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December 30, 1985, Vol. 03, No. 25

1986: Junk shortage?

The "Merger Tango" cover of Time last week lit up like the Christmas tree at Rockefeller Center. If there is one thing in speculation not to believe, it is the thing that everybody knows; and what everybody knows best is what's on the front of Time.

Fannie Mae again

ASHINGTON, DC—David 0. Maxwell, chairman and chief executive officer of the Federal National Mortgage Association, today said fourth quarter profits will be lower than the $22.7 million the corporation earned in the third quarter of 1985.

Off balance sheet

One measure of a bank is what it does--the loans it makes and the securities it buys. Another measure is what it promises to do--its commitments to lend or to deal in securities in the future. In the case of Citibank, the promises are piling up fast.

Looking forward— backwards

This is a non-nostalgic revisit to the December 1976-January 1977 period, an attempt to divine the future by looking back into the past.

Yield-curve forecast

Is a negatively sloped curve—with all of its negative implications for business activity—on the way?

Gramm -Rudman

For the bond market's money, the Gramm -Rudman Balanced Budget and Emergency Deficit Control Act of 1985 is unarguably bullish.

Easy money—and no more than that

Monetary policy continues easy, steady around the familiar benchmarks of a few hundred million dollars in free reserves, $325 gold and 8% funds.

December 16, 1985, Vol. 03, No. 24

Financial Darwinism

In the absence of decisive Federal Reserve leadership, the market has evidently decided to take the discount-rate matter into its own hands.

Sleepless money

It's no state secret that the money supply is growing faster than the gross national product. In the nonfinancial world, there has been a loss of monetary oomph, a decline in what is called the "income velocity" of money.


To judge by the action in real estate, it's 1971 all over again. REIT issuance is booming and bonds are being issued in London against the collateral of New York City office buildings. Yet Minorco languishes.

Really bullish (cont'd)

When we caught up with our bullish friend last week, bond prices were going straight up again. We'd called to congratulate him but he refused to accept any accolades until the year is out and the books are closed.

GNP revisions

This Friday, the Commerce Dept. discloses the latest GNP data -- and also some sweeping revisions to prior data. The revisions, which reach all the way back to 1977, have been in the works for some time.

Technicians speak

Paul Montgomery, the bond-market timing artist, was on the phone last Thursday, asking, "Who started a book with the line, 'There wasn't a cloud in the sky.'?"

A Japanese-American interest rate conspiracy?

Inflicting high interest rates on the Japanese economy is a curious way to advance the Baker scheme for prosperity through free trade.

Dead easy

Banks hardly needed the Fed's accommodation last week. Average daily lending at the discount window dropped to $163 million from the prior week's flukish $1.083 billion (blame the Bank of New York).

December 2, 1985, Vol. 03, No. 23

Tax-bill surprise

The new tax bill, it seems, contains a sleeper. It is a provision to disallow the tax-advantaged write-up of assets so crucial to the success of leveraged buyouts (LBOs).

Cause and effect

It is said that the stock market sees falling interest rates and economic strength. It is said that the bond market sees falling interest rates but economic weakness. Yet, somehow, everybody is happy.

Hated theories

Is anything more thoroughly discredited than monetarism, the idea that a given stock of money eventually fetches up predictable rates of business activity?

Really bullish

The most bullish professional bond investor we know has been right as rain since the 1984 bottom. He bought too early, but he's held on.

Really bearish

Taking just currency and demand deposits, Lee W. Minton Jr., the Philadelphia bond portfolio manager, was saying, you can make out three distinct periods of monetary growth...

Bond shortage?

Some facts concerning the rumored imminent famine of long-term government securities...

Western Savings & Loan

Falling interest rates have helped many a financial stock to the new-high list lately, but the strength in the shares of Western Savings & Loan Association, Phoenix, is not so easily accounted for.

16-1/4% money

Seeing that Commonwealth Savings & Loan, Fort Lauderdale, Fla., had just sold bonds at a price to yield 16-1/4%, we ordered up the prospectus pronto. We wanted to see how a thrift could propose to earn a rate of return in excess of 16-1/4% -- maybe it was something that everybody could learn to do.

Liquidity builds

The Vickers Weekly Insider Report brings word that 41 American bankers bought stock in their own institutions in the latest fortnightly reporting period ...

November 18, 1985, Vol. 03, No. 22

Bond shortage: a cure?

At 3:54 P.M. last Thursday, news reached the bond market that the United States government would not default.... The government was going to be allowed to borrow the money to pay the interest on its debt.

Junk revisited

One year ago, Metromedia Broadcasting Corp. sold bonds with a little caveat attached. The company warned that, barring an upturn in revenues or a successful sale of assets or some other bullish intervening event, the investors might be in for a loss.

Budget setback

For the second time in 28 weeks, the [Michigan] House Thursday voted to defeat a resolution calling for a constitutional amendment to balance the federal budget.

Japanese yields soar

We keep waiting for the consequences of the crash in the Japanese bond market, but none is visible or audible.

Accommodating Mr. Volcker

What is the Federal Reserve doing? It is running a policy to maintain a federal funds rate of 8% or thereabouts. I

November 4, 1985, Vol. 03, No. 21

To 10% and beyond?

Futures prices of Treasury bonds roared to life-of-contract highs on record-high volume and record-high open interest last Wednesday.

Tulip buildings

Trammell Crow, aged 71, the legendary industrial property developer, is selling real estate, not to a partnership (his customary outlet) but to the public...

Paging reflation (cont'd)

Whatever Paul A. Volcker did or didn't promise on that fateful Sunday afternoon at the Plaza is between him and the "knowledgeable Washington sources" of Bondweek.

Japanese spike

Before the Bank of Japan lowered the boom on the Japanese money market, the Japanese government bellwether bond, the 6.80s of 1994, changed hands at a price to yield 5.56%....

Fed credit declines (again)

The news in the Fed's balance sheet last week was that it had shrunk a bit. Following a week of reflation rumors, the upshot was a $600 million decline in adjusted Fed credit.

October 21, 1985, Vol. 03, No. 20

The Turner imperative

Some of the top-drawer technicians we know are bullish on bonds. Paul A. Volcker hasn't resigned, and balanced-budget proponents are on the offensive in Washington and Lansing, Mich.

New Fed governor

Barring a medical, natural or political catastrophe, Wayne D. Angell, the Kansas banker, college professor, farmer and friend of the Senate Majority Leader, will take his place as a governor of the Federal Reserve Board.

Value in tax exempts

Menace of stability

On Wall Street, there is something worse than the fate of "living in interesting times." What is worse than interesting is dull.

Bullish technicians

And if the bond market does break out of its summer-long trading range, how will it break, higher or lower? We ourselves happen to be stumped, but we can report a technical consensus. The consensus is bullish.

Preferred stock: Opportunity in confusion

Note to readers: This is the first of what will be a continuing, though not always exhaustive, series of articles on preferred stock. In 1939, which is remembered more for its military than financial goings on, the current intercorporate dividend exclusion was passed into law....

Fannie Mae footnote

PHOENIX -- Members of the Public Securities Association have been told that institutional investors are beginning to trim holdings of Federal National Mortgage Association mortgage securities because of concerns about the status of Fannie Mae in a bankruptcy.

G-5: Where is thy sting?

The world's credit markets continue to function almost as if the eminent finance ministers hadn't convened at the Plaza late last month to plan the dollar's undoing.

Some deflation

Paul A. Volcker, despite explicit suggestions from this and other quarters, refused to resign last week. On the mounting weight of the evidence, moreover, he is also refusing to play along in a gross reflation.

October 10, 1985, Vol. 03, No. 19

Preliminary Prospectus Dated Oct. 10, 1985

A preliminary prospectus of the United States of America

September 23, 1985, Vol. 03, No. 18

Yesterday, today and tomorrow

Since the Depression is in vogue, Grant's has undertaken a special analysis of the credit and interest-rate conditions of the late 1920s and early 1930s. We have done so not for the sake of the past, but for the future.

Let Them Speak: Quotations from all over

Quotations from all over: Johnson to the Fed Words to live by The real vacancy rate Letters of credit boom and more...

High anxiety

As E. Gerald Corrigan, president of the Federal Bank of New York, was warning against excessive borrowing, officials of the Bank of England were making cautionary remarks concerning the state of British banking...

Banks drop, commodities rally

In fine central-banker style, E. Gerald Corrigan, president of the New York Fed, accompanied his well publicized debt warnings of last week with an admonition against inflation.

September 9, 1985, Vol. 03, No. 17

Act II and counting

The money supply is steamy, the Business Week leading index is rising, initial claims for state unemployment insurance are falling and (thanks to E-Z credit) auto sales and production are up.

Money continues rise

The money supply expanded again in the latest banking week, and so did the Federal Reserve's balance sheet.

Worldwide rates stiffen

It was reported last issue that worldwide interest rates were falling hard. However, in the past week or so, as the U.S. dollar has rallied, that trend has apparently stalled.

August 26, 1985, Vol. 03, No. 16

Taking paper

Wall Street is selling paper, and people are buying it. In free exchange for their labor, the nation's savers are taking mortgage-backed securities, junk bonds, zero-coupon debentures and all manner of financial exotica.

Mortgages: A federal risk

On Wall Street, the depth of the Treasury's pockets is a question of even less practical relevance than the Mystery of the Meaning of Life.

Ultimate question, ultimate answer

From a Q&A at "The Economic Outlook Forum," sponsored by Data Resources Inc. in New York on August 12: Q. It seems to me that the U.S. has turned into a three-tiered economy...

Leverage: the white meat

We have been slipped a copy of a confidential memorandum that Kohlberg Kravis Roberts & Co., the leveraged buyout firm, is circulating to institutional investors.

The Mae sisters: Sallie and Fannie

Despite solid and measurable progress in 1985 toward our long-term financial goals, positive results in one vital area continue to elude us...

Loews at sea

Loews Corp., which has recently been bidding for assets as varied as CBS common and the Bowery Savings Bank, has also been quietly buying up used oil tankers....

Silver play

Will silver ever recover from the loving embrace of the Hunt brothers? For those who believe that it might, Sunshine Mining Co. has recently issued some interesting preferred stock.

Worldwide rates tumble

One of the more persuasive arguments for owning bonds is the increasingly international movement to lower interest rates.

Money talks -- softly

For all the fuss and feathers about M-1, there's precious little sign of excess money in the marketplace.

July 29, 1985, Vol. 03, No. 15

Bearish prophecy

Our Forecasting Department has submitted a pre-vacation memo: Interest rates are going up. Long-dated government bonds will go no further this cycle than the 10% barrier they almost crossed in June (last Thursday's reading: 10.60%).

Utopia: pro and con

A friend has urged us to sit down and draw up a list of things that, in our opinion, will never happen in a million years. The man who made the request explained that the point of the exercise is to confront our analytical prejudices squarely. That way, he said, if the impossible ever did start to happen, we could adjust in time.

Ask the foreigners

When the Treasury this week discloses plans to sell another $21 billion to $22 billion of three-, 10- and 30-year notes and bonds, it will issue no revealing prospectus about its finances and seek no investment-grade rating from Moody's and Standard & Poor's.

G. William Volcker?

The accompanying table points up a paradox of the disinflationary Volcker term at the Federal Reserve Board. Surprise: Monetary growth in the nearly six years of his chairmanship has not been appreciably different from the growth in the six years preceding it.

Blind pools

Goldman, Sachs & Co., which has recently been poking its aristocratic nose into the junk-bond market, has done an odd thing. It has underwritten $200 million's worth of 10-year, 14% notes for the Chicago Pacific Corp., successor in bankruptcy to the old Chicago, Rock Island and Pacific Railroad...

Marginal Street

In 1913, the Woolworth Building, the first of the great skyscrapers, was completed for $13.5 million, the price including gold mosaic, spectacular vaulted ceilings and gargoyles. In 1986, the American Express world headquarters, now under construction in lower Manhattan, is expected to be finished at a cost of $690 million. That is without the gargoyles.

New sell signal

It is a market truism that the buying always equals the selling. Yet some sellers are better than some buyers. And it seems that corporations are very good sellers indeed.

The last inflationist

It has been raining soup, but Fred D. Kalkstein, one of the last employed inflationists, has been outside with a fork. As the bond market has rallied, Kalkstein has talked about gold.

New Zealand reprise

One exotic speculation against the United States dollar is the New Zealand dollar (Grant's, July 15). In the past two weeks, the kiwi has rallied to 52-1/2 cents or so from 47cents. And while New Zealand money market rates have recently softened, they are still temptingly high. We use "temptingly" advisedly...

The world rallies

Until just recently, the United States had led the decline in global interest rates. Now it is this country that lags.

Excerpts from the Fed's midyear report

The rapid growth of M1 in the first half of the year was accompanied by a sharp drop in the velocity of the aggregate: M1 velocity -- the ratio of nominal GNP to money -- declined at about a 5% annual rate.

July 15, 1985, Vol. 03, No. 14

What the dollar tells

When news of David Stockman's impending career change hit the tape last Tuesday afternoon, the Treasury's bellwether long bond was quoted at 108-3/4. Minutes later, it was at 108-14/32. Then, minutes later -- to be exact, at 3:28 P.M. -- it was at 108-3/4 again, an unsentimental, 18-minute round trip.


It's no front-page news that a pound of copper is cheaper than it was at the bottom of the last recession or that a pound of sugar is only marginally more valuable than so much plain dirt.

Oil debt

For the record, according to Standard & Poor's Compustat Services Inc., here are the 1984 year-end debt totals for the industries with the most to lose (or gain) from a radical break in oil prices...

Mendelson explains

When John A. Mendelson, the market technician who for a long time had been bullish (and, of course, right) on bonds, changed his mind a few weeks ago, the corporal's guard of surviving bears thought that they'd heard the U.S. Cavalry.

Worried bull

A professional bond investor we know, a man who either loves the market or hates it, and who recently had been hating it, reported last week that he's back in it again.

Junk-bond briefs

1. T. Rowe Price High Yield Fund, only six months old, reports assets of $160 million, largest total for any such start-up at the half-year mark in the history of T. Rowe Price...

Junk countries

"Junk," to the bond market, usually means corporations and their securities, not sovereign nations and theirs. But the other day a reader called to report that New Zealand government notes were returning astronomical yields and that the Japanese (who else?) were snapping them up.

Worldwide money

The United States is far from alone in its money-supply problems, but not every major industrial country shares them. West Germany disclosed last week that its relevant monetary aggregate was actually unchanged in June compared to May.

25% a year (minimum)

To scan the investment record of Hickey Financial Services, Chicago, is to wonder why anyone does anything for a living but speculate in government securities.

Enough left over to lend to Zimbabwe

One reason not to buy bonds, or to sell them, or even to sell them short, is that the latest spurt of money growth will soon have tangible effects in the world marketplace.

July 1, 1985, Vol. 03, No. 13

"This is The Ladies Home Journal"

"Take-out orders are swamping a Chinatown bank," ran the Daily News headline over a story about a run on the United Orient Bank in lower Manhattan last November.

Reckless prudence?

Given the wobbly state of business, would a meaningful reduction in the federal deficit be a good thing just now or a bad one? Not unrelated to that familiar question is a novel one: At this unsteady moment, would a return to prudent banking be a sound idea or an unsound one?

Bearish on business

One of the funniest things in economic analysis is the contention that because the economy is rising, no recession lies ahead. If recessions were prevented by an economy that is rising, there would be no recessions.

Worldwide rate fever

If foreign interest rates don't fall, it won't be for lack of popular demand. In the U.K. last week (to quote from the Financial Times), "British industry made an urgent plea to the Government . . . for a rapid and substantial cut in the burden of interest rates."

Bullish on business

Gert von der Linde, the Donaldson, Lufkin & Jenrette economist who forehandedly predicted the solid second-quarter GNP flash report (Grant's, June 17), continues optimistic.

Bullish II

NEW YORK, June 18 -- A record 634,991 new businesses were incorporated in 1984, 5.8% more than the 600,400 incorporated in 1983, according to Dun & Bradstreet Corp.

Bond warning

The following cautionary note was received last week from Paul Macrae Montgomery, the bond-market timer at Legg Mason Wood Walker, Newport News, Va.: . . . There are a number of negative divergences developing.

BIS, the stock

Some out-of-the-way facts concerning the Bank for International Settlements...

Mild accommodation

End-of-quarter pressures, not Federal Reserve policy, drove the funds rate higher late last week. The Fed itself remained mildly accommodative....

June 17, 1985, Vol. 03, No. 12

Looking the future in the eye

It is hard to see what the bull market lacks. It has the hope of fundamental reform of the federal budget. It has the President's tax proposals. It has low inflation and a pause in economic growth. It has the whiff of deflation but not the frightening thing itself...

Fat and happy

Hercules Inc., the specialty chemicals and aerospace company, is a single-A-rated bond issuer with the usual single-A credentials...

The Horse's Mouth - June 17, 1985

Paging inflation Amax Inc., Greenwich, Conn., said it will close its molybdenum mines in Colorado for nine weeks this summer. -- The Wall Street Journal, June 5.

Thursday's flash: look up

Gert von der Linde, the Donaldson, Lufkin & Jenrette economist who has been bullish on bonds through thick and thin, is also bullish on business.

World's banks

In the past week or so, the Venezuelan and Hong Kong governments each have had to rescue a foundering bank.

Internal memo

At management's request, the Forecasting Department of this publication has submitted a memorandum to explain its failure to anticipate the recent runup in bond prices and to promulgate future forecasting guidelines. Excerpts follow...

The rich get richer

Financial ratios mainly improved last year, and the gains were visible across the credit-rating spectrum. In general, U.S. nonfinancial corporations enjoyed a lightened burden of interest expense and higher profit margins in 1985 than they did in 1984

Bank rumblings

Banking issues suffered heavily in a generally lower Singapore as investors continued to be unnerved by persistently negative rumours.

Volcker easy at the helm

Since the last issue of Grant's, monetary policy has turned easier. The Federal Reserve, expanding its portfolio, has turned government securities into bank reserves.

June 3, 1985, Vol. 03, No. 11


Two weeks ago, Market Vane, the Pasadena, (Calif.), commodity firm that tries to read minds, reported that 94% of the advisory profession was bullish on Treasury bills.

New bull market?

WASHINGTON -- Secretary of the Treasury Vinson has committed himself to a continuation of the Federal Government's low interest rate policy.

The Horse's Mouth - June 3, 1985

Sell bonds Since last spring we have been optimistic on the outlook for both short-term and longer-term interest rates... Buy bonds We believe that a structural top is being put in place in the trend of commodity futures.

Gilts out-yield Treasuries

At 10.84%, long-dated British government bonds last Thursday commanded a slight yield premium over U.S. Treasuries. Since late 1983, Treasuries have usually fetched more than gilts, but last month the alignment shifted in favor of the U.S.

Net borrowings resurface

In the latest statement week, for the first time since last November, the nation's banks collectively borrowed more at the discount window than they held in excess reserves.

May 20, 1985, Vol. 03, No. 10

For whom the bell tolls

Having been bearish and wrong for the eternity of the recent upswing (we turned bearish on bonds on January 28 and forgot to say "buy" in March), Grant's approaches the future with new and becoming humility.

Deja vu

"I am a conglomerate. Me, personally." -- Meshulam Riklis, 1970

The Horse's Mouth: May 20, 1985

Investment Idea of the Month "Cash is trash." -- Thomas Stiles, E.F. Hutton research director, in Barron's, May 13... Discount-Rate Fever German three-month money rates hit 5.75% last week (vs. 5.85% a week earlier), the lowest reading since late January...

First Exec. accounting

One of the more interesting questions in junk-era accounting turns on a question as simple as the price of some bonds.

Quality spreads narrow

In a credit crisis, or at the bottom of the bond market, the difference between corporate and government yields tends to widen.

Salt-water chartist

Richard Sheffield, resident bond-market technician at Paine Webber Jackson & Curtis, has been liking the market more and more. Just a few days ago...

The lender of last resort lends

Federal Reserve assistance to the punchdrunk Maryland thrifts last week amounted to approximately half a billion dollars -- that being the weekly uptick in "extended credit" lending.

May 6, 1985, Vol. 03, No. 09

Socked in

As the dollar has weakened, interest rates have fallen, and they have fallen worldwide. Why that should be is anyone's guess, but from February 28 (about the top of the dollar) to April 26, the changes have been striking.

Great consensus

In a business downturn, according to the bond players' handbook, the overall demand for credit declines. The federal government borrows more, but the private sector takes less. Inflation recedes, money-market pressures diminish and interest rates fall. All this comes trippingly to the pen.

T-bond shortage?

Last week, amid plans for the current $20.5 billion quarterly refunding, it seemed that no shortage of government paper was imminent or perhaps conceivable.

No deflation, it says here

The New York Federal Reserve Bank, which might have been expected to take the non-alarmist view, has just produced an encouraging study of the recent commodity-price downturn.

LBOs: Phase II

The Oppenheimer-Palmieri Workout Fund, L.P., a new joint offering from the downtown brokerage house and the well-known company doctor, Victor Palmieri, suggests a change in the deal-making temper.

Sound banks

On nearly everybody's short list of the country's sound banks, Morgan Guaranty Trust Co. would probably rank No. 1 or perhaps slightly higher. Now comes a new bank rating service with a new idea.

Tax-time drain in Fed credit

The Treasury's idle cash piled up faster than the Federal Reserve could shovel it back into the banking system last week.

Bank credit zooms

Altogether, the banking news has a grim cast to it, and it would be easy to suppose that the process of credit creation must sooner or later be inhibited by that overhanging gloom.

April 22, 1985, Vol. 03, No. 08

Bulls at large

No respecter of pundits, the bond market has rallied broadly. More than that, it has rallied in the face of a break in the dollar, something it was not supposed to have done.

Real-estate boom

A mailgram from T. Rowe Price, the Baltimore mutual-fund company, was dated April 10. It urged us not to miss the boat on the new T. Rowe Price Realty Income Fund I...

Technical disbelief

The technical consensus on the bond market is bearish...


[T]he Federal National Mortgage Association has so far failed to perform its time-honored function as a stock market proxy for interest rates...

G.O. rally

While no flight to quality was evident in the money market last week, high-grade debt was much in demand in the municipal market.

Conference recap

The Grant's Spring Interest Rate Event, held 10 days ago at the Plaza Hotel, generated hours of constructive disagreement and only one broad line of consensus. This single common theme was dread...

Bond brain

At the Grant's conference, Paul Macrae Montgomery, market analyst at Legg Mason Wood Walker, Newport News, Va., explored [the] human dimension of the bond market by reviewing the workings of the brain -- not just the logical parts, e.g., the "left cortical" area, but also the emotional ones, e.g., the "limbic" area. A section of his paper, "Neuro-physiology and Interest Rate Behavior," follows...

Central-bank prose

"The 'monetary impulse' evident of late has been quite consistent with the medium-term potential-oriented policy which the Bundesbank is pursuing..."

No reflation yet

Monetary policy in the past few weeks has been tighter than it might have appeared...

Credit psychology

The other day, the Bank of England dealt what may prove a psychological blow to international credit creation...

April 8, 1985, Vol. 03, No. 07

Inflation ghosts

Except for the handful of inflationists who, through nepotism or other nefarious means, have managed to keep their jobs in Wall Street, almost nobody has noticed, much less credited, the recent rally in commodity futures prices.

Asset insurance

Over lunch the other day, a man declared that more inflation is a foregone conclusion because the inflation constituency is so large. Absolutely nobody, he said, wants deflation or would vote for it.... On the other hand, lots of people stand to gain from another lift-off in prices, and many people need it.

Business profile

The accompanying table, which comes courtesy of Brown Brothers Harriman & Co., is reproduced for perspective's sake. It shows what is odd about the current business expansion and what is average.

Easy money

Ever since the Mexican crisis of the summer of 1982, people have said that the Federal Reserve would reflate because it had no other choice. But it has not reflated...

British rally

For all the currency fireworks, world money rates haven't changed dramatically...

John C. Kavanagh

John Carroll Kavanagh, an authority on industrial development, a founding director of this publication and the father of seven daughters (and no sons), died late last month in Washington, D.C. He was 70 years old.

Fed credit resumes its rise

Paul Macrae Montgomery, the bond market timing artist (he continues to be bearish) says that [at] his talk at the Grant's Spring Interest Rate Event this Friday ... he will try to show how, in the speculative scheme of things, cold reasoning often counts for less than raw emotion.

March 25, 1985, Vol. 03, No. 06

Bearish and contradictory

Since the top of the market late last January, prices of long-dated Treasury issues have fallen by 10 points. Fears of an early recession have been dispelled, and investor optimism has been reversed...

Fannie Mae at bay

The rising tide of the bond market lifted many a vessel last year, but it didn't raise the good ship Fannie Mae.

Second mortgage surge

If, in fact, the long inflationary boom in residential real estate is playing itself out, the nation's lenders are behind the times.

Run to FSLIC?

Nobody bothered to ask why the state of Ohio suddenly wanted federal deposit insurance, because nobody thought he had to ask.

Where's Ohio?

On the Friday morning the Ohio thrifts were closed, the three-month Treasury bill rallied. It opened lower in yield by 37 basis points, an event that seemed the opening gun of an old-fashioned flight to quality. And the papers were full of panicky talk.

The World - March 25, 1985

The Grant's Financial Dollar (top graph) is a composite index of the dollar exchange rates of the Japanese yen, German mark, British pound and Swiss franc, weighted according to the size of the central bank of each country...

The Federal Reserve hauls it in

The money market was easy last week, but the Fed was not.

March 11, 1985, Vol. 03, No. 05

Oversold but dangerous

The worst -- or what had seemed the worst -- happened late Thursday, but the market was more relieved than panic-stricken to look it in the eye.

Debt on the rise

The debt phenomenon -- the rise of borrowing both in absolute and relative terms -- is impressive to consider and stunning to behold.

Sheer coincidence

When, all on the same day last week, Evans Products Co. disclosed that it might be forced into bankruptcy, and Sharon Steel Corp. divulged that it had missed a $23 million interest payment, an attorney for Victor Posner, the Miami financier who controls the companies, was at pains to make a point.

Exit Fred Carr?

Fred Carr, one the leading players in the junk bond market, is understood to be playing in it less this year. He is understood to have sold a good deal of his low-rated bonds because he was offered good prices for them (and not because he has lost his faith in junk, per se).

'Rates are falling'

Notwithstanding the recent woes of the American money market, the offhand impression of a number of professional investors is that "rates are coming down."

Bullish on business

A few months ago in these pages, a Baltimore man made an astute monetary call. He predicted that the Federal Reserve’s annual "benchmark" revision would yield a rise in the money supply, and not (as the consensus had it) a decline. He based his forecast on a neat bit of deductive reasoning. Known now to his friends as the "Hinterlands Theory," it went like this...

Bullish on business (II)

One of the tidier business forecasting tools is the yield curve -- just the yield curve.

Nervous about business

"It doesn’t compute," said a stock trader the other day, trying to reconcile the Commerce Department’s upbeat numbers with the downbeat condition of most of the companies he says that he follows.

One-decision currency?

About two weeks ago, a little before the big central-bank intervention of February 27, some of the boys on a downtown trading desk organized a pool. They called it the "parity pool," and the object of the game was to guess the day and hour of the plunge of the pound through $1. Everybody assumed that this historic event would occur: the only question was when.

Federal Reserve Bank credit surges

The Federal Reserve, which has been talking a tight game, loosened significantly last week.

February 25, 1985, Vol. 03, No. 04

Hot flash in Toronto

The bear market in interest rates, now as cosmopolitan as soccer, struck Switzerland, Germany and the Netherlands in the week of St. Valentine's Day, and Canada and Australia in the week after that...

Disinflationary sure thing

In the financial markets, the successful hunter is the one who leads his quarry, drawing a bead on the future.... Since the future is always uncertain, investors instinctively tend to cling to the past, projecting yesterday out into tomorrow.

What moves bonds

If Federal Reserve policy and the federal budget deficit rule the government bond market (as many seem to believe) then something is wrong. The bulls should be up in the driver's seat.

Golden junk

If inflation is on the agenda, it admittedly wasn't at the top of the list last week...


What the federal government actually spends is a known and tangible quantity. What it has promised to spend, if its myriad chits were ever called in, is a shadowy, hypothetical one.

February 11, 1985, Vol. 03, No. 03

Global bear market?

Interest rates rose last week (and the week before that), and the damage was international.

What about this year?

The 1986 federal budget, bound in prudent grey and full of "terminations," "reforms," and -- of course -- "cuts," is a bullish down payment. If the administration can do what it wants to do, then so much the better for interest rates.

Always lower rates

In his budget message, Ronald Reagan upholds a long tradition of presidential optimism on interest rates.

All clear?

The "debt crisis," far from being an affair between Poland and its bankers, exclusively, or between Braniff and its bankers, as it might have seemed a few years ago, is a chronic and movable problem.

Foreign Treasury holdings

A rising percentage of U.S. government securities has been taken up by 100% Americans.

World yields rise

For all the talk about global bull markets, it's interesting to note that worldwide interest rates have been going the wrong way.

Inflation consensus

Does any self-respecting investor doubt the case for permanent low inflation (or, as Prudential-Bache Securities currently styles it, "lowflation")?

Junk resurgent

After widening for three months, the difference between yields on junk bonds and governments narrowed last month.

Shortening maturities

An almost uniquely North American institution, the long-term corporate bond, is falling by the wayside, giving way to short- and intermediate-term financing.

January 28, 1985, Vol. 03, No. 02

So good it can only get worse

Seven weeks ago, when the bond market was three points lower than it was last Thursday night, Grant's turned bearish on bonds. Naturally, we had our reasons, and handsome reasons they were.

Amber charts

The technicians we know, gentlemen who turned bullish near the bottom last May (in some cases, smack dab at the bottom) and who stayed bullish going up, are cautious now.

World yield roundup

What it means, we can't exactly say, but the fact is that intermediate-term American interest rates still remain relatively high in world terms.

Volvoland in debt

For once, there was a legitimate reason not to read the prospectus before investing -- there was none to read.


The Organization of Petroleum Exporting Countries (OPEC) Wednesday strongly denied reports that an OPEC committee meeting in Riyadh had recommended a reduction in the $29-a-barrel benchmark crude price.

Tempting ARP's

Does the worldwide strength in bank stocks prove that the debt crisis is safely behind us? We doubt it. But there's no denying the change in speculative sentiment toward big-city banks. Suddenly, all is light, strong earnings and high hopes.

Almighty what?

Against the Italian lira, Brazilian cruzeiro, Argentine peso and other such monetary weaklings, the dollar has been breaking performance records. Yet its rise against the world's "hard currencies," unadjusted for inflation and seen over the long term, has been relatively restrained. Could it be that, in its heart, the greenback is still a wimp?


In the December 3 edition, we erroneously stated that, except for a gain in the value of its bond portfolio, Resorts International could not have met its third-quarter interest charge out of its pre-tax earnings. A sharp-eyed reader has pointed out that, on the contrary, Resorts could have done so -- that, indeed, it did so -- and with room to spare.

Credit creation or destruction...

The fact to bear in mind is that the Federal Reserve provides the legal means for banks to lend and invest. The means are bank reserves, which are simply the dollars that banks hold in their vaults or in reserve accounts at the Fed.

January 14, 1985, Vol. 03, No. 01

The roar of the crowd

To bears of a contrary turn of mind, the annual New Year's forecasting round-ups made unhappy reading. In Business Week, the consensus on economic growth this year was as nice as milk and cookies: up 3.2%

Dollar perspective

"Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators." -- President Richard M. Nixon, August 15, 1971 Of a summer Sunday evening in 1971, the Nixon administration abandoned the gold standard...

Junk chic

"The List," The Washington Post's annual survey of what and who is in or out, was as encyclopedic as ever this New Year's Day.

Angry editorial

Before T. Boone Pickens Jr. barged into its life, Phillips Petroleum Co. was an investment-grade credit.

High -yield gold

A truism of the world metal markets is that, while prices are low in strong-currency terms, they're correspondingly high in weak-currency terms.

January 2, 1985

Two Wednesdays ago, the first trading day of the New Year, Treasury-bond prices broke. That in itself might not have been noteworthy except for the strange accompaniment that the commodity markets provided...

The World - January 14, 1985

The Grant's Financial Dollar (top graph) is a composite index of the dollar exchange rates of the Japanese yen, German mark, British pound and Swiss franc, weighted according to the size of the central bank of each country...

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