
Note 12:47pm 7/14/95
1. ECONOMIC AND MARKET OVERVIEW
Reports of a firming pattern in domestic demand and production
during the late spring largely obscured two benign inflation reports
this week, leading to a moderate sell-off in the U.S. bond market.
Yields on short-duration issues have unwound at least half of the
declines that were registered following announcement of a slight
Federal Reserve monetary easing on July 6. Expectations for
further rate cuts were diminished in particular by large upward
revisions to April and May retail sales data, totaling 0.9%, and a
0.7% additional rise in that series last month. These figures imply
that annualized real nonauto consumer spending on goods last
quarter was 2% stronger than earlier indicated, a considerable
positive adjustment. That suggests a more modest inventory
overhang among U.S. firms and, hence, improved potential for a
resumption of domestic goods output growth. In that regard, the
June industrial production report (+0.1%) confirms a stabilization in
factory activity late last quarter following a steep four-month slide.
A marginal uptick in vehicle assemblies combined with renewed
growth in nondurable goods production accounted for most of the
recent improvement. Other signs that economic weakness is
gradually ebbing include a marginal downtick in weekly unemploy-
ment insurance claims over the past several weeks, and further
improvement in consumer sentiment recorded by University of
Michigan researchers in early July.
Prices at the wholesale and retail distribution levels were predict-
ably well-behaved in June, with the producer and consumer price
indexes moving down 0.1% and up 0.1%, respectively. Both measures
climbed 0.2% excluding food energy, a bit less than recent averages.
Prices of partly-processed producer goods and materials also rose
0.2%, much less than the gains seen in prior months. It would be
premature, however, to conclude that inflation will inevitably recede
back to the mild pace experienced in the 1993-1994 period. The
pass-through of earlier unfinished goods price pressures to finished
product quotes may well be incomplete, given the normal lags of
several quarters in this process. In that event, the acceleration in
nonenergy service price hikes, from 3.2% last year to 4.5% annual-
CompuServe Mail (950714165433 476362.600000 EHA27-9) Page 1 of 5
ized in the latest six months, might no longer be mitigated by
aggressive price discounting in areas where inventory excesses have
been greatest, such as apparel and automobiles.
TREASURY YIELD INDICATIONS
(Semi-annual yields, late morning)
2-yr.
3-yr.
5-yr.
10-yr.
30-yr.
7/14/95
5.73
5.82
5.94
6.18
6.62
7/07/95
5.61
5.67
5.80
6.08
6.55
6/30/95
5.84
5.91
6.03
6.25
6.65
2.
FEDERAL RESERVE POLICY
Chairman Greenspan will have a delicate task to perform when he
delivers the midyear monetary policy update to a subgroup of the
House Banking Committee next Wednesday, July 19. He faces
pressure to allay fears in Congress of continuing economic distress
or deterioration, and may well be questioned sharply on this point
by the panel's Democrats, who are generally of a liberal philo-
sophical bent. At the same time, the Fed chief needs to maintain the
central bank's flexibility for dealing with future surprises regarding
business and fiscal policy developments, and to avoid sharply setting
back hopes in financial circles for fresh easing steps.
In an effort to resolve these somewhat competing forces, Greenspan
can be expected to stress three points. First, the latest statistical
information supports his view that current weakness in U.S.
production reflects an inventory correction rather than anything
more serious or pervasive. The FOMC's central forecast for real
GDP in 1995, therefore, will likely be lowered only slightly from the
2.0%-2.5% range set last February, despite the unexpectedly poor
first-half outturn. Second, he can restate his view that achievement
of lasting interest rate reductions depends on maintaining progress
toward federal budget balance. In addition to pleasing the com-
mittee's Republican majority, which is largely drawn from the last
two election classes, this will help deflect criticism concerning
financing costs from the Fed. Finally, Greenspan will likely repeat
the fairly sanguine comments about inflation that were in his press
release following the FOMC's decision to ease credit, as that will
leave open the potential for further rate cuts even if business
activity reports continue to improve.
3.
FISCAL AND POLITICAL DEVELOPMENTS
Cash budget results were very favorable in June, and this points
toward a full-year deficit closer to $160 billion, down from the
$175-$185 billion range that earlier seemed probable. Official
Clinton Administration estimates for the deficit, due early next
week, should show notably lower shortfalls for the 1995-97 period
than they did last February, in light of buoyant receipts between
March and June as well as materially lower interest rate assump-
tions. These developments will make it easier for congressional
budget writers to hit the aggressively low deficit targets set in the
CompuServe Mail (950714165433 476362.600000 EHA27-9)
Page 2 of 5
budget resolution and still have room for some tax abatements. The
risk of a sharp fiscal policy tightening affecting incomes in the next
one or two years, consequently, remains fairly low.
Congress will open public hearings in the next several weeks looking
into matters that could at least create some embarrassment for
President Clinton and members of his administration. Under the
chairmanship of Senator D'Amato, a sharp Clinton critic, the
Senate's special committee on the Whitewater affair will shortly
begin scrutinizing the behavior of White House officials in the hours
immediately following the death of Deputy Counsel Vincent Foster
in mid-1993. Even if it provides no new major revelations con-
cerning those events, testimony about how and why Foster's papers
were taken from his office in the middle of the night before U.S.
investigators arrived on the scene is unlikely to burnish the
president's public image. Later in the summer, the House Banking
Committee will begin its Whitewater hearings. Published reports
suggest that committee researchers have uncovered documents that
may contradict statements made by the president and his wife about
their degree of involvement with that real estate venture and ties
between themselves and a failed savings and loan.
4.
MARKET OUTLOOK AND COMMENTS ON VALUE
Even with the latest rise, U.S. yields still discount more than a slight
further rate reduction by the Fed over the next several months.
Thus, the bond market's prospects hinge primarily on incoming
reports regarding the economy, and whether they point to a rebound
or a cumulating downturn. If the probabilities for the former
outcome steadily improve, as we anticipate, then yields on all
maturities should have a moderate upward bias through the summer,
with short-duration issues most vulnerable in that regard.
5.
UPCOMING ECONOMIC RELEASES
Date
Indicator
Data For
Estimate
Last
7/17
Business Inventories
May
+0.3%
+0.8%
7/18
Intl. Trade Balance
May
$-9.5B
$-11.4B
7/19
Housing Starts
June
+5.0%
-1.3%
7/19
Greenspan Testifies: Humphrey-Hawkins Policy Report
Regards,
John M. Youngdahl
GOLDMAN, SACHS AND CO.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950714165433 476362.600000 EHA27-9)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
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Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by US to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950714165433 476362.600000 EHA27-9) Page 5 of
5
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
X X Domestic output, sales appear to have firmed late in Q2 * X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 5:11pm 7/10/95
Summary
- Although it appears that real GDP growth completely evapo-
rated in the second quarter, our estimates for coming monthly
statistical indicators imply some improvement in consumption
and production as the period drew to a close. At the same time,
an apparent strengthening of the fixed-weight GDP price
measure and a slight pickup in wage pressures could undermine
perceptions of benign inflation conditions.
U.S. Economic Data Estimates Imply Better Tone At End of Q2
The following main points emerge from our estimates for major
economic indicators due over the next several weeks:
1.
The advance estimate of second-quarter real GDP (July 28)
should show approximately zero growth. While this projection
may require some refinement in light of inventory and foreign
trade statistics to be released next week, current data on output,
hours worked, and other key series point to a flat GDP outcome
for the period just ended.
2.
Domestic production trends appear to have stabilized or
improved modestly at the end of spring. Hours worked among
production workers in the factory sector edged down only
marginally during June, implying that total industrial output
ticked up 0.1% following three consecutive moderate declines.
Meanwhile, reduced inventories of unsold dwellings and
favorable weather probably boosted housing starts (by around
5%), as well as total construction outlays.
3.
Consumer spending also seems to have strengthened somewhat.
It appears that the liquidity infusion from delayed and
unexpectedly large personal income tax refunds has given
household purchases a boost. We expect a 0.6% rise in total
retail sales for June, led by the motor vehicle component, where
a 1.2% hike is suggested by improved unit deliveries. Moreover,
there is a solid probability that May sales results from those
CompuServe Mail (950711132444 476362.600000 EHA159-2) Page 1 of 4
outlets will be revised up from the advance estimate, which
showed only a 0.2% increase. This implication can be drawn
from the 0.9% jump reported last week in personal consump-
tion of goods for that month.
4.
Inflation news may prove to be mixed, despite fairly benign
price index results. Our estimates of 0.1% and 0.2% gains in the
total producer and consumer price indexes during June (+0.2%
and +0.3% excluding food and energy, respectively) are a bit
lower than the average of the prior five months this year. In
view of a clear acceleration in average hourly earnings growth
last quarter, however, the employment cost index probably
gained speed last quarter as well, to 0.8% (not annualized)
versus 0.6% over the December-March period. In addition, a
projected 3.5% annualized increase in the fixed-weight GDP
price index would be the highest since early 1993.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950711132444 476362.600000 EHA159-2) Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF(RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950711132444 476362.600000 EHA159-2) Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950711132444 476362.600000 EHA159-2) Page 4 of
4
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
WEEKLY ECONOMIC UPDATE
X X Now what? X X
Edward F. McKelvey (212) 902-3393 New York Economic Research
Note 7:42am 7/10/95
Summary
Z
This week's price reports for June may appear to support the Federal
Open Market Committee's (FOMC) contention that inflation pressures are
receding, but only from elevated levels that would have been judged
unacceptable if growth remained near or above its long-term trend. A
significant reversal of recent increases is unlikely if the economy
rebounds as expected. Meanwhile, this week's reports on retail sales and
industrial production should help the case for a rebound in growth in
coming months.
Z
At this juncture, we are assuming one more 25-basis-point rate cut
sometime between now and the end of the third quarter both because the Fed
seldom moves only one step in the same direction and because the inflation
and growth numbers will probably give them latitude for such a move. Bond
yields could react favorably to such a move, as they did briefly last week,
but sustained declines are unlikely unless the economy proves to be much
weaker and/or inflation lower than now anticipated.
The Economy
The Fed's decision to lean solely on an improving inflation outlook
raise two questions about the economy: First, is inflation really
likely to improve? Probably not, although figures due for release this
week may look slightly encouraging. Second, should silence about growth
be taken as a sign to worry about it or not? Probably not. Data due
for release this week should help the case for a rebound. The details:
1. Signs of 'receding' inflation pressure have occurred against a
backdrop of rising retail inflation and probably do not signal a reversal
of recent increases. From December through May, the consumer price index
rose at an annual rate of 3.6% overall and 3.8% excluding food and energy.
These figures compare to increases of 2.6% and 2.7% from December 1993 to
December 1994 and, more importantly, lie slightly above the FOMC's 3.0%-
3.5% central tendency range for 1995. Patterns of acceleration in the
producer price index have been similar. As best we can tell, the signs of
receding inflation pressure spotted by the FOMC include: (a) a marked
CompuServe Mail (950710131905 476362.600000 EHA124-9) Page 1 of 5
slowdown in commodity price increases, (b) a couple of fairly small monthly
increases in the intermediate goods portion of the producer price index
recently, and (c) a significant drop in the vendor performance index of the
monthly survey of purchasing managers, from a cycle high of 65.7% in
December to 51.2% in June. Fed officials have also probably been heartened
by a small deceleration in the employment cost index, although June's 0.4%
increase in average hourly earnings may have given them some pause. But if
the economy rebounds, as we expect it will, then inflation is unlikely to
do better than stabilize for a while at the new higher level as pressure on
labor costs resurfaces. In this environment, tentative indications of
improvement in commodity-based inflation indicators are not apt to count
for much.
2. Relative to the elevated recent trends, June's inflation figures are
apt to look slightly better. This is especially the case for the producer
price index, which should post only a 0.1% increase for June and a 0.2%
increase excluding food and energy (Thursday, 8:30). Eyes should be
trained on the intermediate goods index to see if the pattern of slowing
that has appeared in recent months continues in this lead indicator of
finished goods price trends. In the consumer price report, the improvement
will probably be less impressive. The overall index is likely to be up
only 0.2% for June, but the index for items other than food and energy will
probably register a 0.3% advance, about in line with the data in hand for
the year to date (Friday, 8:30).
3. In bits and pieces, the prospects for a growth rebound do appear to be
improving. So far, the improvement is on the demand side of the economy.
For example, sales of new and existing homes rose sharply in May. Consumer
spending also rebounded in that month. And auto sales edged up in June.
4. Reports on retail sales and industrial production should lend support
to the rebound outlook. Based on auto sales figures and the chain store
reports, we estimate that retail sales rose 0.6% in June and 0.4% excluding
motor vehicles. Figures for May could also be revised up as data for the
latter part of that month are folded in (Friday, 8:30). Meanwhile,
industrial production appears to have stabilized in manufacturing and
increased slightly overall (0.1%) during June despite a decline in payrolls
in that sector, as those who remained on the job worked longer hours
(Friday, 9:15).
Monetary and Fiscal Policy
On the financial side, the obvious question is whether, and by how much,
the FOMC will lower interest rates further. One-off easings are not
unknown, but they are rare and have not occurred since Alan Greenspan
became Chairman. Moreover, it seems reasonable to assume that the data
on growth and inflation will be sufficiently ambiguous to permit another
move if the FOMC so desires. Thus, another 25-basis-point cut seems
likely to occur, probably before the end of this quarter. We do not
expect further declines thereafter, unless the economy remains sluggish
and the forward indicators of inflation and the labor cost statistics
cooperate.
Because bond yields already discount a cumulative easing of 75-100 basis
CompuServe Mail (950710131905 476362.600000 EHA124-9) Page 2 of 5
points, the ultimate direction from here to yearend will most likely be
up rather than down. However, markets have a penchant for extrapolating
current trends, and with the Fed having now shifted course intermittent
declines in bond yields cannot be ruled out at times when the data or
Fed commentary seem to heighten the possibility of more easing.
With Congress in recess this past week, there has been comparatively
little news in the fiscal arena. Just before the Senate went into
recess on June 30, Senators Carol Moseley-Braun (D.-I11.) and Paul
Wellstone (D.-Minn.) took advantage of a nearly empty chamber to
filibuster a delay in the House-approved $16.4 billion recission bill
for fiscal 1995. But since the bill already has President Clinton's
endorsement, its passage is quite likely when the Congress comes back
this week.
Upcoming Economic Releases and Events
Date Indicator/Event
Data For
Estimate Last Report
7/10 Consumer Credit
May
+$7.0 bn.
+$11.0 bn.
7/13 Producer Price Index
Jun
+0.1%
0.0%
Excl. food and energy
+0.2%
+0.3%
7/14 Consumer Price Index
Jun
+0.2%
+0.3%
Excl. food and energy
+0.3%
+0.2%
Retail Sales
Jun
+0.6%
+0.2%
Excl. autos
+0.4%
+0.1%
Industrial Production
Jun
+0.1%
-0.2%
Capacity Utilization
Jun
83.5%
83.7%
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950710131905 476362.600000 EHA124-9)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950710131905 476362.600000 EHA124-9)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent US from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950710131905 476362.600000 EHA124-9) Page 5 of 5
*** Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
U.S. BOND MARKET TELEX
X X Yields rise longer term; near-term direction less clear X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 12:11pm 7/07/95
1. ECONOMIC AND MARKET OVERVIEW
Financial market participants spent most of this holiday-shortened week
waiting for the Federal Open Market Committee's decision on what to do
about interest rates. Data released in the run-up to the FOMC meeting
remained inconclusive, with purchasing managers' reports of continuing
contraction in the industrial sector offsetting indications of a rebound
in consumer spending during May and a slight increase in motor vehicle
sales during June. Once the Federal Reserve announced a 25-basis-point
cut in the federal funds rate target on Thursday afternoon, prices of
fixed-income securities rallied sharply. Even though these prices had
already discounted more easing down the road, financial market
participants evidently read the Fed's action as confirming evidence that
the economy was weak enough to justify a policy reversal.
Some of these gains were lost on Friday morning, following the release
of the employment figures for June. They showed much more hiring than
had generally been anticipated, with nonfarm payrolls rising 215,000 in
June and figures for earlier months revised up a cumulative 70,000. In
addition, the index of total hours worked rose 0.8%, reversing two-
thirds of the previous month's decline, and average hourly earnings
increased a surprisingly large 0.4%. Although the manufacturing sector
stood out as an exception, shedding 40,000 in June, the overall message
of this report was clearly that the labor market is not in a general
pattern of contraction at the present time.
TREASURY YIELD INDICATIONS
(Semi-annual yields, late morning)
2-yr.
3-yr.
5-yr.
10-yr.
30-yΓ.
7/7/95
5.61%
5.67%
5.80%
6.08%
6.55%
6/30/95
5.84
5.91
6.03
6.25
6.65
6/23/95
5.65
5.71
5.85
6.07
6.51
2.
FEDERAL RESERVE POLICY
The statement announcing the FOMC's decision to cut its federal funds
rate target identified 'receding' inflation pressures as the sole reason
CompuServe Mail (950707161400 476362.600000 EHA55-9) Page 1 of 5
for this move. There was no reference to growth. This may mean that
the Committee was sufficiently divided on the growth outlook that a
consensus could not be reached on this issue. Alternatively, it may
indicate that the Committee was wary of reinforcing public perceptions
that the economy might be in danger of falling into recession. Or, it
could have been a way of avoiding the embarrassment of easing prior to a
firm employment report whose contents were generally not known to the
Committee as it met.
Whatever the motivation, the Fed's focus on inflation will inevitably
elevate inflation measures in the minds of market participants over the
next few months. Oddly enough, inflation has actually worsened over the
past half year, and only recently shown tentative signs of prospective
improvement through such measures as vendor performance and the producer
price indexes for partly processed goods. If these portend a period of
roughly stable inflation in coming months, as seems likely, then
continued ambiguity in the data on demand and production will likely
induce another round of easing, most likely by the end of the third
quarter. In our interest rate outlook, we are now assuming one more 25
basis point cut during the summer months.
3.
FISCAL AND POLITICAL DEVELOPMENTS
The promising efforts on Capitol Hill to bring the federal deficit under
control also did not receive any attention from the Fed in its rationale
for cutting interest rates. Those efforts suffered a minor setback late
last Friday (June 30), when Senators Carol Moseley-Braun (D.-I11.) and
Paul Wellstone (D-Minn.) took advantage of the fact that most Senators
had already left town for a long weekend and successfully derailed
passage of the $16.4 billion fiscal 1996 recission bill by filibustering
it. Because the bill represents a compromise worked out between
Congressional Republicans and President Clinton, it is likely to be
passed early next week when Congress returns from its recess and more
Senators can be mustered to invoke cloture.
4.
MARKET OUTLOOK AND COMMENTS ON VALUE
Because prices of fixed-income securities discount more easing than is
likely to occur, yields are likely to increase across the maturity
spectrum in coming months, with the yield curve steepening in the
process. In the near term, however, yields may hold at current levels
or even decline slightly if the news on inflation and growth continue to
feed market expectations of further Fed easing.
5.
UPCOMING ECONOMIC RELEASES AND EVENTS
Date Indicator/Event
Data For
Estimate Last Report
7/10 Consumer Credit
May
+$7.0 bn.
+$11.0 bn.
7/13 Producer Price Index
Jun
+0.1%
0.0%
Excl. food and energy
+0.2%
+0.3%
7/14 Consumer Price Index
Jun
+0.2%
+0.3%
Excl. food and energy
+0.3%
+0.2%
Retail Sales
Jun
+0.6%
+0.2%
Excl. autos
+0.4%
+0.1%
Industrial Production
Jun
+0.1%
-0.2%
CompuServe Mail (950707161400 476362.600000 EHA55-9)
Page 2 of 5
Capacity Utilization
Jun
83.5%
83.7%
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950707161400 476362.600000 EHA55-9) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF(RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares.
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950707161400 476362.600000 EHA55-9)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950707161400 476362.600000 EHA55-9) Page 5 of 5
*** Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MARKET COMMENT
X X Fed policy and inflation * X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 7:04pm 7/06/95
Summary
Z
The Federal Open Market Committee's (FOMC) focus on
inflation in its latest easing move could mean: (1) that its
members had trouble agreeing on the growth outlook, (2) that they
did not want to aggravate fears of recession, and/or (3) that
they wanted to avoid embarrassment if the June employment report
proves to be strong.
Z
One more 25-basis-point rate cut now looks likely by the end
of the third quarter.
Z
The assertion that inflation pressures are easing rests on
just a few recent developments, rather than on the inflation
pattern of since the beginning of the year, which has been up.
In the near term, however, the June inflation indicators are
likely to help the Fed's case that price trends are improving,
although only marginally in the case of consumer prices.
Fed leans on inflation abatement to justify monetary easing
In its statement announcing a 25-basis-point cut in the federal funds
rate target on Thursday, July 6, the Federal Reserve cited 'receding'
inflation pressures as the reason for this move. This emphasis on
inflation, and the exclusion of any reference to growth, probably means
three (not necessarily mutually exclusive) things:
1. The FOMC was sufficiently divided on the growth outlook that
it could not reach a consensus on this issue.
2. The FOMC probably wanted to minimize any impression that it
was worried about the growth outlook, for fear of precipitating a
self-reinforcing loss of confidence.
3. The FOMC probably wanted to cast the decision in terms that
would not be immediately called into question if Friday's
employment report turns out to be strong.
CompuServe Mail (950707125940 476362.600000 EHA143-2) Page 1 of 5
One more rate cut now probable
It is not clear whether this emphasis increases or decreases the chance
of additional rate cuts in coming months. On the one hand, the Fed has
implicitly couched this easing in terms of adjusting interest rates to
levels consistent with underlying inflation trends rather than in terms
of having to jump-start a stalled economy. Thus, it is harder to argue
that 25 basis points is too small to influence the growth rate if growth
has not been used to justify the move in the first place. On the other
hand, having publicly taken the view that inflation pressures have
eased, the Committee may find it harder to justify standing pat in the
future if the growth figures stay soggy.
On balance, we give the second line of reasoning stronger weight and
suspect that another easing is likely to occur in August or September.
Moreover, as noted in our Daily Financial Market Comment dated June 23,
it is unusual -- though not unknown -- for the Fed to take only one step
in the easing direction. Therefore, as indicated in the most recent
Weekly Economic Update, we now believe that short-term interest rates
will settle at 5.5% by the end of the third quarter and stay there
through yearend. The new and old paths of the funds rate are as
follows:
Federal Funds Rate Outlook
(quarter end)
New
old
1995Q3
5.5%
6.0%
1995Q4
5.5%
6.0%
1996Q1
6.0%
6.5%
1996Q2
6.5%
7.0%
1996Q3
7.0%
7.5%
1996Q4
7.5%
8.0%
June inflation figures likely to help what is now a tentative case for
inflation improvement
Those who have been watching inflation closely in early 1995 were
probably astonished to see the Fed cite receding inflation pressures as
the one and only reason for easing policy. From December through May,
consumer prices rose at an annual rate of 3.6%, with the core index
(excluding food and energy) rising at a slightly faster 3.8% clip.
These figures are slightly above the 3.0%-3.5% central tendency range
announced by the FOMC in February for the change in consumer prices from
the fourth quarter of 1994 to the fourth quarter of 1995. Thus, the
FOMC would seem to need better figures in the months ahead just to move
within the expected range.
There are some tentative signs that this could occur, and these were
presumably what the FOMC had in mind in concluding that the inflation
outlook has improved:
CompuServe Mail (950707125940 476362.600000 EHA143-2)
Page 2 of 5
1. Signs of reduced inflation in producer prices of
intermediate goods. Excluding food and energy, the prices of
these goods rose only 0.2% in May, the smallest increase in a
year.
2. A speed-up in vendor deliveries. This component of the
National Association of Purchasing Management's monthly survey of
industrial conditions fell to 51.2% in June from cycle high of
65.7% in December. Other price indicators from various
purchasing managers' surveys have also receded.
3. An absence of significant acceleration in wages. In May,
the year-to-year trend in average hourly earnings dropped to 2.7%
from 3.1% the month before. This range brackets all but one of
these figures since last July. Similar trends in the employment
cost index have also reassured Fed officials that inflation has
not become entrenched.
The June indexes of producer and consumer prices will probably bolster
the case for Fed easing. The producer price index, to be released on
Thursday, July 13, should show a 0.1% or 0.2% increase overall for
finished goods and a 0.2% increase excluding food and energy. The
consumer price index, due for release on Friday, July 14, will only
marginally improve the case for slower inflation. It should show
increases of 0.2% overall and 0.3% excluding food and energy.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950707125940 476362.600000 EHA143-2) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
0S
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950707125940 476362.600000 EHA143-2) Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of KoΓea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950707125940 476362.600000 EHA143-2) Page 5 of 5
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212)902-6807
ECONOMIC RELEASE COMMENT
X X EMPLOYMENT (JUNE) Report stronger than expected X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 9:20am 7/07/95
THE EMPLOYMENT REPORT (JUNE)
Key Statistics:
3-Month
12-Month
June
Average
Average
Non-Farm Payrolls
+215,000
+59,000
+211,000
Aggregate Hours Worked
+0.8%
-0.1%
+0.2%
Annual Rate
+10.5%
-0.6%
+2.0%
Civilian Unemployment Rate 5.6%
+0.1%
-0.5%
Average Hourly Earnings
+0.4%
+0.3%
+0.3%
Annual Rate
+5.4%
+3.2%
+3.1%
Conclusion:
Report stronger than expected, indicating that job losses in
recent production adjustments were limited. Although this
probably signals a batch of firmer indicators for June, it
is premature to conclude anything about Fed policy at this
point. Fed officials will have access to another round of
data for July at their next meeting on August 22.
Key Points:
(1) Nonfarm payrolls increased 215,000 in June, and figures
for prior months were revised up 70,000. The net increase
of 285,000 was far greater than generally anticipated.
Although favorable weather and a long survey interval
boosted the June totals somewhat, these factors do not
appear large enough to explain the upside surprise
completely.
(2) Performance in the manufacturing sector was mixed.
Payrolls fell 40,000 in this cyclically sensitve part of the
economy. However, the factory workweek inched up 0.1 hour,
CompuServe Mail (950707132305 476362.600000 EHA27-2) Page 1 of 4
to 41.5 hours.
(3) The index of hours worked rose 0.8% in June, recovering
two-thirds of the loss sustained in May. For the second
quarter as a whole, this measure of labor input was down
1.3% at an annual rate. Given the current trend of
productivity, a GDP figure in the neighborhood of zero is
likely.
(4) Average hourly earnings rose a surprisingly strong
0.4%, lifting 3- and 12-month trend increases back above 3%.
Over the past year, wage increases have wobbled 0.2 to 0.3
percentage points around this level.
(5) The unemployment rate fell 0.1 point, to 5.6%, as the
household survey for June failed to reverse much of the
stunning 925,000 reduction in the labor force reported for
May. Until this anomaly is corrected, the unemployment rate
may be somewhat understated. Important Disclosures (code definitions attached or
ECONOMY : No disclosures
CompuServe Mail (950707132305 476362.600000 EHA27-2) Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
0S
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
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Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
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4
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MARKET COMMENT
* * What we will know and when we will know it X X
Edward F. McKelvey (212) 902-3393 New York Economic Research
Note 5:16pm 7/05/95
Summary
Z
An announcement by the Federal Reserve should be expected
sometime between 2:00 and 2:30 on Thursday, July 6, although it
could come as early as late morning. If the decision is to stand
pat, the Fed will simply announce that the meeting has ended. In
this case, there is a possibility -- though not a very big one --
that short-term rates could be cut following the employment
report on Friday.
Z
Relative to 61 other economists polled by the Wall Street
Journal, our outlook shows more growth, slightly more inflation,
and higher interest rates, especially in the first part of 1996.
Z
Car sales inched up in June, to a 12.6 million unit
annualized selling pace from 12.5 million in May - suggesting
that the rebound in growth will come slowly.
What we will know and when we will know it
During the Watergate hearings by the Senate Select Committee in the
summer of 1973, Senator Howard Baker (R.-Tenn.) made famous the question
'What did he [President Nixon] know and when did he know it?' Many are
now asking about the forthcoming FOMC decision 'What will we know and
when will we know it?'
1. The most likely time of an announcement is between 2:00 and
2:30 p.m. There have been 10 meetings since the Fed started
making such announcements. In 8 of these instances, word came
between 2:13 and 2:26 p.m. The two exceptions were both earlier
-- in August 1994, when the announcement that the meeting had
ended (implying no action) came at 1:18 p.m., and in February
1994, when the announcement of a 25-basis-point rate increase
came at 11:05 a.m. The February 1994 episode is of some
relevance because it also followed a 2-day meeting. Hence, there
is some possibility that the announcement could come sooner than
the customary mid-afternoon timing.
CompuServe Mail (950706132246 476362.600000 EHA79-2) Page 1 of 5
2. A simple announcement that the meeting has ended will mean
that the Committee decided not to change rates, at least not
right away. In this case, however, it is almost unthinkable that
the Committee would fail to give Chairman Greenspan considerable
latitude to lower rates before the August 22 meeting. He could
conceivably use it as early as Friday or Monday, following the
employment report, although this would convey an impression of
responding to individual numbers that the Fed probably wants to
avoid.
3. An announcement that rates have been reduced will carry some
language vaguely indicating the magnitude of reduction. In the
unlikely event that rates are cut by 50 basis points, the action
would almost surely include a discount rate cut and the
proportion of this cut passing through to market-determined
interest rates would then be indicated in the language of the
announcement. It is much more likely, however, that rates would
be cut by 25 basis points with no change in the discount rate, in
which case the announcement would refer to 'slight' or 'small'
reductions in market rates expected to result from an also
'slight' relaxation of reserve conditions.
4. Unlike some earlier announcements, this one will probably
not give any hint of how far the Fed might ultimately go. When
the FOMC stepped up the degree of tightening in May 1994, it
characterized that move as 'sufficient for a time' to head off
inflation pressures. Three months later, another 50-point
increase came down the pike. It is highly unlikely that the Fed
will give any hints about the dimensions of any easing at this
juncture for two reasons. First, Fed officials would presumably
like to avoid any repeat embarrassment. Second, they probably do
not want to disabuse the financial markets of their assumptions
that more easing is on the way until the data point more clearly
in the direction of a rebound.
Our views relative to the consensus: more growth, inflation, and rate
pressure, especially in early 1996
The July 5 edition of the Wall Street Journal reveals an expectation on
the part of 62 economists that growth will rebound over the next year,
but not to the point of putting upward pressure on inflation or interest
rates. Our views, which are included among the 62, differ as follows:
1. The growth rebound we expect appears to be in line with
consensus for the second half of 1995 but is clearly above it for
the first half of 1996. On average, the economists surveyed
expect real GDP to rise at a 1.9% annualized rate during the
second half of 1995. The 1.7% shown for our forecast in the
second half of 1995 represents growth between the two half years,
not growth from second quarter to fourth quarter. On that basis
we anticipate a 2.3% average annualized increase. Neither figure
is far enough away from the consensus to represent a meaningful
departure of opinion. This agreement changes in the first half
of 1996. For that period, we anticipate an acceleration in
CompuServe Mail (950706132246 476362.600000 EHA79-2) Page 2 of 5
growth to about 4% (3.7% on a half-year basis, 4.0% on a fourth-
quarter to second-quarter basis), well above the consensus
expectation of 2.4%.
2. We expect slightly more inflation. The consensus view is
that inflation will be essentially unchanged over the next year -
- year-to-year increases of 3.3% for both November 1995 and May
1996 versus a current year-to-year increase of 3.2%. In our
view, the resumption of growth in an economy already operating
with thin to nonexistent margins of spare resources should result
in a modest upward drift in inflation, to 3.4% by November and
3.6% by next May.
3. Our short-term interest rate profile is higher. In part,
this is because the deadline for the poll preceded our change of
opinion on whether the Federal Reserve would ease credit at the
conclusion of the meeting now in progress. If that easing
occurs, as we now expect, the consensus 5.4% expectation for 3-
month Treasury bills at yearend looks eminently reasonable. From
then until the middle of 1996, we would expect the bill rate to
rise about 100 basis points, whereas the consensus is for a
slight further decline, to 5.3%.
4. Our long-term yield profile is also higher. From a
statistical point of view, economists expect no change in bond
yields over the next year -- not such a surprising development
after the large swings that have occurred in both directions over
the past couple of years. This, of course, marks sharp
divergences among individual analysts. We are clearly in the
high-yield camp. Only a handful of other economists expect
larger increases in bond yields than we do. (N.B.: A similar
article in the latest issue of Barron's had the wrong long-term
rate expectations for us.)
5. We expect the dollar to rebound more than the consensus. As
measured by the dollar/yen exchange rate, the average expectation
is for a 5% appreciation of the dollar by yearend and about 8.5%
appreciation by mid-1996. Our figures imply appreciation of 12%
by yearend and 18% by mid-1996.
Car sales improved only slightly in June
Based on complete results from auto manufacturers assembling motor
vehicles in the United States, the selling rate for passenger cars and
light-weight trucks appears to have risen slightly, from a 12.5 million
annual rate in May to a 12.6 million annual rate in June. While members
of the FOMC might draw some comfort from the fact that car sales
increased, the sales rate has not yet recovered to the first-quarter
average. This suggests, in turn, that the rebound in real GDP growth
will come slowly.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950706132246 476362.600000 EHA79-2) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF(RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950706132246 476362.600000 EHA79-2)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
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-07/06/95 09:14:42
Gene Sperling
Page 1
Important Facsimile
Please deliver immediately
TO: White House
FROM: Susan Petrosini
Merrill Lynch
Economics Department
212-449-1061
ATTN: Gene Sperling
TO: FAX PHONE#: 2024562878
MRN: 02498748-001-384-0384
TIME: Thu Jul 6 09:11:37 1995
2 pages including cover sheet
07/06/95 09:14:52
Gene Sperling
Page
2
JUL 06 '95 08:03AM MERRILL LYNCH
P.2
DAILY RESEARCH ANALYSIS
Merrill Lynch
Economic Commentary
July 6, 1995
LEI DOWN FOR 4TH MONTH, CLAIMS UNCHANGED
The last two economic reports--May leading indicators
Jobless Claims
and weekly jobless claims-that the Fed will see before
(Thousands, SA)
the current FOMC meeting ends later today are unlikely
7/1/95
0/24/95
to alter whatever conclusion on monetary policy the Fed
will come to. For our past, we expect the Fed to ease
Initial Unemployment Claims
369
369
today, but if not today than fairly soon.
4-Week Moving Average
377
378
The index of leading economic indicators fell 0.2% for
Source: Bureau of Labor Statistics
May. Though expected, that was the fourth consecutive
monthly decline in the LEI. Traditionally, three
consecutive declines in the LEI are thought to constitute
Leading, Coincident and Lagging Indicators
a recession signal. Has the LEI ever declined for four
(Percent Change)
consecutive months without a recession ensuing? The
swer is yes, during the two previous soft-landings in
Mar
Anr
May
mid-1960s and mid-1980s. On both those
occasions, the Fed eased policy to help prevent a
Leading
-0.4
-0.6
-0.2
recession from developing.
Coincident
0.1
-0.3
-0.3
Lagging
0.5
0.6
0.1
Initial unemployment claims for the week ended July 1
were unchanged at 369,000. The four-week moving
Source: Bureau of Economic Analysis
average of initial claims edged down to 378,000, but
remains near the highest level in three years. Jobless
claims have a tendency to decline in the last week or two
of a quarter and than to rebound in the first couple of
week of the next quarter. In other words, an increase in
claims is likely over the next two weeks.
Payroll employment is reported tomorrow and we expect
it to rise by 100,000 for June, after declining in April and
May. That increase would still leave employment flat
during the second quarter. The unemployment rate is
expected to rise to 5.9% for June. Even if the Fed
refrains from acting today, we expect it to ease policy
before Labor Day.
Merrill Lynch & Co.
Donald H. Straszheim
Bruce Steinberg
Global Securities Research & Economics Group
Chief Economist
Manager, Macroeconomice
(212) 449-0931
(212) 449-0928
© Copyright 1995
Merrill Lynch, Pierce, Fenner & Smith Inc.
XXX Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MARKET COMMENT
X X Long-term promise with near-term risk X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 2:00pm 7/03/95
Summary
Z
As the FOMC gathers to consider its policy options, 1t faces
a mix of data holding out the promise of long-term demand
revival, but with a near-term risk that production weakness could
thwart the improvement.
Long-term promise with near-term risk
As the Federal Open Market Committee gathers in Washington on Wednesday,
it confronts a host of data sending mixed signs about where the economy
is headed. If there is any pattern to the economic data that have come
to light in recent weeks it is best captured in the phrase 'long-term
promise with near-term risk.' The long-term promise is captured in the
following developments regarding household confidence and demand for
homes, which generally support our expectation of a rebound in real GDP
growth during the second half of 1995:
1. Confidence has held up. Although the Conference Board
reported a 9.2-point drop in its confidence index for June, the
more stable Michigan index actually ticked up almost 3 points.
In absolute terms, both measures were at levels consistent with
strong growth, indicating that consumers are not yet troubled by
what they see and hear about the economy. If this stays true,
then real household spending is apt to resume growing at a
sturdier rate than the 1.5%-2.0% rate that appears to have
developed during the first half of 1995. Indeed, real outlays
rose 0.6% in May, adding force to the argument that unexpectedly
large final settlements of 1994 tax liabilities held spending
down in April.
2. Housing demand has stabilized. Sales of new and existing
homes rose 7.0% in May, overturning a 5.6% decline in April.
Judging from other indicators, such as mortgage applications,
traffic through major housing developments and attitudes toward
home purchase, the see-saw pattern of home sales evident since
January should give way in coming months to a pattern dominated
by increases.
CompuServe Mail (950705131002 476362.600000 EHA116-2) Page 1 of 4
The near-term risk is that current weakness in the industrial and
construction sectors feeds through to consumer confidence and spending.
1. The industrial sector continued to contract in June. The
composite index from the monthly survey of purchasing managers
slipped to 45.7% in June from 46.1% in May, with the largest
declines showing up in its production and price components. This
points to a fifth consecutive decline in manufacturing output in
June.
2. Construction activity was also sliding in May. Outlays on
projects already under construction fell 1.5% in real terms
during May following a 0.3% decline in April. The May decline
was broad-based across all major sectors. In the residential
sector, construction on new housing had fallen nearly 5%
cumulatively between January and May.
Although FOMC members will take some justifiable comfort in the notion
that the long-term promise is for demand revival, they cannot ignore the
short-term risk. It is underscored by a couple of disturbing elements:
1. The trade balance has failed to narrow. Although this could
be a sign that demand was not as weak as now reported in the
first half of 1995, it could also mean that U.S. manufacturers
are shouldering the brunt of the slowdown in demand. This is
consistent with the next two observations.
2. Manufacturers' inventories are rising rapidly. The book
value of unsold goods at factories rose 0.6% in May following an
upward-revised 0.9% jump in April.
3. The trend in orders for factory goods remains unclear.
Although new bookings rose 1.4% for all factory goods and 2.7%
for durable goods in May, these increases followed larger
declines (2.2% and 4.6%) in the previous month. The orders
component of the NAPM survey remained well below 50% in June
(43.4%, up only fractionally from 43.2% in May). Likewise, the
latest 'beige book' revealed more soft spots than strong spots in
this area.
On balance, it seems likely that the FOMC will choose to reduce interest
rates by 25 basis points, as a small precautionary step against the
possibility that the near-term risks prevail. But the decision remains
a close call, and it would not be surprising if the meeting adjourned
with no action. Important Disclosures (code definitions attached or available upo
ECONOMY : No disclosures
CompuServe Mail (950705131002 476362.600000 EHA116-2) Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
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Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the invostment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
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XXX Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212)902-6807
ECONOMIC RELEASE COMMENT
X
If PERSONAL INCOME AND PERSONAL CONSUMPTION (MAY) X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 9:29am 7/03/95
PERSONAL INCOME AND PERSONAL CONSUMPTION (MAY)
Key Statistics:
3-Month
12-Month
May
Trend
Trend
Personal Income
-0.2%
+0.1%
+0.5%
Annual rate
-2.6%
+1.7%
+5.7%
Wages and Salaries
-0.5%
0.0%
+0.4%
Annual rate
-6.3%
+0.5%
+4.5%
Personal Consumption
+0.7%
+0.5%
+0.5%
Annual rate
+8.4%
+5.9%
+5.5%
Conclusion:
Income weak in May, reflecting setbacks in wages and
salaries. Spending rebound in May consistent with passing
of tax season, although downward revisions reduce quarterly
level.
Key Points:
(1) U.S. households suffered the first significant hit to
income in May, as a more sluggish labor market shaved 0.5%
from wage and salary payments. In addition, income figures
for previous months were revised down, primarily due to
lower estimates of personal interest income.
(2) Despite the setback in wage and salary income,
consumers increased spending 0.7% in May. This rebound is
consistent with the passing of a tax season dominated by
large final settlements of 1994 liabilities. Disposable
income rose 0.7% in May as well, as tax payments returned to
more normal levels.
CompuServe Mail (950703134231 476362.600000 EHA76-2)
Page 1 of 9
(3) Downward revisions to spending figures for earlier
months took some of the zip out of the consumption side of
this report. In real terms, consumer spending appears to
have risen at a 1.5%-2.0% annual rate in the second quarter,
little changed from the first quarter. Important Disclosures (code definitions at
ECONOMY : No disclosures
CompuServe Mail (950703134231 476362.600000 EHA76-2) Page 2 of 9
XXX Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
WEEKLY ECONOMIC UPDATE
* * A 25-basis-point rate cut now looks likely - -- Part 1 x x
Edward F. McKelvey (212) 902-3393 New York Economic Research
Note 9:01am 7/03/95
Summary
Z
It now appears likely that the Federal Open Market Committee (FOMC)
will vote to reduce short-term interest rates by 25 basis points this week.
From an economic standpoint, the data do not provide a clear enough sense
of direction to forestall an easing, with indications of persistent
industrial weakness in June underscoring the risk of some feedback to
confidence and spending. In this context, a small cut in interest rates
becomes the path of least resistance from a political standpoint.
Z
Although any such cut in interest rates could stand alone, it is more
likely to be followed by another 25-basis-point move sometime later this
summer. Thus, the projected profile of short-term interest rates has been
reduced by 50 basis points through the end of 1996. In the very near term,
bond yields are apt to move slightly lower in response to an easing. Such
a move would be short-lived, however, given that bond yields currently
discount more Fed easing than now seems likely.
A 25-basis-point rate cut now looks likely
Barring a surprisingly strong report from the National Association of
Purchasing Management (NAPM) for June, it now appears likely that the
FOMC will vote to reduce the federal funds rate by 25 basis points, to
5.75%, at the conclusion of its meeting this coming Thursday. It is
unlikely, however, that the discount rate (now 5.25%) will be reduced at
the same time. The reasons for this change in our assessment are both
economic and political:
1. From an economic standpoint, the data do not provide a clear enough
sense of direction to forestall an easing. FOMC members advocating a rate
reduction will surely point to the reduction in payrolls reported for May
and to the four consecutive declines in manufacturing output that occurred
between January and May. Both are unusual occurrences during a U.S.
business expansion. In addition, this faction of the FOMC will cite the
latest surveys of purchasing managers as evidence that trends in the
industrial sector were little changed in June. In this regard, the
stunning 6-point decline in the composite index for the Chicago purchasing
CompuServe Mail (950703134231 476362.600000 EHA76-2) Page 3 of 9
managers' report makes it improbable that today's report from the national
association will offer the FOMC much comfort that the slide in industrial
output has come to an end; it is more probable that the NAPM composite
index will slip a bit further from May's already low 46.1% level. While
acknowledging the better performance of several demand indicators, those
FOMC members pushing for lower rates will argue that the cutbacks in
production carry too high a risk of feeding through to consumer confidence
and spending.
On the other side, FOMC members favoring no change in policy will lean
on the May's jump in home sales as evidence that recent declines in
market interest rates have already set in motion a rebound in housing
demand and presumably in related outlays for durable goods. They will
also stress the fact that consumer confidence has held up quite well
in the face of disturbing news and public discussion about the
fortunes of the economy. These arguments could be bolstered by
several upcoming reports, including today's data on consumer spending
in May and motor vehicle sales in June and Thursday's publication of
chain store results for June.
The one demand indicator that has probably surprised and disappointed
the FOMC is the international trade balance. In March and April,
persistent growth in imports pushed the U.S. trade deficit up. While
this could mean that domestic demand has been stronger than now
reported, anecdotal reports coupled with significant increases in the
book value of manufacturers' inventories point to different, more
worrisome interpretation -- namely, that the slowdown in domestic
demand has been concentrated in U.S. produced goods. This is one
reason why signs of weakness in the industrial sector cannot be
ignored, even when there are tentative signs of a revival in demand.
Partial knowledge of the labor market report for June, to be released
Friday morning, will undoubtedly play a role in the FOMC's
deliberations. Although the Federal Reserve and the Council of
Economic Advisers have both indicated that the report will not be
known to the Committee, the Federal Reserve staff has customarily
received the data on hours worked two days in advance, in order to
begin formulating estimates of the index of industrial production. If
these figures paint a much stronger picture of industrial conditions
than the purchasing managers' reports, the FOMC could be dissuaded
from cutting rates at this time. Most members would probably regret
taking such action on the eve of an unambiguously upbeat employment
report.
2. From a political standpoint, a small reduction in rates is the path of
least resistance. The political considerations are both internal and
external to the FOMC. Internally, the members who favor a cut in interest
rates will probably argue their case with more passion, and possibly
express more willingness to dissent, than those who favor no change. With
the data as ambiguous as they now are, it is hard to see any member
standing fast against a rate cut of 25 basis points when such a move
carries little, if any, incremental risk of aggravating inflation trends
down the road. Given the FOMC's clear preference to reach a consensus, in
which dissents are avoided or limited to one or two members, a 25-point
rate cut seems like a reasonable compromise solution.
CompuServe Mail (950703134231 476362.600000 EHA76-2) Page 4 of 9
Externally, the near-term political considerations relate to Chairman
Greenspan's forthcoming pilgrimage to Capitol Hill to deliver the
semiannual Humphrey-Hawkins report on monetary policy. At his last
appearance in February, Chairman Greenspan indicated that an easing in
policy might be appropriate if growth slowed more sharply than
expected, and that a modest uptick in inflation would not prevent such
a move. Growth has almost certainly slowed more abruptly than the
Federal Reserve thought likely back in February, and while the rate of
inflation has moved up in early 1995 the latest readings have
indicated that it is by no means spinning out of control. Under these
circumstances, the Chairman probably will want to defuse charges that
the central bank has its head in the sand, especially if the job
report for June is at all soft.
The political dimension of this decision is not one-sided. If growth
does rebound during the second half of 1995 and move back above trend
growth in early 1996, as we now expect, a rate cut now increases the
chance that the central bank is forced to tighten policy just as the
presidential primary season gets underway. This is a risk that will
probably be outlined by those who think that a rate cut is currently
not needed. Although economic developments do not always afford them
the luxury, Federal Reserve officials prefer to be on the sidelines at
times when their actions appear to have political consequences or
motivations.
Two conclusions follow from the foregoing discussion. First, the chance
of a rate cut this week only marginally outweighs the chance of a
decision to hold off. An outcome in either direction would not be too
surprising. Second, it is highly unlikely that the federal funds rate
target will be cut by more than 25 basis points. Although the FOMC
members pushing in this direction will probably press for more, those
who prefer no change at all are likely to resist such a large move. For
one thing, a 50-basis-point cut in the federal funds rate would probably
entail a similar cut in the discount rate. It does not appear likely
that the six Board Governors entitled to vote on discount rate moves
would be sufficiently unified to approve such a cut.
Upcoming Economic Releases and Events
Date Indicator/Event
Data For
Estimate
Last Report
7/3 Personal Income
May
-0.1%
+0.3%
Personal Consumption
May
+0.5%
+0.3%
Purch. Mgrs. Index
Jun
45.0%
46.1%
Construction Spending
May
Down
+0.4%
Domest. Motor Veh. Sales Jun
Flat
12.4 mil.
7/5 Federal Open Market Committee Meets (through 7/6)
7/6 Leading Indicators
May
-0.3%
-0.6%
7/7 Civilian Unemployment
Jun
5.8%
5.7%
Nonfarm Payrolls
Jun
+175,000
-101,000
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950703134231 476362.600000 EHA76-2)
Page 5 of 9
XXX Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
WEEKLY ECONOMIC UPDATE
XXA 25-basis-point rate cut now looks likely - Part 2 x x
Edward F. McKelvey (212) 902-3393 New York Economic Research
Note 9:02am 7/03/95
Summary
Z
It now appears likely that the Federal Open Market Committee (FOMC)
will vote to reduce short-term interest rates by 25 basis points this week.
From an economic standpoint, the data do not provide a clear enough sense
of direction to forestall an easing, with indications of persistent
industrial weakness in June underscoring the risk of some feedback to
confidence and spending. In this context, a small cut in interest rates
becomes the path of least resistance from a political standpoint.
Z
Although any such cut in interest rates could stand alone, it is more
likely to be followed by another 25-basis-point move sometime later this
summer. Thus, the projected profile of short-term interest rates has been
reduced by 50 basis points through the end of 1996. In the very near term,
bond yields are apt to move slightly lower in response to an easing. Such
a move would be short-lived, however, given that bond yields currently
discount more Fed easing than now seems likely.
Implications: a lower short-rate profile and a short-lived bounce in
bonds
If the FOMC does decide to cut interest rates, as now seems likely, the
financial markets will focus their attention on how far to expect short-
term rates to decline. One-off decisions to ease monetary policy are
not unknown, as shown in our Daily Financial Market Comment dated June
23, but they are uncommon and certainly not desired by Federal Reserve
official. Moreover, during Alan Greenspan's tenure as Federal Reserve
Chairman since August 1987, the FOMC has never executed a solitary move
in either direction. Thus, a rate cut should be viewed as a statement
that the FOMC is sufficiently worried about the prospect of a recession
that a clear shift in policy direction is warranted. Given also that a
25-basis-point rate cut would be expected to have much effect on its
own, we would reduce our projected profile of short-term interest rates
by 50 basis points 1f an easing occurs this week, with the implication
that one more 25-basis-point step would be in store sometime later this
quarter.
CompuServe Mail (950703134231 476362.600000 EHA76-2) Page 6 of 9
Yields on long-dated Treasury securities are currently priced to a rate
reduction of between 75 and 100 basis cumulatively. Over the next few
months, the balance of information coming to light on the U.S. economy
is apt to make an easing of this magnitude look less and less likely.
Hence, we still expect bond yields to move up toward 7-1/4% by yearend.
In the very near term, however, an easing by the Federal Reserve will
probably give a lift to bond prices. It is unusual for bonds to sell
off at such a time. Moreover, in recent weeks the bond market has
treated any information about how Federal Reserve officials are seeing
the economy as information about the economy itself. Since actions
speak louder than words, an easing at this juncture clearly has the
potential to extend the rally just a bit further.
Finally, it should be emphasized that the easing we expect is a
reflection of the FOMC's desire to take out a bit of insurance against
the possibility of a cyclical downturn in the economy. We continue to
believe that the economy will not fall into recession but instead
rebound as the current drags on growth fade.
Upcoming Economic Releases and Events
Date Indicator/Event
Data For
Estimate
Last Report
7/3 Personal Income
May
-0.1%
+0.3%
Personal Consumption
May
+0.5%
+0.3%
Purch. Mgrs. Index
Jun
45.0%
46.1%
Construction Spending
May
Down
+0.4%
Domest. Motor Veh. Sales Jun
Flat
12.4 mil.
7/5 Federal Open Market Committee Meets (through 7/6)
7/6 Leading Indicators
May
-0.3%
-0.6%
7/7 Civilian Unemployment
Jun
5.8%
5.7%
Nonfarm Payrolls
Jun
+175,000
-101,000
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950703134231 476362.600000 EHA76-2)
Page 7 of 9
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950703134231 476362.600000 EHA76-2)
Page 8 of 9
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority. in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by US to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950703134231 476362.600000 EHA76-2) Page 9 of
9
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
WKLY U.S. BOND MARKET COMMENT
I X Small rate cut at July FOMC meeting now probable X X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 12:59pm 6/30/95
1. ECONOMIC AND MARKET OVERVIEW
Financial market participants' assessments of Federal Reserve
monetary policy prospects remain highly fluid, swinging in response
to statements by top officials and varying signals on domestic
demand, production and confidence. For example, U.S. yields were
jolted upward late this week by a strong new-home sales report,
which deflated expectations of a prompt cut in short-term interest
rates. Market participants can be forgiven for having volatile
attitudes, as the Fed's coming policy decisions seem to be delicately
balanced, and the data signals have been distressingly choppy. On
the positive side for economic growth, a 19.9% surge in sales of new
single-family houses during May combined with upward revisions to
earlier figures suggests that the remaining overhang of unsold
houses is fairly modest. This bolsters the outlook for a mild
recovery in residential construction spending by the fall. Turnover
of existing homes, meanwhile, may have bottomed out, posting a
4.7% rise for May. Changes in such resales frequently foreshadow
similar shifts in spending on household durables and vehicles.
Other news has been more worrisome, though, underscoring the
present precarious state of the U.S. economy. Purchasing managers
from the Chicago region report a stunning 6-point slide in their
adjusted activity index for June, to 47.6%. While the Chicago and
national purchasing reports do not move in perfect tandem by any
means, the magnitude of fresh deterioration in this hub of mid-
western manufacturing bodes poorly for the NAPM index next
Monday. Any material decline from the 46.1% NAPM reading for
May would push that historically reliable manufacturing gauge into
or below the zone that has normally divided broad business expan-
sion from contraction. A sizeable drop in the Conference Board's
index of consumer confidence, from 102.0 to 92.8, raises a caution
flag about possible negative feedback from reduced hiring and
stagnant GDP growth on household spending propensities. Retrench-
ment in consumption remains doubtful, however, given that the
Board's confidence index level is still fairly high, and the separate,
normally less erratic poll by University of Michigan researchers
generated more upbeat responses this month.
CompuServe Mail (950630170521 476362.600000 EHA35-8) Page 1 of 5
TREASURY YIELD INDICATIONS
(Semi-annual yields, late morning)
2-yr.
3-yr.
5-yr.
10-yr.
30-yr.
6/30/95
5.84
5.91
6.03
6.25
6.65
6/23/95
5.65
5.71
5.85
6.07
6.51
6/16/95
5.77
5.85
5.98
6.23
6.64
2.
FEDERAL RESERVE POLICY
It now looks probable that the Federal Open Market Committee will
vote a slight easing of monetary policy at the meeting that concludes
next Thursday. A 25-basis-point reduction in the federal funds rate
target, to 5.75%, is the most likely outcome. While the latest
economic readings have been more mixed, with signs of some
rebound in demand for new homes and durable items, the industrial
sector contraction that began late last quarter has lingered too long
and has apparently become too deep for policy makers to remain
comfortable much longer with a status-quo rate posture. Also,
congressional approval of the compromise budget resolution
promising balanced federal accounts by 2002 and an agreement with
the White House on third-quarter spending rescissions will reinforce
concerns about coming fiscal contraction among some senior Fed
officials, such as Governor Lindsey.
Chairman Greenspan no doubt is worried that a Fed easing at this
time could destabilize the dollar in foreign exchange markets,
potentially damaging confidence in U.S. long-duration assets among
overseas investors. That fear, however, is more likely to constrain
the decision next week to one between no change and a quarter-
point rate cut, rather than to prevent any action. Having publicly
acknowledged an increased risk of recession and promised interest-
rate flexibility to offset prospective budget tightening, Greenspan
will face a skeptical if not openly critical congressional audience
at his policy testimony on July 19 unless he has taken a small step
toward accommodation in the interim.
3.
FISCAL AND POLITICAL DEVELOPMENTS
As expected, the House and Senate each passed the compromise
seven-year plan for budget deficit elimination by narrow, partisan
majorities. Now the hard work begins on finding specific dis-
cretionary outlay savings and changing entitlement programs in
ways that would imply materially slower growth in those benefit
payments. When lawmakers are forced to cast tough votes on
reducing reimbursements for medical procedures or assistance to
the indigent, they may conclude that it is more prudent economically
and politically to stretch out such actions over a longer period. That
would further dilute the modest $92 billion in spending restraint
that has been agreed to for fiscal years 1996-97 combined, which is
already likely to be offset in large part by personal and capital gains
tax reductions. Thus, it continues to look as though only a mild
fiscal policy tightening is in prospect within the next eighteen
CompuServe Mail (950630170521 476362.600000 EHA35-8)
Page 2 of 5
months.
Separately, congressional and White House negotiators have reached
an accord regarding the fiscal 1995 spending rescission bill that was
rejected by President Clinton a few weeks ago. Although headlines
trumpet a $16.3 billion outlay cutback, in fact it appears that the
impact on government purchases of goods and services next quarter
will be relatively minor, perhaps as small as $1 billion. At the
margin, however, enactment of this bill would reinforce the
potential for net Treasury market financing between July and
September to fall below the $40-$45 billion range currently esti-
mated by government debt managers.
4.
MARKET OUTLOOK AND COMMENTS ON VALUE
The actuality of a small Fed policy easing next week could stimulate
some steepening in the Treasury yield curve, especially if that action
led to downward pressure on the dollar exchange rate. Short-
duration bond yields already discount a strong probability of lower
money-market rates before long, so barring an unexpectedly
aggressive Fed rate action it may prove difficult to push them much
lower. The long-term bond sector, consequently, has a growing
vulnerability to upward yield pressures in the near run.
5.
UPCOMING ECONOMIC RELEASES
Date
Indicator
Data For
Estimate
Last
7/3
Personal Income
May
-0.1%
+0.3%
7/3
Personal Consumption
May
+0.5%
+0.3%
7/3
Purchasing Managers Index
June
45.0%
46.1%
7/3
Construction Spending
May
Down
+0.4%
7/3
Dom. Motor Vehicle Sales
June
Flat
12.4M
7/5-6
Federal Open Market Committee Meeting
7/6
Leading Indicators
May
-0.3%
-0.6%
7/7
Civ. Unemployment Rate
June
5.8%
5.7%
7/7
Nonfarm Payrolls
June
+175,000
-101,000
Regards,
John M. Youngdahl
GOLDMAN, SACHS AND CO.
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950630170521 476362.600000 EHA35-8)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950630170521 476362.600000 EHA35-8)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950630170521 476362.600000 EHA35-8) Page 5 of 5
*** Goldman, Sachs & Co. -- Research Portable Lite FAX * * *
To:
GENE SPERLING
From:
Melisse Dornier -- tel: (212) 902-6807
Re:
Investment Research ideas
...
Misc. Economic Comment
...
Daily Financial Mkt Comment
Date:
30-Jun-95 09:14
I thought you would find the enclosed of interest.
Please refer to the end of this document for important disclosures.
Transmitting 6 pages in addition to this cover page.
Delivered by CompuServe Mail (950630131405 476362.600000 EHA128-2)
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
MISC. ECONOMIC COMMENT
* X Miniscule GDP revisions to have no effect on Fed X X
Economics Group (212) 902-3393 - New York Economic Research
Note 8:54am 6/30/95
REAL GDP AND GDP-BASED PRICE INDEXES ('95 Q1 REVISED)
Key Statistics:
Previous
4-Quarter
'95 Q1
Report
Trend
Real GDP (ann. rate)
+2.7%
+2.7%
+4.0%
Real Final Sales (ann. rate)
+2.6%
+2.5%
+3.5%
Fixed-Weight Price Index
+3.3%
+3.3%
+3.0%
(ann. rate)
Conclusion:
Minor revisions indicate slightly firmer tone to final sales growth in
the first quarter. Report will have no effect on Fed thinking about
current economic activity.
Key Points:
(1)
As is normally the case, 'final' revisions to first-quarter real
GDP figures were quite small. Annualized growth remained
at 2.7%, and the increase in the fixed-weight price index also
was unchanged, at 3.3%. Despite an upward revision to the
March trade deficit, the increase in real final sales was pushed
up 0.1 point, to 2.6% at an annual rate.
(2)
By sector, revisions contributing to the firmer tone in final
sales showed up in business fixed investment (+21.5% vs.
+20.7%), government spending (-0.7% vs. -1.2%), and a slightly
smaller trade deficit (-$118.5 bn. vs. -$120.0 bn.). Growth in
real consumer spending was a bit lower (+1.6% VS. +1.8%) and
the setback in residential construction activity was also
somewhat larger (-3.4% VS. -2.6%).
(3)
The Commerce Department did not highlight the forthcoming
CompuServe Mail (950630131405 476362.600000 EHA128-2) Page 1 of 6
shift in emphasis to chain-weighted indexes of output and
prices (see Daily U.S. Financial Market Comment dated June
29). Prior to the latest revisions, this new method of calcu-
lating real GDP growth would have produced an annualized
increase of only 2.1%.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950630131405 476362.600000 EHA128-2) Page 2 of 6
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
X X June payrolls seen +175,000; unemployment +0.1% X X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 2:24pm 6/29/95
Summary
-
We project a respectable 175,000 bounce-back in total nonfarm
payroll employment for June, though a surge in the number of
persons seeking jobs will likely push the unemployment rate up
at least 0.1%. Data on aggregate hours worked should streng-
then, but probably not enough to prevent a second-quarter
downturn in this rough proxy for output.
Employment Data Likely To Be Much Firmer In June, Though With
Greater Joblessness
Following are the main points regarding our forecasts for the June
U.S. employment report, which will be released next Friday, July 7:
1.
After two consecutive declines, nonfarm payrolls should post a
175,000 gain. Based on collateral indicators of labor demand,
such as unemployment claims, it is very doubtful that net hiring
has stalled or turned negative since the winter, as current
readings suggest. In the wake of consecutive reported job
declines totalling 108,000, therefore, the June figures should be
solidly positive barring substantial upward revisions.
2.
A longer-than-normal survey interval can be expected to boost
the job tally. There were five weeks this year between the May
and June payroll counts, allowing a larger number of freshly-
minted graduates and students between school years to enter the
workforce. Employment among construction and retail firms
may display particularly strong results this month as a result of
this statistical influence.
3.
Another decline in total factory jobs of around 20,000 is
probable. Production adjustments for earlier inventory building
excesses seem to have been only partly completed through May.
Motor vehicle assemblies, however, are indicated to have
flattened out or firmed modestly over the past several weeks.
For this reason, we would not expect a repeat of the 56,000
shrinkage in factory jobs experienced during May.
CompuServe Mail (950630131405 476362.600000 EHA128-2) Page 3 of 6
4.
The average workweek is likely to stabilize or tick up slightly.
Last month's 0.3 hour (0.9%) slump in the nonfarm workweek
appears anomalous, because it was concentrated among service
industry workers, whose hours tend to be more stable in the
short term. In addition, factory overtime cutbacks may have
run their course now that durable-goods orders have bounced
and vehicle production has leveled off.
5.
Aggregate hours worked are due to rebound somewhat. The
combination of firmer employment figures and a stable or
higher workweek implies that aggregate hours will recoup a
large portion of last month's 1.1% drop. Even so, the official
index of total hours worked in the private sector is very likely
to post a decline for the current quarter, the first such occur-
rence in four years.
6.
Hourly earnings should edge up 0.2%-0.3%. That would
maintain the recent 2.5%-3.0% annual rate of ascent in this
monthly wage measure.
7.
Civilian unemployment probably will rise at least 0.1%, to 5.8%
or more. Joblessness was held down in May by a stunning
926,000 plunge in the labor force, which may reflect the
unusually early timing of that month's household survey. A
rebound in the number of persons seeking work this month
might put stiff upward pressure on the unemployment rate.
Moreover, given the sharp weakening of employment growth
since the fourth quarter of last year, it would not be at all
surprising if unemployment has moved up over the intervening
period by more than the trivial 0.1% now shown.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950630131405 476362.600000 EHA128-2) Page 4 of 6
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950630131405 476362.600000 EHA128-2) Page 5 of 6
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950630131405 476362.600000 EHA128-2) Page 6 of 6
*** Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
X I Auto trade deal underscores dollar undervaluation X If
John Youngdahl (212) 902-8124 - New York Economic Research
Note 4:30pm 6/28/95
Summary
-
The trade deal reached between the U.S. and Japan on Wed-
nesday provides further grounds for optimism on the dollar's
prospects, in part because it underscores the current under-
valuation of the greenback.
-
U.S. officials plan later this year to modify their technique for
calculating real GDP from nominal expenditure and production
data. While the new methodology would raise estimated growth
rates for most of the past three decades, it would yield some-
what smaller annualized real GDP gains for each of the latest
three quarters. A comment on this pending change may be
released coincident with the GDP report on Friday.
U.S. Japan Trade Deal Underscores Undervaluation of Dollar
Senior negotiators from the U.S. and Japan on Wednesday struck a
bargain with respect to trade in motor vehicles and parts, leading
President Clinton to withdraw the threat of punitive tariffs against
Japanese luxury cars. This deal should be viewed as supportive of
the dollar in foreign exchange markets for four reasons:
1.
Risk of retaliatory steps eliminated. The accord removes
uncertainty from the market regarding whether Japan might
respond to U.S. trade sanctions with similar steps against
American goods or sales of dollar assets. A reduction of such
fears should aid the currency of a country that is dependent on
foreign capital inflows.
2.
Potential for modest positive influence on U.S. net exports
balance. The Japanese agreed to a goal of $9 billion more U.S.
auto parts imports over three years, as well as an increase of
500,000 in Japanese transplant vehicle production in the U.S.,
which probably would be worth $5-$8 billion. These measures
should help to shrink the U.S. trade deficit over time. Of
course, much of this activity probably would have happened
even without the trade agreement, given the relative cheapness
CompuServe Mail (950629141919 476362.600000 EHA65-2) Page 1 of 5
of U.S. goods in foreign markets and pressure on Japanese firms
to shift production into North America as a means of coping
with the sky-high yen value.
3.
Undervaluation of the dollar has been underscored. The reason
that the U.S. was able to get an agreement of this nature was
that an undervalued dollar makes increased Japanese purchases
of U.S. parts and production in the U.S. very consistent with
their firms' best interests. It is not difficult to make such trade
concessions under these exchange rate circumstances.
4.
Japanese direct investment in the U.S. will receive a boost. To
lift their transplant production by the indicated volumes,
Japanese firms probably will have to invest another $2-$3
billion in those operations over the next few years.
Pending Change To Official GDP Calculations Would Lower Recent
Real Growth Estimates
Sometime later this year, in conjunction with a broad-based overhaul
of the national income accounts, the U.S. Department of Commerce
plans to change the way it reports real GDP figures by altering the
method through which nominal (current-dollar) spending and output
reports are translated into volume terms. Presently, the adjustment
is made by calculating an overall implicit GDP price deflator based
upon price behavior and changes in the composition of national
output during the period in question. Under the new methodology,
the official price deflation will be effected using what are known
as 'chain-weight' price indexes, which are based on the percentages
of GDP that different economic sectors comprised in the prior
period.
The goal of this switch is to reduce biases that infect growth
calculations whenever expenditures shift toward items whose prices
are rising much more or less rapidly than overall price trends.
Under present procedures, such shifts tend to cause an under- or
overstatement of real GDP growth as the base period for GDP
calculations (currently 1987) fades into the more distant past. By
using chain-weights, the base period for price measurement and the
sectoral allocation of real GDP are kept more current.
According to Commerce statistics and analysts, under the new
methodology U.S. economic growth would appear stronger for most
of the past few decades (see table below). In recent periods,
however, it would have produced a somewhat lower real GDP gain
than what has been actually reported. For the third and fourth
quarters of 1994, annualized real GDP gains using chain-weight
deflators have been estimated at 3.6% and 4.0%, figures that are 0.4%
and 1.1% lower than those now published, respectively. Similarly,
the real GDP gain of 2.7% at an annual rate for last quarter would
be 0.6% smaller using chain-weighted prices.
Official Estimates of Quarterly Real GDP Growth
Under Current and Prospective Deflator Methodologies
(Annual rates)
CompuServe Mail (950629141919 476362.600000 EHA65-2) Page 2 of 5
Current
Prospective
Difference
1960-69*
4.1%
4.4%
+0.3%
1970-79*
2.9
3.2
+0.3
1980-89*
2.5
2.7
+0.2
1990-94x
2.0
1.7
-0.3
1994 Q3#
4.0
3.6
-0.4
1994 Q4#
5.1
4.0
-1.1
1995 Q1#
2.7
2.1
-0.6
X- Annual average data.
#- Quarter-on-quarter percent changes annualized.
Important Disclosures (code definitions attached or available upon request)
ECONOMY
: No disclosures
CompuServe Mail (950629141919 476362.600000 EHA65-2)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950629141919 476362.600000 EHA65-2)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950629141919 476362.600000 EHA65-2) Page 5 of 5
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
*
X Confidence drop a concern, but not cause for Fed panic X X
John Youngdahl (212) 902-8124 New York Economic Research
Note 5:06pm 6/27/95
Summary
-
Published comments by Fed Governor Lindsey suggest that he
is leaning in favor of monetary easing, but it is unclear whether
he will press for a change as early as next week's FOMC
meeting.
-
The large drop in the Conference Board's consumer confidence
index this month is worthy of some concern, but should not be
given undue weight given the historical volatility of this series
relative to other similar polls and conflicting evidence from
those surveys during June.
Lindsey Appears To Lean In Favor Of Lower Rates
In a news service interview published Tuesday morning, Fed
Governor Lawrence Lindsey made remarks that tend to support
speculation he currently leans toward a reduction in short-term
interest rates sometime soon. Lindsey said the current period of
economic weakness could be either a mid-cycle inventory adjustment
to slower demand growth or the beginning of a recession, and
assigned roughly equal weight to the two different outcomes. He
said that, given these uncertainties, as well as the normal lags
between policy changes and their effects on business conditions, Fed
officials must look down the road six to nine months and make their
best judgment as to how the overall economy will look at that time.
Lindsey also expressed a willingness to adjust monetary policy in
anticipation of a 'fiscal shock' --i.e., a change in federal budget
strategies that has the potential to influence real GDP trends
materially.
If Governor Lindsey were to become a strong advocate of monetary
easing at the FOMC meeting next week, that would make it difficult
for Chairman Greenspan to fashion a policy directive for support by
a large majority of the Committee which did not include an
immediate rate cut. It is not clear at this point, however, that
Lindsey has sufficiently deep concerns about the economic outlook
to prompt a formal dissent from a decision to leave rates unchanged.
CompuServe Mail (950628135424 476362.600000 EHA38-2) Page 1 of 4
Thus, in our judgment it remains a knife-edge case as to whether the
Fed will hold steady or ease in the near term, with the probabilities
only marginally tilted in favor of no change.
Confidence Index Drop A Concern, But Should Not Be Unduly
Emphasized
The surprisingly large drop in the Conference Board's consumer
confidence index this month (from 102 to 92.8, with 1985=100)
certainly warrants some attention, because the U.S. economy is
presently in a precarious state and might slip into prolonged
contraction if households began to retrench on real spending. That
said, there are four reasons why this report by itself does not
warrant a more pessimistic view on personal consumption:
1.
The confidence index remains at a high level. Although it
characterized the June decline as 'disconcerting', the Con-
ference Board in its release also noted that 'the current
confidence level has historically been associated with a
reasonably strong economy.'
2.
This measure tends to be more volatile than other attitude
surveys. Since 1980, the average absolute month-to-month
percent change in the Conference Board confidence index has
been 5.4%, roughly 1-1/2 times greater than the typical change
in the University of Michigan figure. Changes of the magni-
tude seen in June, therefore, are not that uncommon, occurring
roughly one-sixth of the time.
3.
Other surveys have lately displayed a more positive tone.
Preliminary results from the University of Michigan indicated
a rise in its sentiment index in June, from 89.8 to 92.3. The
ABC/Money Magazine Consumer Comfort poll has also moved
up, to -9.75 in the latest four weeks on average from -12.5 in the
prior four-week period.
4.
Respondents have not yet turned pessimistic about the labor
market. Almost as many heads of households surveyed for the
Conference Board perceive jobs to be plentiful as hard to get.
Such balanced assessments of employment conditions are
typically seen in relatively firm employment growth periods,
and certainly are not characteristic of a long-lasting stagnation
or downturn in net hiring.
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950628135424 476362.600000 EHA38-2) Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950628135424 476362.600000 EHA38-2)
Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950628135424 476362.600000 EHA38-2) Page 4 of 4
XXX Goldman, Sachs & Co. Investment Research XXX
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MKT COMMENT
X
X GOP budget deal implies little fiscal restraint thru 1996 X X
John Youngdahl (212) 902-8124 - New York Economic Research
Note 3:21pm 6/26/95
Summary
-
While the House-Senate budget compromise struck late last week
puts forth a credible plan for balance between revenues and
outlays by early in the next decade, it does not require or
provide for material fiscal policy restraint within the next two
years. Thus, the plan reinforces our view that the budget is
unlikely to crimp U.S. economic activity in a notable way
through yearend 1996.
Budget Plan Provides For Little Policy Restraint Through Fiscal
1997
For two reasons, the compromise congressional budget resolution
agreed to by House and Senate conferees late last week conforms
with the broad conclusions reached in our paper earlier this month,
'The U.S. Budget Outlook: Substantial Fiscal Restraint Likely To Be
Delayed:
1.
Political decisions on fiscal matters are likely to remain fluid
for another few months. As the price for agreeing to $245
billion of tax cuts over seven years in the budget plan, Senate
Republicans made their enactment contingent on certification
by the Congressional Budget Office that enough spending
savings have been achieved to pay for those tax reductions and
still achieve budget balance by fiscal 2002. This will keep the
pressure on individual lawmakers to take the difficult votes on
restraining the growth of entitlement outlays while holding the
line on discretionary spending if they want to reduce taxes this
year. However, it also leaves the budget outcome unusually
subject to CBO forecast revisions this summer, which in turn
will be sensitive to interim developments in the economy and
interest rates.
In addition, early indications are that the Clinton admini-
stration will not be able to accept a budget that cuts taxes on
capital gains by a material amount while sharply curtailing
projected mandatory medical program spending growth, both of
CompuServe Mail (950627132439 476362.600000 EHA90-2) Page 1 of 4
which clearly would occur under the GOP budget outline. A
presidential veto of the final budget reconciliation bill
therefore remains a very realistic possibility, and it is unclear
whether in that event Republican leaders would prefer to
compromise with the White House or pursue confrontation by
holding hostage a needed increase in the federal borrowing
limit.
2.
The congressional budget resolution provides for very little
fiscal policy restraint in the next one or two years. Any tax
abatements that can be achieved are intended to take effect
promptly, bolstering disposable personal incomes and after-tax
household wealth assessments from fiscal 1996 onward. In
contrast, spending savings would be heavily tilted toward the
later years of the 1996-2002 period (see table below). This is
due to: (a) the heavy emphasis on squeezing out savings in
medical entitlement programs such as Medicare (for the aged
and disabled) and Medicaid (for the indigent), which are
difficult to achieve on an early schedule, and (b) the cumu-
lating impact of reduced debt financing on net interest expense.
As shown in the table, the House-Senate budget compromise
would provide for only $92 billion in total spending reductions
over fiscal years 1996-97 combined, with less than one-third of
that relatively modest amount ($28 billion) set for next year.
Tax changes along the lines presently contemplated might offset
around $40 billion of those proposed spending cuts through
September 1997, leaving net fiscal restraint of roughly $50
billion spread over two full years. That implies a budget
tightening of only 0.3% of nominal GDP over the next two years
on average, far too little to have a significant influence on
domestic demands and output in that period.
Federal Spending Reductions In Budget Compromise
(Fiscal yrs., $ billions; details may not add to totals due to rounding)
1996-
1998-
2000-
1997
1999
2002
Total
Discretionary
$ 19
$ 41
$ 73
$132
Defense
-14
-17
-27
-58
Other
33
58
100
190
Mandatory
67
155
405
626
Medicare
26
64
180
270
Medicaid
12
40
130
182
Other
29
51
95
174
Debt Service
6
25
107
137
Total
$ 92
$220
$584
$895
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950627132439 476362.600000 EHA90-2)
Page 2 of 4
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs
American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C)1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950627132439 476362.600000 EHA90-2) Page 3 of 4
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so, We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950627132439 476362.600000 EHA90-2) Page 4 of 4
XXX Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
WEEKLY ECONOMIC UPDATE
X X FOMC on a knife's edge X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
John Youngdahl (212) 902-8124 - New York Economic Research
Note 7:52am 6/26/95
Summary
Z
The Federal Open Market Committee's forthcoming decision whether or
not to cut interest rates at its July 5-6 meeting is a knife's edge case.
In our view, the chance of a rate cut is still slightly below 50%, although
a modest 25-basis-point reduction could end up being the only option
capable of securing the overwhelming margin of support normally sought at
these meetings. In coming days, Committee members will focus on reports
dealing with consumer sentiment, car and home sales, and the latest
purchasing manager's assessments of industrial conditions. Positive
readings in all these areas would probably forestall a July easing, while
any additional worrisome signs would provoke an easing, most likely 25
basis points.
The FOMC on a Knife's Edge
With only nine days left until the Federal Open Market Committee's
(FOMC) midyear monetary policy meeting, it remains a knife-edge case
whether rates will be held steady or reduced slightly at that time. Two
or three of the central bank's six remaining Board governors are said to
lean in varying degrees toward an easing, while a similar number of the
five regional bank presidents currently voting as members of the FOMC
are likely to be wary of changing course just yet. Chairman Greenspan
probably controls the final decision, and he seems genuinely torn
between the two options. There is, after all, relatively little
evidence that credit conditions are excessively tight; witness, for
example, the surging equity market and progressive relaxation of credit
standards for consumer and commercial loans recorded in Fed surveys of
senior bank officers. Yet, a slight loosening of the policy reins might
be prudent to guard against recession following a quarter in which real
GDP appears to been essentially unchanged, and could also be justified
as a reward to congressional leaders for producing an unusually credible
plan for federal budgetary balance. As a practical matter, such a move
might also end up being the only decision to which a sufficiently large
group of FOMC members could agree. The Committee normally seeks an
outcome that will gain the support of all but one or two members.
CompuServe Mail (950626131546 476362.600000 EHA138-8) Page 1 of 5
While the probabilities in our view are still marginally in favor of
steady short-term rates over coming weeks, the decision is so finely
balanced right now that forthcoming reports on several key aspects of
economic activity will likely tip the scales one way or the other. The
most important data will relate to:
1.
Consumer sentiment. The Conference Board's Consumer Confidence Survey
(Tuesday, 10:00) and the final results of the University of Michigan's
sentiment poll for June (Friday, 10:00) will help clarify the status of
household financial and spending psychology. Both should show a slight
uptick for this month.
2.
Demand for new vehicles and homes. In the wake of last Friday's firm
durable-goods orders news for goods other than motor vehicles, Federal
Reserve officials will be very interested in whether sales of cars and
trucks are high enough to begin clearing out unwanted inventories of those
big-ticket items (Monday, July 3). Data on sales of new single-family
houses will also be watched with interest for confirmation of other signs
that this sector is stabilizing, although Fed officials are quite conscious
of the high degree of volatility in these figures (Thursday, 10:00).
Turnover of existing home sales figures (today, 8:45) are of less
importance, both because they reflect contract settlements and, thus,
lagged information on conditions a month or two earlier and because they
have a less direct and sizable impact on economic activity.
3.
Purchasing managers' surveys. As the first reading on industrial
activity this month, the Chicago purchasing agents' release (Friday, 10:00)
may provide a preview of the national data that are due next Monday
morning. Stability or improvement in these indexes would help reassure
policy makers that downward pressures on the factory sector are not gaining
force.
Positive readings in all these areas would probably induce all but one
or two of the FOMC members to support a directive calling for no
immediate change in policy, but allowing Chairman Greenspan considerable
discretion to reduce rates before the August meeting. If these reports
contain additional worrisome signs, however, the probability of a rate
cut will quickly rise above 50%. Most likely, any such cut would be
only 25 basis points.
Upcoming Economic Releases and Events
Date Indicator/Event
Data For
Estimate
Last Report
6/26 Existing Home Sales
May
Up
-6.4%
6/27 Consumer Confidence
Jun
Up
101.6
(Conference Board)
(1985=100)
6/28 Export/Import Prices
May
n.a.
+1.1%
Excl. Petroleum
n.a.
+0.5%
6/29 New Home Sales
May
Up
-2.7%
6/30 Real GDP (revision)
95Q1
+2.7%
+2.7%
Fixed-Weight Index
95Q1
+3.3%
+3.3%
Factory Orders
May
+1.0%
-1.9%
Chic. Purch. Mgrs. SurveyJun
Flat
53.5%
CompuServe Mail (950626131546 476362.600000 EHA138-8)
Page 2 of 5
Consumer Sentiment
Jun
n.a.
92.3
(University of Michigan)
(Feb 66=100)
Important Disclosures (code definitions attached or available upon request)
ECONOMY : No disclosures
CompuServe Mail (950626131546 476362.600000 EHA138-8) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950626131546 476362.600000 EHA138-8)
Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
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5
*** Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
U.S. BOND MARKET TELEX
X * Expectations of Fed easing remain substantial X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 1:09pm 6/23/95
1.
ECONOMIC AND MARKET OVERVIEW
Yields on Treasury securities declined across the maturity spectrum
this past week as market participants became more convinced that the
Federal Open Market Committee would vote to ease policy at its next
meeting on July 5-6. Remarks by Federal Reserve Chairman Alan
Greenspan on Tuesday evening before the Economic Club of New York
were widely interpreted as indicating that he was open to considering
a reduction in interest rates at that meeting. A wider-than-expected
April trade balance, reflecting continued rapid import growth,
reinforced these expectations by hinting that domestic manufacturers
might be shouldering more than their share of the recent slowdown in
demand growth. Meanwhile, a 20,000 jump in initial filings for
unemployment insurance, reported Thursday for the week ended June 17,
implied that the impact on labor demand from the slowdown in
manufacturing output had not yet run its course. By Thursday
evening, the benchmark yield on 30-year Treasury bonds was at 6.47% -
- close to its lowest point after the publication the May jobs report
on June 2. On Friday morning, a larger-than-expected rebound in
orders for durable goods in May - an indicator closely watched by
Chairman Greenspan - called into question previous anecdotal reports
of softness in factory orders over this period and caused yields to
give up some of their gains for the week. Still, yields at mid-
morning were between 12 and 14 basis points below the levels posted a
week earlier, implying an overwhelming probability of at least a
modest easing by the Federal Reserve early next month.
TREASURY YIELD INDICATIONS
(Semi-annual yields, late morning)
2-yr.
3-yr.
5-yr.
10-yΓ.
30-yΓ.
6/23/95
5.65%
5.71%
5.85%
6.07%
6.51%
6/16/95
5.77
5.85
5.98
6.23
6.64
6/09/95
5.85
5.93
6.07
6.27
6.63
2.
FEDERAL RESERVE POLICY
The chances of a reduction in the federal funds rate in early July
CompuServe Mail (950623171116 476362.600000 EHA87-2) Page 1 of 5
still seem marginally below 50%, although disappointing readings on
forthcoming indicators could quickly alter the calculation. In our
view, Chairman Greenspan's characterization of the economy in his
speech on Tuesday implied that he would need to see more signs of
weakness before supporting a cut in interest rates. The data
released in the interim do not change that view much on balance.
While the trade and jobless claims figures were on the weak side, the
durable goods report offered some reassurance that conditions in the
industrial sector are probably not deteriorating further and may
start to improve. Chairman Greenspan is known to pay close attention
to the durable goods data and emphasized in his speech that the
capital goods sector would be a key area to watch. Orders for such
equipment rose 6.4% in May and 4.1% excluding the volatile aircraft
category.
Beyond his reading of the data, Chairman Greenspan's job will be
complicated by sharp divisions within the Federal Open Market
Committee.
Traditionally, the Committee works out a decision that can be
supported by all but one or two members. In this regard, indications
in this morning's press that Vice Chairman Alan Blinder is prepared
to dissent against a decision not to change rates could force a
modest rate cut, depending on how many other members might be
similarly inclined. Governors Yellen and Lindsey are reportedly
leaning toward easing, though it is not clear how strongly. If a
decision to cut rates is the byproduct of a compromise among
Committee members reading the same data in different ways, as opposed
to a more unified response to weak data, then such a cut would
probably be only 25 basis points.
Several key indicators are due for release before the Committee
meets. June figures on consumer confidence will be published on
Tuesday and Friday. Purchasing managers' reports for June will come
out toward the end of this week (for various regions) and on Monday,
July 3, for the nation as a whole. Car sales reports are also due
July 3, and retail chain store reports will be dribbling out on
Thursday, July 6, as the Committee is nearing the end of its
deliberations. While the full details of the employment report, due
for release Friday, July 7, will probably not be known to the
Committee, they will have information on the portion relating to
hours worked. All of these figures have the potential to shift the
probabilities back and forth.
3. FISCAL AND POLITICAL DEVELOPMENTS
At the other end of Constitution Avenue, Congressional Republicans
reached an agreement Thursday evening on tax cuts -- the thorniest
issue dividing the Senate and House leadership on budget matters.
Senate Majority Leader Robert Dole and House Speaker Newt Gingrich
agreed to tax cuts totaling $245 billion over the next seven fiscal
years. Although details have yet to be hammered out, the deal
appears to include (1) a $500 per child tax credit for families
earning less than $95,000 per year; (2) a halving of capital gains
tax rates; and (3) expanded tax preferences for targeted savings,
CompuServe Mail (950623171116 476362.600000 EHA87-2) Page 2 of
5
modeled on the current individual retirement accounts. In order to
gain the agreement of Senate Republicans, who had earlier rejected
tax cuts of any kind, the tax reductions finally agreed to will not
go into effect until the Congressional Budget Office has certified
that the spending reductions to be enacted later this summer do, in
fact, put the budget on a course to balance by 2002.
There are two implications from the agreement. First, fiscal
restraint will probably be minimal in the early years of this
horizon, as tax cuts are likely to offset much of the spending cuts
slated for fiscal 1996. Second, a great deal of uncertainty will
persist down to the wire -- the September 30 end of the fiscal year -
- since the tax legislation cannot be formalized until the spending
cuts have been. worked out. Although White House criticism of the
Republican agreement could foreshadow a serious confrontation at that
time, with President Clinton vetoing bills because they do not cut
the deficit along his preferred outline, it is more likely that
Congressional Republicans will prevail.
4.
MARKET OUTLOOK AND COMMENTS ON VALUE
Fixed-income markets are assuming at least a 25-basis-point cut in
short-term interest rates at the July FOMC meeting, with some
possibility that the reduction could be larger. Over the next two
weeks, these markets will continue to be highly sensitive to any news
that purports to shed light on thinking within the FOMC. On balance,
disappointments are likely because the chance of a cut larger than 25
basis points appears quite small and the chance of a 25-point cut
smaller than currently anticipated in financial markets. If the Fed
does lower rates, long-term yields could then drop somewhat further
as speculation intensifies on the probable number and extent of the
cumulative easing. But any such decline would be small (to about 6-
1/4%) and short-lived, unless signs of slowing are more substantial
than now seems likely.
5.
UPCOMING ECONOMIC RELEASES AND EVENTS
Date Indicator/Event
Data For
Estimate
Last Report
6/26 Existing Home Sales
May
Up
-6.4%
6/27 Consumer Confidence
Jun
Flat
101.6
(Conference Board)
(1985=100)
6/28 Export/Import Prices
May
n.a.
+1.1%
Excl. Petroleum
n.a.
+0.5%
6/29 New Home Sales
May
Up
-2.7%
6/30 Real GDP (revision)
95Q1
2.7%
2.7%
Fixed-Weight Index
95Q1
3.3%
3.3%
Factory Orders
May
+1.0%
-1.9%
Chic. Purch. Mgrs Survey Jun
Flat
53.5%
Consumer Sentiment
Jun
n.a.
92.3
(University of Michigan)
(Feb 66=100) Important Disclosures
ECONOMY
: No disclosures
CompuServe Mail (950623171116 476362.600000 EHA87-2)
Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950623171116 476362.600000 EHA87-2) Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority; and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950623171116 476362.600000 EHA87-2) Page 5 of
5
*** Goldman, Sachs & Co. Investment Research ***
provided by Melisse Dornier / tel: (212) 902-6807
DAILY FINANCIAL MARKET COMMENT
X X Chance of rate cut rising, though still a bit less than 50% X X
Edward F. McKelvey (212) 902-3393 - New York Economic Research
Note 5:14pm 6/22/95
Summary
Z
Although the chance of an easing in July remains slightly
below 50% in our view, it has risen in the wake of the latest
reports on foreign trade and jobless claims, adding importance to
forthcoming reports on durable goods orders, purchasing managers'
surveys, and auto sales.
Z
If the Fed does ease in early July, the initial response of
the bond market may be to rally a bit further, because such a
move would treated as new information on the economy and would
heighten speculation on how far the Fed might go. Any such rally
would be limited in scope, however.
Z
In the past 22 years, there are four instances in which the
Federal Reserve has eased only once between rounds of tightening
policy. So it is quite conceivable that a move in July could be
an isolated rate reduction.
Chance of rate cut rising, though still a bit less than 50%
While we continue to assign marginally less than a 50% probability to a
Federal Reserve interest rate reduction over the next few months, recent
data releases have enhanced the potential for a small monetary easing to
take place in that time frame, perhaps as soon as the Federal Open
Market Committee Meeting on July 5 and 6. In particular:
1. Import growth strength has persisted into the second
quarter. The April trade report showed a further rise in
purchases of goods from abroad. This suggests a greater risk of
a prolonged downward production adjustment by U.S. manufacturers.
2. First-time jobless claims rose 20,000 in the June 17 week,
to 395,000. Both the weekly level and four-week average of these
claims are at new highs for the year, implying continued soft
employment conditions.
By themselves, these reports are not sufficient in our view to create a
consensus at the Fed in favor of a prompt federal funds rate reduction.
CompuServe Mail (950623132455 476362.600000 EHA134-2) Page 1 of 5
It probably would not take much more in the way of negative economic
news, however, to convince Chairman Greenspan and several other senior
officials that the dangers of recession have grown sufficiently to
warrant a small rate cut next month.
In his speech on Tuesday night, Greenspan said indicators of final
demand will be particularly important in judging whether current
monetary policies remain appropriate. There will be several data
releases bearing directly on this issue between now and Independence
Day, including May durable goods orders (due June 23), as well as June
purchasing managers' survey and vehicle sales results (July 3). Signs
of disturbing weakness in those reports would likely tip the balance in
favor of a prompt Fed rate cut.
Bonds could stage a limited additional rally if Fed eases
If the Fed does ease in early July, the bond market's initial response
may be to rally somewhat further, for two reasons. First, judging by
how the market has traded, participants in financial markets are so
uncertain about the current direction of the economy that statements by
Federal Reserve officials are now being treated as new information on
the state of the economy. Under these circumstances, actions will
almost certainly speak louder than words. Second, in this context, the
debate in financial markets would focus on how many times and how far
the Fed has eased once it has embarked on this path. The common
perception is that one-time easings are quite unusual, and many
believing that they are without precedent.
Any such rally would be limited, however. This is primarily because the
current level of bond yields (6.47%) already discounts a sustainable (3-
year average) level of 5% or so in short-term interest rates. Hence, a
lot of easing is already built into the long end of the curve, and
yields remain vulnerable any news that the economy is stabilizing and/or
gaining momentum. Most likely, bonds would not trade sustainably below
6-1/4% in the absence of more definitive signs of recession than now
exist.
There is precedent for a one-time easing
Another factor limiting the magnitude and duration of any rally would be
the finding that the Fed's history does contain several instances of one-
time easings sandwiched between rounds of policy tightening. This is
shown in the table below, which documents easing periods by the Federal
Reserve over the past 22 years for which we have maintained records.
Since 1973, there have been 17 periods when the Federal Open Market
Committee has eased policy on more than one occasion. These episodes
are separated from one another by at least one tightening move. Of the
17, four were isolated, one-time moves. Three of those occurred outside
recession. So, it is not inconceivable based on the Fed's past history
that the FOMC could ease once and then resume tightening.
Easing Moves by the Federal Reserve
Period of
Number Cumulative Change Condition of
CompuServe Mail (950623132455 476362.600000 EHA134-2) Page 2 of 5
Easing
of Moves in Funds Rate
Economy (a)
Oct 73
2
100 bp
R
Dec 73-Jan 74
3
138
R
Aug 74-May 75
13
700
R
Oct 75-Jan 76
4
155
R
Mar 76
1
10
E
Jul 76-Dec 76
4
88
E
Nov 77
1
10
E
Apr 80-Jul 80
4
1000
R
Jan 81-Mar 81
2
500
R
Jun 81-Nov 81
4
650
R
Mar 82-Dec 82
9
675
R
Sep 83
1
15
R
Aug 84-Dec 84
7
340
E
May 85
1
50
E
Dec 85-Aug 86
5
230
E
Oct 87-Jan 88
2
90
E
Jun 89-Sep 92
24
675
R
Average
5.1
279
Excl. 79-82
5.2
200
Median
4
155
Excl. 79-82
3
100
(a) R=Anytime from 6 months prior to recession to 12 months after end of
recession; E=A11 other times of expansionImportant Disclosures (code definitions
ECONOMY
: No disclosures
CompuServe Mail (950623132455 476362.600000 EHA134-2) Page 3 of 5
GS&CO. CODES FOR IMPORTANT DISCLOSURES
AD
GS&Co. (and/or its affiliates) has a principal investment in the
company; GS&Co. may be deemed an affiliate of the issuer but GS&Co.
disclaims such status.
CF
GS&Co. or an affiliate has rendered significant corporate finance
services to the company or affiliates thereof within the past 12
months.
CP
An affiliate of GS&Co has acted as dealer in the commercial paper of
the company and/or affiliates thereof within the past 12 months.
DIR
A partner and/or employee of GS&Co. is a director of the company.
DP
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
LA
GS&Co. or an affiliate may deal as principal in the listed ADRs of
this company.
LP
An affiliate of Sumitomo Bank Ltd. is a limited partner of GS&Co.
M
GS&Co. or an affiliate has managed or comanaged a public offering of
the company's securities in the past several years.
MR
GS&Co. or an affiliate has managed or comanaged an offering of the
company's securities in the past several years.
SD
GS&Co. and/or its affiliates has a principal investment in the
company's securities.
GS&Co. and/or an affiliate makes an over-the-counter market in various
securities of the companies it follows. The codes are defined as follows:
ADRs American Depository Receipts
For RS
Foreign Registered Shares
BAS
Bearer A Shares
G
Genussschein
BS
Bearer Shares
GDs
Global Depository Recpts/Shrs
CD
Convertible Debentures
New CLA
New Class A Special Shares
CPF
Convertible Preferreds
New CLB
New Class B Shares
CLA
Class A Shares
NVS
Nonvoting Shares
CLB
Class B Shares
OS
Ordinary Shares
CS
Common Stock
PC
Participating Certificates
CVS
Convertible Voting Shares
RBS
Registered Bearer Shares
EC
Euro Convertibles
RS
Registered Shares
ED
Equity Derivatives
W
Warrants
ES
Equity Securities
ZC
Zero Coupon Convertibles
CPF (RTRSY)
News Corp. convertible preferred convertible into Reuters
ordinary shares
EC(RTRSY)
United News Euro convertibles convertible into Reuters
ordinary shares
EC(ENT) Elf Aquitaine Euro convertibles convertible into Enterprise
Corp. ordinary shares
EC(MMM) D&K Euro convertibles convertible into Minnesota Mining & Mfrg
common stock
GS&Co. or an affiliate may deal as principal in any of the securities
mentioned.
(C) 1995 Goldman, Sachs & Co. All rights reserved.
This material is for your private information, and we are not soliciting
CompuServe Mail (950623132455 476362.600000 EHA134-2) Page 4 of 5
any action based upon it. This report is not to be construed as an offer to
sell or the solicitation of an offer to buy any security in any
jurisdiction where such an offer or solicitation would be illegal. The
material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon
as such. Opinions expressed are our current opinions as of the date
appearing on this material only. While we endeavor to update on a
reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing SO. We
and our affiliates, officers, directors, partners, and employees, including
persons involved in the preparation or issuance of this material may, from
time to time, have long or short positions in, and buy or sell, the
securities, or derivatives (including options) thereof, of companies
mentioned herein.
This material has been issued by Goldman, Sachs & Co. and/or one of its
affiliates and has been approved by Goldman Sachs International, a member
of The Securities and Futures Authority, in connection with its
distribution in the United Kingdom and by Goldman Sachs Canada in
connection with its distribution in Canada. This material is distributed in
Hong Kong by Goldman Sachs (Asia) L.L.C.; and in Japan by Goldman Sachs
(Japan) Ltd. This material is not for distribution in the United Kingdom
to private customers, as that term is defined under the rules of The
Securities and Futures Authority: and any investments, including any
convertible bonds or derivatives, mentioned in this material will not be
made available by us to any such private customer. Neither Goldman, Sachs &
Co. nor its representative in Seoul, Korea, is licensed to engage in the
securities business in the Republic of Korea. Goldman Sachs International
and its non-U.S. affiliates may, to the extent permitted under applicable
law, have acted upon or used this research, to the extent it relates to
non-U.S. issuers, prior to or immediately following its publication.
Foreign-currency-denominated securities are subject to fluctuations in
exchange rates that could have an adverse effect on the value or price of,
or income derived from, the investment. In addition, investors in
securities such as ADRs, the values of which are influenced by foreign
currencies, effectively assume currency risk.
Further information on any of the securities mentioned in this material may
be obtained upon request, and for this purpose persons in Italy should
contact Goldman Sachs S.I.M. S.p.A. in Milan, or at its London branch
office at 133 Fleet Street, and persons in Hong Kong should contact Goldman
Sachs (Asia) L.L.C. at 3 Garden Road. Unless governing law permits
otherwise, you must contact a Goldman Sachs entity in your home
jurisdiction if you want to use our services in effecting a transaction in
the securities mentioned in this material.
CompuServe Mail (950623132455 476362.600000 EHA134-2) Page 5 of 5