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December 28, 1987, Vol. 05, No. 25

Holiday sermonette

In Christmas week, if at no other season, a pessimist owes his fellowmen an accounting. . . .

"Drop dead," Act II

Although crooked, the City of New York is solvent, and it has been paying its debts since it briefly stopped paying them a dozen years ago. Only the older New Yorker will remember the funk of the mid-1970s -- the fiscal crisis, political crisis...

Bank of Boston flash

John Dizard writes: The force of gravity made its expected comeback in the LDC debt market, with prices for the Latin American loans giving up some of the gains they made this fall. The big news, though, or at least the big talk, was about the Bank of Boston's action in charging off $200 million in loans to less developed countries...

Napoleon enters Russia

An arbitrage opportunity in the personal credit of Donald Trump, tycoon, has presented itself in the junk market (Grant's, December 14)...

Unfair to dollars

At market turning points, absurdity gets up a head of steam. People lose their perspective, and the extreme reading -- gold at $850, the Dow at 2,700, U.S. Treasury bonds at 15% -- comes to seem reasonable instead of unreasonable.

Solving the mystery

Like young German marrieds, dollars refuse to procreate, and the decline in their rate of expansion is troubling to monetary observers.

New stub index

The new Grant's Stub Stock Index debuts in this issue on page 11. A stub is a stock in an ultra-leveraged company. In the palmy days of summer, stubs were also known by the dignified term "residual equity interests." Our index is an average of the prices of eight such specimens...

A 40% test

Now that Bank of Boston is telling the truth (as it sees it) about Third World lending, there's no telling where quoted debt prices, or bankstock prices, may wind up...

Musical assets

A reader writes: One of the more gratifying side effects of the crash is the almost biblical exposure of faked, or manipulated, assets. It's always nice to see justice done in an economic sense.

Texas thrifts bleed

Heeding the lesson of the perennial Third World crisis -- a problem may be old hat but still financially potent -- one must listen when the Federal Home Loan Bank of Dallas reports ...

December 14, 1987, Vol. 05, No. 24

For 1988: Long the dollar

Franklin Savings Association, the biggest thrift in Kansas and a leader in the Midwest school of zaitech, or financial technology, proposes to offer a few billion dollars of "mortgage-backed zero coupon equitable redemption notes."

That January effect

The only eight consecutive, readable pages in The Incredible January Effect, a new book on stock-market seasonality by a pair of finance professors*, are the pages that constitute the bibliography.

Mortgage breakthrough

For the desperate, banks are now offering "two generation" mortgages in which the eldest son or another heir is expected to assume payments after the owner retires.

High finance falls down

Was it an accident that the New York Stock Exchange Financial Index was peaking last year as the World Financial Center, the optimistically named office village rising from landfill near the Hudson in lower Manhattan, was opening? If so, it was an accident of poetry.

Moody's is late

When Moody's Investors Service said it was warming up to lower the boom on the debt ratings of a dozen money-center banks, it cited, among other reasons, "the sharp decline in secondary market prices for LDC bank debt." Grant's, too, has had its eye on LDC prices. We have noticed that they have gone up.

Southland sells debt

By coincidence, news from Beatrice Cos., the ultimate leveraged buyout success story, and Southland Corp., the fledgling LBO problem child, arrived simultaneously...

Son of Southland?

The United Nations is nearly out of cash, and Javier Perez de Cuellar, the Secretary General, has proposed a plan of action.

You've got to be MAD

Balance-sheet ratios are conventionally computed at book values. Why? For years, Drexel Burnham Lambert has sponsored a market based measure of corporate capitalization. Its idea was the market-adjusted debt, or MAD, ratio. Let the market decide what a company is worth. Take the debt portion of that valuation and divide it by the overall market cap. The answer is MAD. It is not quite that simple, of course, and Drexel from time to time has introduced statistical refinements and caveats to the basic idea...

Sell Donald Trump

Crash or no crash, the personal stock of Donald J. Trump, the New York real-estate celebrity, is up. Up is Trump's favorite direction...

1987 Hall of Fame

Many would like to forget 1987 -- tap water so quickly followed the champagne -- but how? It is as hard to put out of mind as the year of the lesser crash, 1929. What follows is a list of some emblematic events, miscues and achievements...

Money famine

Now that the Federal Reserve Board has apparently swung around to the commodity-watching school of monetary management, what will become of the old-fashioned M's? For the time being, they have almost melted away.

November 30, 1987, Vol. 05, No. 23

Commodities: a crash in reverse

People will dispute the significance of the stock-market collapse to the national economy, but no one in public so far has called it inflationary. Maybe that is worrisome...

For eternity

Yale, which lost to Harvard, 14-10, invests for perpetuity. Never mind sic transit gloria mundi. The endowment, which totaled a little less than $2 billion after the crash, is expected to last till Judgment Day.

Middle age triumphant

The Monday after the crash, The Wall Street Journal ran a front-page story about irrepressible youth. "Markets May Sink/But for the Yuppies/It's Full Speed Ahead," the headline said, and an anonymous young person elaborated at length...

Paging liquidity

Two stories, inconclusive but provocative, about liquidity or the lack of it...

Less debt

Domestic nonfinancial debt passed the $8 trillion mark in September, but nobody held a press conference. Is $8 trillion in borrowing -- corporate, federal, personal and state and local -- too much? It is just enough? Could it possibly be too little?

Ultra high frequency

If a bull market is moonlight in Rio, a bear market is morning in Brooklyn. TVX Broadcast Group, a would-be issuer of high-yield bonds and a case study in financial optimism, looked fetching by moonlight. Then -- the date was October 19 -- the sun came up.

Man's got to eat

Marshall S. Cogan is the chairman and chief executive officer of Knoll International Holdings. He controls the board of directors. He controls the company (it used to be General Felt). In 1986, the company paid him $3.2 million, cash. Possibly nobody outside the Post Office is more securely employed.

Third World reprieve

John Dizard writes: "That eccentric rally in less developed-country debt is slowing down somewhat. You'll recall that LDC paper was one of the few markets to rally in the week of the October crash..."

Commercial banks, R.I.P.

On November 17, the bank research department of Salomon Brothers figuratively pounded the table: 'Against the backdrop of massive industry restructuring, a modestly favorable economic climate and significant earnings momentum in 1988 and probably 1989, we believe that, for the first time in this decade, the money center banks are poised for a significant secular uptrend in valuation levels that could persist for several years."

Denver drops

Beleaguered property owners are losing their real estate to lenders faster than ever before, with foreclosures headed toward a record-shattering total.

November 16, 1987, Vol. 05, No. 22

A prospectus for the United States of America

November 2, 1987, Vol. 05, No. 21

Two plus two makes three

Before the birth of Dan Rather; stock-market panics were outdoor events. Crowds milled around the Stock Exchange and lined the steps of the sub-Treasury Building, hatching rumors, planning bank runs and proving what misery loves. The 1987 collapse represented a technological breakthrough. The weather was perfect -- sunlight as thin as skim milk beamed from a clear blue sky -- but everybody was indoors watching a screen.

Junk slumps

The global collapse of stock prices, though initially shrugged off at the White House and in the financial advice columns of the New York Post(hold on, the Post counseled its mutual-fund-owning readers under the postcrash headline, "Rally-ho"), was taken hard by the high-yield debt market.

Bonds on loan

The collateral value of high-yield bonds has entered a bear market, too. A brokerage firm (it will go nameless) used to lend $150 million against the collateral of junk bonds...

Altman shocker

Edward I. Altman, professor of finance at New York University, co-author of Investing in Junk Bonds: Inside the High Yield Debt Market and consultant on high-yield securities, formerly to Morgan Stanley and currently to Merrill Lynch, has produced a new study that his clients may wish he hadn't.

Capitalized for prosperity

Whether a recession is likely or not is one of those questions that economists dispute on the MacNeil/Lehrer Newshour. What is almost beyond debate, however, is that an economic downturn would disappoint broad segments of the American public.

Bond chaos

Fails-to-deliver plagued the government market last week, as credit worries prompted the customary lenders of securities not to lend.

New contraction?

What everyone knows about the Great Depression is that the nation's money supply collapsed.... Another "Great Contraction" as Milton Friedman and Anna Schwartz styled the Depression experience, is what nobody needs. How could it happen? A friend called to make a suggestion.

Mexico rallies

John Dizard writes: "Along with the Sri Lankan stock market and gold bullion, Third World debt prices rallied in the week of the crash. Among widely traded credits, prices rose by two and three points. Mexico jumped from a bid of 49-1/2 before the stock market break to a peak of 54 afterwards. "What happened...?

Soothsaying lesson

Now that Crash No. 2 is history, it may be useful to reconsider the career of Roger Babson (1875-1967), the man who called the first crash -- who called it, in fact, until he was blue in the face, starting in 1926. The Babson story is an instructive and humbling one...

With a trowel

The Federal Reserve, obeying one central banker's precept (in a panic, create credit first and ask questions later), but not another (in a currency crisis, raise interest rates) created credit by the carload in the latest banking week.

October 19, 1987, Vol. 05, No. 20

Hiding Under Desks at Salomon Brothers

Last November The Wall Street Journal disclosed that an athletic young trader at the Tokyo office of Salomon Brothers would choreograph a rising market by leaping on top of his desk and yelling "bond fever!". There were plenty of rallies in those days, plenty of traders and lots of bonhomie. Nowadays, naturally, people are more inclined to hide under their desks than to jump on them, but the visceral style of investing is dominant again.

Buy this stock

Let the record show that the Salomon Brothers list of recommended Japanese stocks includes Japan Air Lines (Grant's, June 29)...

Tax fright

The House Democrats' package also would deny deductions for interest expenses exceeding $5 million a year on debt supporting either the acquisition of the majority of the stock of another corporation or a company's redemption of a majority of its own stock. This change is designed to remove the tax incentive corporations now have to replace equity with debt in order to reduce their taxes. -- The Wall Street Journal, October 14.

Stop trading?

When David S. Ruder, chairman of the Securities and Exchange Commission, suggested that an order to halt trading is one regulatory response to a so-called market meltdown -- a collapse precipitated or intensified by program trading -- people began to talk.

Zero -coupon yields

FICO, the quasi-governmental agency created to recapitalize the Federal Savings and Loan Insurance Corp., has already made its mark in the credit markets. By borrowing for 30 years and collateralizing that loan with zero-coupon government bonds, the agency has rearranged the zero-coupon yield curve. It has caused a decline in the yields on long-dated zeros and a rise in the yields on short-dated ones. Bargain hunters in the government market, please copy.

Tax -exempt values

The trouble with values in bonds is that they can so quickly become better values. However, the tax-exempt market is cheap by its own standards and by comparison with the stock market...

Junk fund survey

Four years ago, as the accompanying graph shows, only half of the assets of high-yield mutual funds were rated single -B, or lower, or not rated at all.

New junk funds

Coming soon: a pair of closed-end junk bond funds, the first such investment vehicles (to our knowledge) in the leverage industry.

New face of junk

Big banks are in the leveraged lending business up to their hips, and not only for their own accounts. Gone are the days when loans were made to be planted on one's balance sheet; increasingly, as noted last issue, loans are made to be sold, or "participated," to other banks, so that the LBO-type of loan is communicated from institution to institution like a virus.

Third World respite

Quoted prices of bank loans to Third World countries fell more slowly than usual in the past two weeks.

Taiwan follies

The learned and well-traveled foreign editor of Barron's, Peter C. Du Bois, called the other day to ask why everyone was picking on Tokyo when the Taipei bourse was so much more absurd.

Global insouciance

The first default to hit the fast-growing French commercial paper market has brought to light a curiously familiar attitude toward credit.

The rig's the thing

"The wealth-building community has been abuzz since Ivan Boesky, exchanging a large check for some juridical leniency, agreed to assist the authorities in cracking the insider trading ring. The persistent question these many months is which big fish would be the next to fry...

Words, not deeds

Like Peter Lynch, the fully invested Fidelity portfolio manager, Alan Greenspan has a bullish brief.

October 5, 1987, Vol. 05, No. 19

In praise of compound interest

Tuesday's slump in the bond market pushed a handful of long-dated, off-the-run Treasurys into the rarefied yield territory of 10%. ("Off-the-run" means illiquid and unwatched.)

It rained in Culpepper

More dollars zip around the world on an ordinary day than you can imagine. Currency speculators, bond traders and (let us not forget) importers and exporters deal in dollars. CHIPS, the Clearing House Interbank Payments System, which has a membership of 138 banks worldwide, handles daily transactions of $550 billion...

Uncle Sap

Would you, gentle reader, commit funds for 30 years at 10-1/2%, when you could earn 9-3/8% for one year?

Yugoslavia says no

Many debtor countries would rather not pay. They have thought the matter over, summoned the press and said their piece. From the Grant's Third World headline scrapbook...

Bad loan seedlings

In one of his big, cheerful books, D. Morier Evans, the 19th century chronicler of panics, fraud and depressions, was moved to reflect on the cost of falling interest rates...

Global yield gap

Latest bullish strategy from the City of London: Sell bonds, because they're going down; buy stocks, because they're going up.

Buy big, sell small

Everyone knows that big-capitalization stocks are in while small ones are out, but the accompanying graph drives the point home...

Red hot metals

Industrial metals prices are booming. American Metal Market reads as if it were 1974 again, with stories of ferrous-scrap shortages and something like chaos in steel plate.

The annotated Harcourt

Harcourt Brace Jovanovich is out with a 132-page paperback titled Prospectus. It is written in the fiduciary style and distributed by The First Boston Corp. ...Critical judgment, as expressed in the bid side of the bond market, is lukewarm.

Pressure on the prime

In the screwball banking week ended last Wednesday, the federal funds rate averaged 7.56%. That was 30 basis points higher from the prior week, which saw no end-of-quarter disruptions and no Wednesday Fedwire outages.

September 21, 1987, Vol. 05, No. 18

Bullish half gainer

Without pretending to know for sure, Grant's would like to put in a kind word for high-grade bonds...

Don't call

As recently as 1986, the bond market was boiling. It was as plain as the nose on your face that interest rates were falling, and would keep on falling. However, as government bond prices surged, corporates hung back. In that distant time, bonds were thought to be precious, and the risk of losing one's position to early call was high on the market's worry list.

Commodity prices roar

Inflation in Switzerland, reputed in recent years for the stability of its consumer prices, has started to edge up faster. In August, the consumer price index rose by 0.4%, indicating an annual rate of 2% compared with 1.8% in July and 0.7% a year ago.

Rosenberg likes bonds

If Joe Rosenberg, chief of speculation at Loews Corp., were really bullish on bonds, he would own 30-year governments. As it is, he is not quite really bullish, and he owns 10-year notes. He is not yet ardent about bonds and not fully invested.... As you may recall (Grant's, April 6), Rosenberg is a connoisseur of financial extremes...

In Japan, it's 1981

Slaloming bond prices have been costly to Americans, devastating to Japanese. Interest-rate risk is shared by everybody, of course, without regard to nationality, but foreign investors must also bear the risk of dollar depreciation.

Third World slumps

Quoted prices of Third World bank debt continue to sink (does this sound familiar?). As recently as mid-June, for instance, Argentine debt fetched 55 cents on the dollar. In mid-August, it brought 44 cents...

Son of leveraged buyout

It is chic to disparage the rating agencies as out-of-date and backward looking, but S&P at the moment is looking better than the investment banking department of Morgan Stanley.

Burn the Magna Carta

[D]ebt relief is an ancient topic on the Anglo-Saxon political agenda. In 1215 at Runnymede, King John specifically addressed his archbishops, abbots, earls, barons, foresters, sheriffs, stewards, servants, officials and other loyal subjects, some of whom, evidently, owed money. "If a man dies owing money to Jews," Clause 10 of the Magna Carta helpfully stipulated, "his wife may have her dower and pay nothing towards the debt from it."

Let's bury the gold

A friend proposes to strike it rich in gold by giving the public what it wants. What the public wants is mining stock. We know that by the stupendous valuations accorded mining companies at a time of stable gold prices. People want mines -- so let's give them mines, our friend proposes. Let's buy some gold, bury it, dig it up and sell it.

My summer in Tokyo

A young American, recently returned from Japan, writes: Western analysts are disposed to technical or fundamental analysis, but the Japanese prefer conspiracy. The conspiratorial technique works because the Japanese work together.

The Greenspan touch

The federal funds rate is up, and the rate of growth of the Federal Reserve balance sheet is down, but it is hard to argue that money is tight.

August 24, 1987, Vol. 05, No. 17

Dow Jones by the bushel

It is an article of faith among sophisticated people that the stock market knows something. It is thought to know more than the "Blue Chip" economists, for instance. It is known to be deeper than the hapless panelists in The Wall Street Journal's semiannual interest-rate-guessing contest.


By now everyone knows that the stock market, by all the usual lights, is monumentally overvalued.

Texas bank turnaround

John Boland writes from Baltimore: Scouting Texas for survivors is sort of like riding a hundred yards behind a war party still collecting scalps. But a burned-out Dallas homestead -- BancTexas Group Inc. -- has attracted the British investors who control New York's Hallwood Group Inc.

Unfair Harcourt

Harcourt Brace isn't the first U.S. company to repulse an unwanted bidder by means of a leveraged management recapitalization. Apparently, however, it is the first company to attempt that gambit without obtaining a fairness opinion from an investment bank. Harcourt's financial adviser is First Boston.

Silent cur

The stock market is way up, but corporations continue to buy their own shares -- in leveraged buyouts, recapitalizations and stock repurchases -- instead of selling them. The new issue market slumbers. The stocks of leveraged companies, for the most part, prosper. The bark you haven't heard is the bark of new-equity issuance.

Third World panic

Our table of quoted prices for sovereign debt (page nine) shows losses of three and four points (and more) per country in the past two weeks, and our Grant's Third World Debt index has made another new low.

Third World footnote

News that U.S. banks may henceforth own 100% of a nonfinancial business in a Third World country broke the week before last. It was well received by the stock market...

Beyond satire

In the fall of 1928 -- one full year before the top of the great bull market -- a letter was circulated for fun among Wall Street professionals. Old hands were out of step with the market then, as they are now, and the memo was no doubt conceived in frustration.

"Liquidity" on the rise

To stay-at-home observers, the boom in worldwide money growth may come as news. After all, Federal Reserve policy is even-keel, at best, and growth in the M's continues laggardly. Nevertheless, to quote the latest edition of Merrill Lynch's weekly Currency and Bond Market Trends: The rise in interest rates in the various bond markets around the world is not just coincidence....

August 10, 1987, Vol. 05, No. 16

Higher, faster, louder

Fees and expenses in the Borg-Warner Holdings Corp. leveraged buy-out were greater than the common equity of Borg-Warner Holdings itself.

Glass banks

It is reliably reported that a number of sophisticated banks -- primarily in the Northeast and on the West Coast -- are becoming increasingly, and perhaps dangerously, involved in subordinated lending.

World Bank rumors

The World Bank is, and will likely remain until further notice, a triple-A credit, despite news of Peru's recalcitrance on a $1 billion-plus World Bank loan.

Bid wanted: Peru

Two weeks ago, Peruvian bank debt was offered at 15 cents on the dollar and bid for at 13 cents on the dollar. On Thursday, it was offered at seven cents without a bid. That's Peru for you, you'll say, but bids throughout the Third World debt market continue to drop...

Junk report

Junk bonds, which are part bond and part stock, have been recently pulled in opposite directions. The bond portion has depreciated and the equity portion appreciated, although a few equity portions have gone to wrack and ruin...

Hoisington's cash

If the phrase "sitting pretty" has any relevance to Texas in August, it applies to Van Hoisington, the Houston-based bond investor who is either bullish or bearish, but never indexed...

Yield curve reprise

One year hence, everyone will be one year older. You can look it up. Twenty-six-year-old investment bankers will be 27 and what is now the four-year zero-coupon Treasury note will graduate to the place of the three-year Treasury zero.

On -your-honor loans

In the rush to lend -- to make good loans if possible, bad loans if necessary -- banks and thrifts and federal agencies are vying to make the marginal mortgage.

Value is relative

The subject, therefore, is yields, value and breadth, all rolled up into one. The topics are related, because interest rates are universal.

Lots more money soon

July 27, 1987, Vol. 05, No. 15

It was as I said it was

Since the June top, Japanese stock prices have fallen by more than 10%. Since the peak of bond prices, Japanese yields have almost doubled.

Perpetual motion

After fractious debate, The First Boston Corp. has decided to emphasize merchant banking over securities trading. The firm has apparently decided that, in current circumstances, credit risk is a better bet than market risk.

Bank stock scoop

The indulgent policy of permitting banks to count loan-loss reserves -- money set aside against future credit problems -- as so-called primary capital has fallen under federal scrutiny.

Signs of the times

When The Yankee Cos., a savings bank and energy company all rolled up into one, issued $45 million of 10-year, 12-5/8% notes last November, no red flags were hoisted. The notes, though rated B-2 (middling speculative grade) by Moody's, were secured by equity interests in the company's subsidiaries.

Japan's new issues

The authors of Goldman Sachs's Japan Investment Strategy Highlights (July/August edition) are bullish, but the excellent facts and figures they marshal are open to alternative interpretation.

U.S. Trust rings a bell

U.S. Trust Co. of New York announced today that it is refocusing its business and, in this connection, will restrict the types of loans it makes and will seek purchasers for a portion of its business loan portfolio with an aggregate value of about $275 million. -- press release dated July 13.

New era borrower

Cain Chemical is an LBO-type borrower with a new-era-style balance sheet... Its pro-forma capitalization consists of $19 million in equity, $85 million in preferred stock, $11 million in warrants and $874 million in long-term debt. The chemicals business is reportedly doing fine.

Citicorp rumor

Unconfirmed reports have it that Citicorp will repackage $1 billion or more in Third World debt for sale to public investors. The underwriter was said to be Morgan Stanley. Neither Morgan nor Citicorp could be reached for comment.

Brazilian politics

Brazil's volatile politics are moving in a direction which gives little comfort to the country's creditors.

Pray for rising rates

A couple of issues ago, Grant's dived headlong into the mathematics of bond investing. One thing led to another, and the discussion turned to the reinvestment problem. The reinvestment problem is a burden of the creditor class. It is the question of how to invest one's interest income.

Bond riddle

Two questions pressed themselves on bond investors last week: Which is the better leading indicator of interest rates and business activity, money or commodity prices? And what would happen to American securities if Japan went up in smoke?

July 13, 1987, Vol. 05, No. 14

Coming soon: bank stock

Quoted prices for the sovereign debt of Third World countries continue to weaken. In the past two weeks, Brazilian loans have fallen to 58 cents on the dollar from 60 cents, Mexican loans to 55 cents from 56 cents and Peruvian loans to 10 cents from 14 cents.

Rolling for profit

The piece last issue on zero-coupon yields has stimulated another idea for parking one's money without inordinate risk. The investment horizon is one year; the bonds to buy are three-year Treasury zeros.

Et tu?

An investment in the new debentures of E-II Holdings is almost an investment in the ruddy-cheeked Donald P. Kelly himself. Kelly is the chief executive of E-II, a 15-business holding company recently detached from BCI Holdings for the purpose of making leveraged acquisitions.

Et to-II

From the there's-more-to-be-made-by-doing-it-than-knocking-it department: Drexel and some of its officers and employees are limited partners holding warrants in BCI...

Bank of Japan on edge

TOKYO -- The Bank of Japan is increasingly worried that high-flying financial markets will crash, sources at the bank said Monday.

Sayonara, "M.V.P"

The acerbic and alienated and valiant stock-market columnist for the Japan Economic Journal has resigned. "M.V.P.," as he signed his name, went out last month with a characteristic swipe at the establishment.

Everyone is never bullish

On July 8, 1932, The Wall Street Journal published a brief inspirational message from John D. Rockefeller, who that day turned 93. Optimism from any reputable source was news in 1932, and the old capitalist's salutation got front-page treatment.

World Bank's footnote

The World Bank is one of God's gifts to Wall Street. A triple-A rated, quasi-governmental institution, it issues and trades bonds in big round lots.

"Goldome is going public"

Pricing of 23.5 million Goldome shares is expected any day. A broker for the underwriting syndicate, when asked what the deal looked like, replied evasively: "It's a difficult story." Difficult and interesting....

Money famine

The Federal Reserve, which predictably had been expanding its balance sheet at annual rates of 10% and more, has slowed to less than 9%...

June 29, 1987, Vol. 05, No. 13

Exit Kohlberg; exit Herrlinger

By all accounts, P. David Herrlinger wasn't laughing. Nor was his lawyer, Anthony Covatta. "This is a medical story, not a financial story," said Covatta. "The man is ill; he's not himself."

Fine print

The proposition . . . that the relationship between a corporation and its directors and debenture holders is contractual, not "fiduciary," in nature, is well settled in this state. -- Jack B. Jacobs, Vice Chancellor, Delaware Chancery Court; memorandum opinion in Continental Illinois National Bank & Trust Co. vs. Hunt International Resources Corp., February 27, 1987.

Lazard orders in

On May 1, the New York City Health Department, in its regular weekly bulletin of restaurant health-code violations, reported the closing of an establishment it identified only as "Executive Dining Room," One Rockefeller Center.

Argentine debt slumps

Quoted prices of Argentine sovereign bank debt have crumbled. On Wednesday, the bid was 47 cents on the dollar. It was 55 cents only two weeks ago.

Wing and a prayer

Until First Boston put its finger on the investment-theme pulse of the Tokyo stock market recently, Japanese finance was a mystery to us.

Broker can't vote

The youngest stockbroker in the country drives a 1959 Corvette. He is about to install a car telephone to facilitate mobile, two-way communication with his clients, whom he was recently obliged to call from a public phone in the hallways of Greenwich (Conn.) High School. Daniel Stein, 17, graduated in June...

BCI indenture tiff

First there was Beatrice Cos. Next came BCI Holdings, successor to Beatrice in a leveraged buyout. Now comes BCI Holdings and E-II Holdings, two companies where there had been only one. The Beatrice story is short and sweet and complex...

Corporate finances flag

The table on page eight has become an annual fixture in Grant's, and the trend of the data has also become predictable.

Bonds by the number

When Telerate recently added a third decimal place to its continuously updated Treasury-bond yield display -- suggesting that precision in yield to the thousandth place is a negotiable piece of financial information -- a light bulb should have clicked on. It didn't, but Ron Ryan, founder of the Ryan Financial Strategy Group and a fount of ideas on fixed-income subjects, had some helpful comments.

Commodity indices: skip the CRB

As every schoolboy operating in the Chicago bond pits knows by now, the Commodity Research Bureau Futures Index is down. The most closely watched commodity index, the CRB, terrified the bond market on the way up. Now that it is off its highs, the market is breathing easier.

June 15, 1987, Vol. 05, No. 12

A big round trip?

Paul A. Volcker, newly minted chairman of the Federal Reserve Board, met the press on Saturday, October 6, 1979. Staring into the faces of the baffled reporters, Volcker declared that the Fed henceforth would target the money supply, not the money market.

Out to lunch

News that BankAmerica Corp. will reserve an additional $1.1 billion against its loans to Third World countries was met with aplomb....

Kavanagh named publisher

We welcome our new publisher, Patricia Kavanagh, to the staff of Grant's...

Bond insurance

So blue is the sky that credit risk is almost universally thought to be yesterday's worry, or tomorrow's. There are lots of bears on interest rates, but few on credit. Passing strange, then, that such a skeptic should occupy the chairman's office of a major bond insurer.

Restructurings soar

The junk-bond default rate is easy to calculate but hard to interpret. Simply add up the par value of public junk defaults and divide by the par value of public junk outstanding. Presto: the default rate.

Very deeply hidden assets

Via a Boston friend, a new report on Japanese real estate companies from Warburg Securities in Tokyo has arrived. The report is brand new...

Norstar notes

The recent rise in interest rates has depressed bond price levels well below their call prices. As a result, yield spreads between callable and call protected issues have tightened dramatically.

Problems up, examiner down

Robert L. Clarke is the Comptroller of the Currency. The Comptroller's franchise is unpalatable facts. Possibly he is too negative -- as he would be the first to admit, there are notable pockets of strength in the banking business -- but his arguments always get a sympathetic hearing around here.

Tax-exempt pitch

The Municipal Assistance Corp. 6-7/8s of 2007 were quoted the other day at a price to yield 8.07% (free of New York and federal taxes), and a reader called to put in a good word for them.

Signs of the times (I)

Signs of the times (II)

The Japanese hold no monopoly on speculation. London is holding a new issue party, and a long queue of punters waited anxiously in the rain...

John Davenport

John Davenport, a father of seven, author, essayist, past editor of Barron's and journalistic craftsman, died in Red Bank, N.J., last Monday. He was 82 years old.

Debt growth slows

The new debt data are down. April's reading, just out, represents growth (annualized, over a three-month period) of a mere 7.1%. In March, the growth rate was 9.7%. In February, it was 12.7%.

June 1, 1987, Vol. 05, No. 11

All the bad news?

Last January, after Republic National Bank of New York disclosed a write-down of Third World debt, leading bank analysts agreed that the news meant nothing. They expressed optimism on money-center banking.

Free money

The significance of the Citicorp bombshell may well be, as many suggest, that the era of subsidized capital for Third World borrowers is finally over. On the other hand...

Yasuda Trust & Banking

In terms of valuation, we find Yasuda Trust's prospective [price earnings ratio] to be comparatively low, both in relationship to the banking sector as a whole, and to the market.

Third World debt slips

The market in publicly traded Third World bank debt was paralyzed by Citicorp's $3 billion disclosure. Traders, assuming that $5 billion to $10 billion in new supply was about to land on their heads -- only $8 billion's worth changed hands in 1986, according to Salomon Brothers -- did nothing.

Moonlight overdrafts

Thanks to the advent of computer technology, a gigantic bull market in financial transactions has been accommodated, and $1 trillion's worth of traffic is processed every day over the principal New York-based large-dollar transfer networks.

Sell bills

Now that the dollar may be scraping bottom, what about bill rates? Will the same foreign central banks stop buying bills? Will they let their existing bill holdings run off, or mature?

Physician, heal thyself

Now that the truth is as popular as Vanna White, we've been waiting for Paul A. Volcker to own up to the fact that the Federal Reserve is possibly the most leveraged bank in the country.

Citicorp vs. the market

The country's largest bank fell out of investors' favor years ago; since 1983, to judge by relative price-earnings ratios, sentiment has actually rallied....

Japanese bonds

Not to pick on Japan, but a revealing case of the jitters has struck the Tokyo bond market. B

Dear shareholder

In 1929, United Founders Corp. was one of the largest ( $1 billion of assets), oldest (seven years of continuous operations) and most respected investment trusts in the country.

Idiot's guide to losses

The more we asked about the accounting details of Citicorp's $3 billion addition to reserves, the more we realized we weren't the only ones in the dark.

The Fed eases

When the Fed snugs, then stops snugging, is that unsnugging? In this space two weeks ago, a shift to net borrowed reserves was reported ...

May 18, 1987, Vol. 05, No. 10

Inflationists speak

Inflation-minded investors have expressed themselves through deeds, not words, this year. Resource and cyclical stocks are up and commodity prices are booming, but inflationist talk is scarce.

Out of sight

Inflation-minded investors have expressed themselves through deeds, not words, this year. Resource and cyclical stocks are up and commodity prices are booming, but inflationist talk is scarce.

Gold and yields rise

If gold goes up, yields, within a year, tend to follow.

Spreads and curves

The difference between Treasury-bill yields and Eurodollar-deposit yields -- the so-called TED spread -- is widening, usually a sign of credit distress. The government yield curve is deteriorating, a sign of interest-rate fear. Some details...

New frontiers of credit

SEATTLE -- King County Jail began accepting bank credit cards as payment for bail and some fines. -- from the American Banker, May 8.

Unconvertible converts

The bulls have overdone it in LTV, as John Boland reports from Baltimore...

It's your oyster

In quick succession, U.S. News & World Report published a cover with the beckoning headline "How You Can Play the Global Money Game," and underwriters issued The Malaysia Fund.

Owens-Illinois in debt

Owens-Illinois Inc. was founded in a panic year (1903), reorganized in another panic year (1907) and restructured in a blue-sky, onward-and-upward year (1987). It is the nation's leading manufacturer of glass containers, with interests in plastics, forest products, health care and mortgage banking, and it has rung up five years of rising net income on flat sales...

SIPC's mystery number

"In no way could we handle the FSLIC's problems," L. William Seidman, chairman of the Federal Deposit Insurance Corp., recently told the Association of Reserve City Bankers. "Our resources are beginning to show some strain from current conditions."

Back from the dead?

Of a piece with the rebound in farm commodities and Iowa farmland is the rally in farm banks. For instance, First Interstate of Iowa, a Des Moines-based bank holding company (Grant's, April 21, 1986), turned profitable in the first quarter...

Mexico prophecy and net borrowed reserves

News flash: Mexican sovereign debt -- quoted at 58 cents to 60 cents on the dollar to yield, on a current basis, about 13-1/8% -- is in demand by a monied American who asks to remain anonymous.

May 4, 1987, Vol. 05, No. 09

Testing zero percent

If, as Prime Minister Yasuhiro Nakasone promised Thursday, Japanese interest rates are coming down, they aren't coming down by very much. Zero per cent -- major resistance in any hemisphere -- is closing in fast.

Brokers' yachts

At or near a market top, Omniscient Securities, the perfect brokerage firm, would startle the Street by scaling back. It would stop hiring, cut trading positions, slash overhead and shelve plans for a move to sumptuous new bull-market quarters. Seeing the future clearly, it would do exactly what Drexel Burnham Lambert, under the gun of a federal investigation, is doing. It would retrench.

The Fed vs. the Citi

As the bond market lost consciousness the other day, an economist was plaintively quoted in The Wall Street Journal. The man, identified as a bank economist, complained that the Federal Reserve has abdicated financial leadership. Nobody was running the bond market any more.

Mortgage values

Government-insured mortgage-backed securities now fetch higher yields than BBB-rated corporates and utilities.

Third World Debt Index

Our stable of credit indices is larger by one with this issue. Behold the Grant's Third World Debt Index.

Really bearish

The question of the hour, now that yields are up, is when to buy bonds again, and that was the question we put to Van Hoisington, the bond investor who has been bullish and right for most of the past three years. Hoisington is safely out of the market now -- got out in March, just before the deluge, and he says he's grateful, not proud.

Land of the rising prices

"Eurofriend," our anonymity-seeking investment friend who lives in London ( and travels to Tokyo), reports on a new wrinkle in Japanese markets...

Ask for senior

Most senior issues have negative pledge clauses [meaning prohibitions against pledging, or mortgaging, unsecured corporate assets]; most subordinated debt issues do not.

Commodity prices climb

As statesmen talked up the bond market Thursday, the commodity markets rallied all by themselves. The Commodity Research Bureau futures index vaulted above the 220 mark (which the Street has been conditioned to view as a kind of inflation threshold), and the spot industrial commodity price index thrust to new recovery highs.

April 20, 1987, Vol. 05, No. 08

Shaking the tree

On Wednesday, April 15, the bond and money markets were more oversold -- more roundly disliked by speculators -- than at any time in recent memory.

The "L" word

The mugging of the bond market raised the stimulating question of where the liquidity went.

Preferred horror story

On April 6, Potomac Edison 7.16% sinking-fund preferred was quoted, ex-dividend, at 101-3/8-102-1/4. On April 15, it was quoted at 90-97.

Volatility roars back

In the past month, bond-market volatility has doubled, inflicting stunning losses on mortgage and tax-exempt portfolios...

Muni bashing

Monday, the Bond Buyer 40-bond tax-exempt yield index stood at 8.28%. Tuesday, in what seemed a typo, it vaulted to 8.86%.

Dear Abby

What next? Investors and pundits were asked for their outlook now that the financial scenery has been slightly rearranged...

Dollar offensive

Foreign central banks, in order to support the dollar, buy dollars, and then they buy Treasury bills. They park the bills with the Federal Reserve System, which discloses the size of the hoard each week. As the graph shows, the numbers are stupendous.

Credit slips (again)

Corporate credit quality continues to sink, with banks deteriorating even more briskly than industrial companies and with utilities showing some new signs of weakness. There had been predictions of a credit turnaround in 1987, but the news to date has actually been worse than it was in 1986...

Swaps at risk

The interest-rate swap market is new, fast-growing, cosmopolitan, de rigueur and -- in the main -- unintelligible. It is so complex that written discussions of the mechanics of swapping are usually illustrated with schematic diagrams, like medical texts.

A little snugger

Growth in the Federal Reserve's balance sheet -- specifically in the aggregate called adjusted Fed credit -- virtually stopped in mid-January. Growth in permanent, or nonborrowed, bank reserves, has also been flat for three months. Growth in all the M's has slowed.

April 6, 1987, Vol. 05, No. 07

Turner reports in color

"I'm not concerned with myself. I'm trying to get bigger so I'll have more influence. It's almost like a religious fervor." -- Ted Turner in Fortune, July 7, 1986.

No questions

Last summer, the Dime Savings Bank of New York was prepared to lend against the presumptive strength of real estate instead of against the income statement of the borrower...

Junk-bond conference

Notes from the 10th annual Drexel Burnham High-Yield Bond Conference in Beverly Hills, gleaned over the telephone in New York by a reporter who wasn't invited...

Inflation stocks

We would like to observe, as a sequel to last issue's note on the CPI, that the stock market has evidently positioned itself for any inflationary contingency up to and including a reappointment of G. William Miller to the Federal Reserve Board.

Not since 1932

The front page of the latest issue of the old gray lady of the fixed-income markets, Moody's Bond Record, notes that utility yields have fallen below industrial yields.


Joe Rosenberg is a connoisseur of extremes. His investment policy is to keep his head when all around him are losing theirs -- and then to buy or sell the ears off the appropriate market. He has scored his biggest coups when the crowd was either gleeful or despairing, for, as he has said, "our greatest dreams and worst fears are never realized." His style is to foul off a few pitches but ultimately to connect, and over the years he has hit for power and average alike.

Central banks "print" more money

The Federal Reserve disclosed a stunning $7.5 billion rise in the volume of U.S. government securities it holds for the accounts of foreign central banks. It was a gigantic surge and mirrored the staggering scale of central-bank intervention to support the dollar.

March 23, 1987, Vol. 05, No. 06

No risk at all: none

Since long before the buttonwood tree, man has searched for the surefire investment. South Sea stock, canal bonds, utility-holding-company shares, U.S. savings bonds, growth stocks -- each has gone up, but then again, each has gone down, too. Now comes Chase Manhattan Corp. with a new idea.

CPI alert

The old CPI futures contract is dead. Long live the new CPI futures contract.

Allied Stores

The Allied deal (Grant's, March 9) was a success....

Bonds on margin

The Securities and Exchange Commission has approved a significant reduction in margin requirements for mortgage-backed securities as well as smaller margin reductions for corporate, tax-exempt and government bonds (Release No. 34-24144, for the record).

Japan booms on

The relentless rise of the Nikkei Dow has provoked the scorn of the stock market columnist of the Japan Economic Journal, an individual who signs his or her name only "M.V.P."...

Euro - whatnots

The pell-mell growth of the perpetual floating-rate note market in London was news. Its periodic collapse has been news. But its easygoing approach to credit and its big-picture impatience with details haven't been treated as news because they aren't news. They are its signature.

The stillness problem

Peace and quiet continue to vex the government bond market. Having prepared itself for almost any fixed income contingency except equilibrium, the Street must cope with something like dead calm.

Adopt a bank, please

Inflation is down and something like prosperity rules, but banking -- the traditional, money-lending end of the business -- is unwell.

Sovereign debt weakens

Arguably, the notable feature of the Third World debt market isn't its weakness (although prices have been marked down recently) but its implacable optimism.

Yea, verily, a gold standard

If the dollar were officially convertible into gold at $400 an ounce, would the financial landscape look appreciably different than it does today?

March 9, 1987, Vol. 05, No. 05

Wanted: any bonds at all

A year ago, what the market wanted was current-coupon government bonds... As yields collapsed, the market acquired a taste for off-the-run governments... Lately, of course, the market has turned to almost anything. Yield spreads have narrowed throughout the corporate sector, and junk bonds have shone.

Allied Stores

According to the theory of the credit cycle, lenders are most courageous when they ought to be most fearful.

Bonds vs. stocks

t this particular time, people want common stocks. They want them despite a paltry 2.60% dividend yield on the Standard & Poor's 400 stock index, a reading within a hair of the record low of 2.46% set in the fateful top-making month of January 1973...

234 times lousy earnings

Nippon Telegraph & Telephone, which came to market last month at the equivalent of $7,770 a share and which has vaulted (despite a promised drop in earnings this year) to the equivalent of $17,582 a share, is a phenomenon.

Paging volatility

The accompanying graph depicts the dog that didn't bark. What the long-dated Treasury bond has been doing for the past 11 months is nothing...

Sell bond funds

Tucked away in the back of The Wall Street Journal every Wednesday are the vital signs of 29 closed-end bond funds.

Brazil scare report

During the recent Brazil fever, the free-market price of Brazilian bank debt was quoted as low as 61, down from 75 in late January. Bank stocks came under pressure, but an off-the-record meeting of institutional investors was treated to a novel and bullish view of Citicorp. And a new blind pool was successfully (and ironically) launched.

Rigging the dollar?

A footnote to the latest Federal Reserve balance sheet helps to clarify the February 22 dollar-propping agreement of the Group of Six in Paris.

February 23, 1987, Vol. 05, No. 04

Flight from quality

Last fall in the credit markets there was a flight to quality, but this year the traffic has been in the other direction. Junk bonds have run rings around Treasury bonds, and the stocks of leveraged companies have soared. Also, on Thursday, strange to report, money center bank securities did not fall out of bed.

Debt shrink

A couple of issues ago in this space, a cheery thought was presented. The idea was that the bull stock market is a gift to corporate debtors.

Commodity prices weaken

Business activity may be booming (consult stock listings for confirmation), but commodity prices aren't. They put in a strong showing late last year but not recently.

Pariah bonds

Following are facts about South African government securities: -- They are almost as unpopular as the government that issues them (or would be, if anybody knew about them). -- They provide current yields of 32% without local withholding tax...

The Bear

Alan C. Greenberg, the multi-millionaire chairman and chief executive of The Bear Stearns Companies, answers his own phone when he can (that's 212 952-5843) and returns his own calls. "We make it a policy that all calls must be returned," he wrote last year to the shareholders in a message that must have given some of them a guilty twinge about their own telephone etiquette.

More Nipponomania

A leading non-expert on Japan, Grant's nonetheless devoted most of its last issue to the topic of Japanese speculation. We did so because, by our amateur lights, Japanese finance has stepped off the deep end and because we were tired of hearing the broker's litany about Japanese liquidity.

With a trowel

All monetary indicators continue to point to easy, easier, easiest. Our Index of Monetary Pressure (page 10) is about as low -- i.e., easy -- as it has ever been, thanks to another massive case of free reserves. Banks continue to hold back substantial excess reserves and to borrow only sparingly from the Fed.

February 9, 1987, Vol. 05, No. 03

The new era under the glass

The world may or may not be shrinking, but it is definitely becoming more optimistic. The most successful investment theory of the year is that bull markets are internationally mobile, like Communist insurgency, and that the wild esprit of the Tokyo exchange is about to infect New York.


Japan is the international graveyard of bears. It is the nation of the housewife speculator and of the sure-thing stock at 50 times last year's lackluster earnings. It is home to zaiteku, meaning high-tech investing, and of institutional traders of the bull-market genius class, celebrated by the name of Shinjinrui, meaning new men. It is the land that Graham and Dodd forgot.

Short rates tick up

Money-market yields haven't followed the bull-market script. The nearby graph plots the recent weakness in Eurodollar deposits, the offshore money-market instrument that has eclipsed Treasury bill futures as everybody's short-dated reference yield.

Banks get poorer

The decline in bank creditworthiness was yesterday's news, but it is also today's and it may be tomorrow's.

It's decided: no slump

A few months back, the mainstream economic forecast was for the equivalent of a chronic, low-level virus. The left-field forecast was for strong growth or a boom: You could have counted the business bulls on the fingers of one hand. Now the tables are turning,

Ray of hope in Texas

Now that the Texas depression has inspired a front-page Journal story (Thursday's) as well as a high-flying new pawnshop chain (Grant's, January 12 ), the Houston real-estate crisis has taken a small turn for the better.

Money remains (what else?) easy

For whatever reason, banks continue to lay in sizable excess reserves; and for whatever reason, the Federal Reserve continues to accommodate that demand.

January 26, 1987, Vol. 05, No. 02

Cross off $ 15 billion

Roy Speer, chairman of Home Shopping, said the purchase would represent the company's initial entry into the financial services market "and the beginning of the establishment of a Home Shopping Network financial network." -- Dow Jones News Service, January 22.


"Equitization"... Don't bother to look up that word, because it won't be in the dictionary. It is no more a word than "dequity" is. An investment banker coined "dequity" to describe the subtle nature of the high-yield security: part bond, part stock, part state of mind.

Commodity prices rally

Without making a big fuss about it, industrial materials prices are rising.

What next? SLY ON BOARD

Hollywood -- Sylvester Stallone was named to the board of directors of Carolco Pictures at the company's first meeting since going public in November ...

Loan capacity rises

In the last several years, loan availability has outgrown quality loan demand. Some of the consequences can be measured in pricing.

Leverage indices

We named our index of Drexel-related stocks the "Drexel Index" (Grant's, December 29), not thinking that Drexel Burnham's name properly belongs to Drexel. Henceforth, the Drexel Index shall be called the "Beverly Hills Index."

Mexican loans sink

The credit landscape is prettier than the New Jersey Turnpike -- for instance, upgrades handily topped downgrades in the municipal market last year -- but it isn't much prettier.

It snowed

The weather-shortened ration of Federal Reserve statistics showed continued monetary accommodation.

January 12, 1987, Vol. 05, No. 01

Make way for another $10 billion

Owing to such seasonal factors as champagne and balance-sheet dressing, New Year's is a confusing time in the money markets.

Man of the Year

Fred Alger is an investment genius (we read that some place), but his one-time chauffeur has been named the Grant's Man of the Year.

Money on stilts

What is so bullish about lots of money isn't merely the number of dollars, as large as that number is. The subtler feature of money these days is the way it is used and the rate of its flow.

Pawnshop common

Citibank can eat its heart out, because Cash America Investments, a chain of Texas pawnshops, is going public.

Crooked southern broker

Now that the returns are in, 33 rated corporate debt issuers, including the amazing Wedtech (down and out in four months), the eight LTV companies and a piece of work called NaChurs Plant Food Co., defaulted on bond payments in 1986, evidently a post-war record.

Debtors Shine

Our brand-new index of 13 Drexel Burnham stocks (Grant's, December 29) went through the roof last week, closing at 223, up from 208 on Christmas Eve.

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