Gamblers' Market

In a letter to the American Stock Exchange's 573 members, President Ralph Saul last week bluntly warned that "market conditions indicate a serious level of speculative activity." Calling for "firm sales policies and procedures" to spare the public from hazardous stock purchases, he lectured: "Expectations of quick riches based on hunch or rumor provide an unsound reason for investment decisions." The reason for Saul's concern was a surge of trading at the exchange that pushed both prices and volume to alarming heights.

Many brokers share Saul's alarm. "The high jinks on the Amex," maintains Vice President Bradbury K. Thurlow of Winslow, Cohu & Stetson, constitute "classic symptoms of irresponsible overspeculation in 'cats and dogs.' " Adds Research Director Stanley A. Nabi of Schweickart & Co.: "It's not only crazy but also unsustainable."

On Flimsy Wisps. The action largely involved low-priced issues usually connected with such glamour industries as computers, electronics, equipment leasing and magnetic tape. Many of the companies are thriving splendidly, but others have little fundamental strength to support them. Lately, brokers warn, investors have been lunging after issues on flimsy wisps of news, sometimes even calling in orders without knowing the name of the "onics" stock they want to buy.

The first indications appeared in June. Normally, trading volume on the American Exchange runs about 40% of that on the New York Stock Exchange (in numbers of shares, but far less in dollar value, because Amex issues are much lower-priced). Last month Amex volume began to swell to as much as 60% of that on the Big Board. At increasingly hectic sessions, the ticker ran late 18 times (by as much as 22 minutes), and there were delayed openings on 17 days. For the first nine trading days of July, Amex volume climbed to a daily average of 5,446,000 shares, compared with 4,000,000 in the first half of the year (itself a record). Last week the volume hit 28,275,000 shares, second highest in the exchange's 118-year history. The buying pressure lifted the Amex's price index, based on all 1,060 listed shares, by 38-c- to a record $20.89--an eye-popping 55% above its level at the end of last year.

On the New York Stock Exchange, prices also climbed last week, propelled by the highest weekly volume on record: 57,386,715 shares. By two of the most broadly based barometers, Big Board stocks rose close to their alltime peaks. The N.Y.S.E. composite index of all common stock issues rose from $50.91 to $51.60, an 18% gain since December 30, only a mite below its May 8 summit of $51.93. Standard & Poor's 500-stock index moved up from $91.69 to $92.74, compared with its May 8 record of $94.58; it is up 18% for the year so far. The more familiar Dow-Jones industrial average gained 13 points to 882.05, up only 12% for the year, leaving it far below its February 1966 peak. The Dow-Jones lag reflects the profit squeeze that has hit blue-chip manufacturing firms--a squeeze that only helped to stoke investors' interest in smaller, more volatile issues on the American Exchange.

100% Margins. Battling speculation by deed as well as word, the Amex two weeks ago imposed 100% margin requirements on eleven stocks in a single day. That restriction--the most sweeping the exchange has ever ordered--brought to a record 26 the number of Amex stocks for which buyers must pay the full purchase price. Normally, under Federal Reserve and stock exchange rules, an investor may borrow up to 30% of the cost from his stockbroker.

Of those 26 companies, only ten paid dividends last year or have declared dividends so far in 1967. Recent financial statements showed virtually no earnings gains for five, while one suffered a decline and two more actually lost money. Yet the price of 23 of the stocks has at least doubled this year--though some have subsequently slipped. Even with 100% margins, which exchange officials insist are generally effective in curbing speculative trading, some of the 26 issues continued to gain last week. Scurry Rainbow Oil rose $9.50 to $43 on rumors of an ore find and reports (later denied) of a tender offer for the company. National Equipment Rental gained $3.13 to $32.50, and LTV Electrosystems, a separately traded subsidiary of the Big Board's Ling-Temco-Vought, jumped $6.75 to $43.50.

Though Securities & Exchange Commission officials, who can order trading in any stock halted, feel that the Amex antics are now "entirely out of line," they seem satisfied with Saul's own policing efforts. After all, it was Saul himself who a few years ago wrote an SEC report blasting the Amex for its slipshod ways of controlling its members. Now he faces a whole new effort to erase its image as a casino.

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