INDEX:

I. Market News: Politicians Make War On Investors' Nerves
II. Goats: Harley-Davidson, Value Health, General Signal, Kaiser
III. More Goats: Arakis, Martin Color-Fi, Computer Net. Tech., Navarre
IV. Investment News: Turner and Time Warner Join. . . Maybe
V. Calendar: Monday's Economic Events

MARKET CLOSE

DJIA: 4764.15, down 3.24
S&P 500: 581.73, down 1.27
NASDAQ: 1053.30, down 5.12

MARKET NEWS

An already nervous market was made more so today by the public spat between the White House and Speaker of the House, Newt Gingrich. Gingrich has threatened to resign his post if the Republicans allows the debt-ceiling to be raised without getting promises from the White House to agree to the 7-year timetable proposed by Republicans for balancing the budget. What really scared the markets was Gingrich's claim that he's willing to let the government default rather than compromise on the immediate budget crisis. As a result, the stock market was all over the map today, with losers running far ahead of winners. As a special depressing tribute, today's Heroes & Goats will be re-named Goats & More Goats. (Let's hope this is a one-day phenomenon!)

GOATS

Harley-Davidson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HDI)") else Response.Write("(NYSE:HDI)") end if %> down $4 3/8 to $25 3/8. Keith Dunne, analyst for Cleary Gull Reiland & McDevitt, cut his rating on Harley-Davidson from "buy" to "accumulate" and lowered his earnings estimates for 1995 to $1.43 a share (from $1.52), and for 1996 to $1.70 (from $1.85). Harley-Davidson announced yesterday that parts and accessories sales are down for the third quarter.

Value Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:VH)") else Response.Write("(NYSE:VH)") end if %> down $4 1/4 to $27 3/4. Value Health announced one-time charges for operational cost-cutting and diagnostic cleanup that could reach as high as $80 million, roughly 10 percent of assets. The company has not said how much this would hurt 1995 earnings. Cowen cut its rating on the stock from "strong buy" to "buy" as a result.

General Signal <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GSX)") else Response.Write("(NYSE:GSX)") end if %> down $4 1/2 to $30 5/8. Prudential Securities downgraded General Signal to a "hold" from a "buy" after the company announced that it expects to miss analyst expectations by 6 to 8 percent. The Connecticut equipment maker blames reduced revenue expectations, margin pressures, and higher taxes for the shortfall.

Kaiser Aluminum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KLU)") else Response.Write("(NYSE:KLU)") end if %> down $1 3/4 to $14 1/4. Kaiser announced that it *will* make money for the third quarter, but that its net income will be significantly below the second quarter. The company blames the timing of alumina shipments, slightly lower prices, soft demand for can sheet, and a series of nonrecurring and investment expenses for the lower profits.

MORE GOATS

Arakis Energy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AKSEF)") else Response.Write("(NASDAQ:AKSEF)") end if %> down $5 5/8 to $6 1/4. After being halted since August 22, trading re-opened in Arakis shares this morning to a host of investors racing for the exits. After announcing that the company's financing arrangement with Arab Group International had fallen through, Arakis made noises about a possible back-up financing plan. But when the stock re-opened and the company still refused to supply any concrete details about potential new backers, the price plummeted.

Martin Color-Fi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MRCF)") else Response.Write("(NASDAQ:MRCF)") end if %> down $2 3/4 to $6. Martin Color-Fi said it expects to miss sharply analysts' expectations for the third quarter. Analysts were expecting $0.30 per share, but because of rapidly changing market condition in its fibers division, the company expects revenues to decline by about 16 percent from the second quarter.

Computer Network Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CMNT)") else Response.Write("(NASDAQ:CMNT)") end if %> down $1 to $6. CMNT announced yesterday that third-quarter revenues will be off by as much as 37 percent over last year's third quarter because it's not selling its computer networking products briskly enough. The company expects revenues between $15 and $19 million, down from $23.8 million last year. Wall Street was looking for $22.7 million. Cowen & Co cut its rating on the stock from "strong buy" to "neutral."

Navarre <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NAVR)") else Response.Write("(NASDAQ:NAVR)") end if %> down $2 5/8 to $8 1/4. Want to guess why Navarre is down? Now let's not always see the same hands raised. You're way ahead of me. . . . Third-quarter earnings will be $0.07 to $0.10 a share, below analysts' expectations. Navarre said that music retailing was weak during the summer and "in light of the earnings weakness, the company has instituted an operating expense reduction program." Does that mean layoffs?

INVESTING NEWS: The Entertainment Industry's Own Soap Opera

Ending weeks of speculation, Ted Turner and Gerald Levin announced, in an ego-fest news conference befitting such a media event, that Time Warner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TWN)") else Response.Write("(NYSE:TWN)") end if %> and Turner Broadcasting System <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TBS/A and TBS/B)") else Response.Write("(NYSE:TBS/A and TBS/B)") end if %> have agreed to merge. Time Warner will be the world's largest entertainment group after the $7.5 billion acquisition of Turner.

Under the announced agreement, Time Warner would buy the remaining 82 percent of Turner that it doesn't already own by exchanging 0.75 shares of Time Warner for each Class A and B share of Turner. With Time Warner deep in debt, the deal essentially gives it a cash infusion of some $600 million or $700 million a year, plus the opportunity to sell some of Turner's businesses to help cut its debt even further.

In today's press conference, Turner turned up the volume on the cheerleading by announcing that the new combination is "the real" Dream Team, a reference, of course, to the DreamWorks SKG partnership. Turner claims no contest between the newly combined Time Warner and Turner libraries, with films numbering in the thousands, and the DreamWorks SKG's library total of zero. A silly comparison? Of course, but sometimes these press conferences get that way.

A potential problem exists, however, for the deal in the form of a lawsuit filed only hours after the announced merger by U.S. West <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:USW)") else Response.Write("(NYSE:USW)") end if %>, who is attempting to block the combination. U.S. West, which owns a stake in Time Warner's entertainment division, charged that the proposed merger creates a conflict of interest. Since Time Warner and Turner are competitors, U.S. West Chairman Richard McCormick alleges, the merger "will create innumerable conflicts of interest and violations of fiduciary obligations."

With this many "big" personalities involved---Turner, Levin, TCI's Malone, McCormick, Fonda?---we've got the makings of the entertainment blockbuster of the year.

CALENDAR: Monday's Economic Events

---13- and 26-Week Treasury Bill Auction
---August Existing Home Sales (8:45)

Byline: Befumo/Sheard (MF Templar/MF DowMan)