INVESTMENT OUTLOOK: HOW TO GET AHEAD : INVESTMENT STRATEGIES : THIS IS A <i> LOUSY</i> TIME TO INVEST : Interest Rates Are Rising, Bargains Are Scarce and There’s Too Much Good News

As the new year approaches, investors are asking themselves if 1989 will be a good time to buy stocks. The answer is no.

Another crash isn’t in the works, but neither is a major upturn, so there are other places to earn more money. Here’s why:

- Fiscal trends are more ominous than ever for stocks.

The new Republican Administration of President-elect George Bush will arrive in January facing the enormous budget deficit, which rose 3% to $155 billion in the fiscal year ended Sept. 30. Yet Bush will have to work with a Democrat-controlled Congress in trying to balance the books.

It won’t be easy. Bush has promised not to raise taxes, and even wants to cut the capital-gains tax. But Democrats in Congress already are saying that unless some taxes go up, they’ll resist spending cuts. The result could be fiscal paralysis.

That won’t sit well with foreign investors, who have helped limit the deficit’s impact so far by aggressively buying Treasury securities. If the budget stalemate drags on, foreigners could lose confidence in U.S. fiscal policy and cut their bond purchases.

That, in turn, would put severe pressure on the dollar, lift interest rates sharply and trigger a recession, according to the Institute of International Economics, a research group in Washington.

The budget fight also could kill Bush’s call for a lower capital-gains tax, to 15% from the current 28% to 33%.

- There are other signs that interest rates are going higher.

For now, the economy is still growing--perhaps too fast, according to some Federal Reserve officials. They worry that inflation could accelerate, which the central bank would counter by lifting interest rates to slow the economy. If that happens, money market funds, Treasury bills and other short-term fixed-income investments would prove more attractive than stocks. They are already, some analysts argue.

The dollar’s recent slide also could soon force the Fed to raise interest rates. Higher rates help bolster the dollar by, among other things, making dollar-denominated investments more attractive to foreigners. But a tightening of credit by the Fed also could push the economy into recession and push down stock prices.

- Despite those problems, there is still lots of good economic news around--too much, in fact.

The economy keeps expanding, inflation is subdued, interest rates are stable, oil prices are falling, peace abounds. But when good news for the market outweighs bad news, it usually signals that prices are peaking. “Those who look at the news to make their decisions are almost always losers in the market, unless they understand that concept,” said Robert Prechter, editor of the Elliott Wave Theorist, a Gainesville, Ga., newsletter that follows the market’s technical trends.

Prechter said lately there’s been “much more good news than we had in 1982 or 1984, times that provided excellent buying opportunities for investors.” Also, all of the good news about the economy already should be reflected in current stock prices. So, it would take some mammoth dose of more good news to lift the market out of its recent rut. Don’t look for such news in 1989, Prechter said.

- Mere history suggests a recession is imminent.

The current economic expansion is in its 24th quarter, the longest since World War II and nearly twice as old as most expansions, which typically last 13 quarters, said Norman E. Mains, chief economist and research director at Bateman Eichler, Hill Richards. Each month economic growth continues, it “increases the probability” of a downturn, he said.

- Bargains in stocks are few and far between.

The typical stock is selling for about 12 times its company’s projected earnings per share for the 12 months ending this coming June, according to the Value Line Investment Survey, a stock research service. That’s down substantially from the price-to-earnings multiple of 17 shortly before market’s devastating crash Oct. 19, 1987, when stocks were clearly overpriced. But it’s also sufficiently high to show that there aren’t oodles of cheap stocks around.

- Analysts are cutting their estimates of corporate earnings, meaning stocks could become even more overpriced.

In August, analysts were raising forecasts for this year’s earnings at about the same pace as they were lowering them, according to Zacks Investment Research in New York, which tracks analysts’ recommendations on 3,900 companies. Zacks said that in the 30 days ended Nov. 4, only 42% of the analysts’ changes involved higher earnings estimates for 1988; the other 58% of the changes involved analysts cutting their earnings forecasts. And, in forecasting next year’s profits, 44% of the changes called for higher earnings, down from 54% in September.

- Leveraged buyouts and other takeovers, considered by many to be the main support for an otherwise listless market recently, are likely to ebb in early 1989.

About half of the 10.5% gain in the Standard & Poor’s 500 composite stock index this year “is directly attributable to takeover and leveraged buyout activity,” said Steven Einhorn, chief investment strategist at Goldman, Sachs & Co.

But there have been signs that the mammoth takeover deals of late, including the recent $20-billion-plus bidding war for RJR Nabisco, are creating a backlash from Washington. Sen. Bob Dole (R-Kan.) recently raised the possibility of ending the tax deductibility of interest payments on loans used for leveraged buyouts. A similar idea was suggested last year, and was cited as helping trigger the market’s crash.

Some major insurance companies, pension funds and other institutional investors also are growing more nervous about the riskiness of huge leveraged buyouts, and are curbing their investments in such deals. That means investment bankers will find it harder to finance more such blockbusters, thus eliminating a good part of the market’s recent strength.

- Professional investors are sending out bearish signals about stocks.

Money managers typically divide their portfolios among stocks, bonds and cash (which is invested in accounts, such as money market funds, that allow for quick withdrawals). Such balanced accounts currently are 47% invested in stocks, down from 53% shortly before the crash, and are 41% invested in bonds, up from 37%, according to Indata, a Stamford, Conn., research firm that surveys 2,400 institutional investment portfolios.

- Government bonds and other interest rate-paying investments are likely to provide a better return than stocks.

It’s true that over many years stocks tend to outperform bonds and cash. But for 1989, given the economic and fiscal trends weighing on the stock market, investments in short-term government bonds, money market mutual funds, bank certificates of deposit and other such fixed-income issues look more attractive.

Example: One-year Treasury bills are now yielding about 8.7%, and “the equity market will be unable to match that kind of return” in 1989, even including both a stock’s appreciation and dividend income, said Goldman Sachs’ Einhorn. “Stocks are overvalued relative to both short- and long-term interest rates” now available on rate-paying investments, he said.

- The “presidential election cycle” points to a bearish market.

Stocks historically have been much stronger in the last two years of a president’s administration than in the first two years. The pattern has held true over the past century regardless of whether or a Republican or Democrat was in the White House.

Walter Rouleau, a market historian, has noted that since 1933, the S&P; 500 hit its highest point within a presidential term an average of 2.3 months after the election--around inauguration time--and its lowest point an average of 15 months later.