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In general, things get better and better. Mankind's material lot has been on the rise since time out of mind. For every Napoléon in history, there has been a Pasteur, and for every Stalin, a Salk... A bear must face the fact that, in the long sweep of things, the bulls have a point. Still, progress sometimes pauses...
It is hard to consider Romania an unqualified economic success when it lacks for coal and meat, and its tin-pot dictator, Nicolae Ceausescu, has ordered the destruction of 6,000 or 7,000 villages in the interest of socialist modernization. On the other hand, its external debt has achieved de facto investment-grade status.
A debt bear's pulse raced pleasurably when the incoming Mexican president, Carlos Salinas de Gortari, vowed in his inaugural address: "I will avoid confrontation. But I declare emphatically and with conviction: Above the interests of the creditors are the interests of the Mexicans."
To the suggestion that Adelphia Communications Corp. may deserve a place in the Guinness Book of World Records, a man at Standard & Poor's scoffed. Richard Siderman, who covers cable television for the rating agency, said: "This is not atypical of the cable industry. In fact, to cover cash interest [as Adelphia does from cash flow] is almost admirable."
The election is over, monetary policy is tight and money-market interest rates are high and rising. You've read about the dollar. By one measure only can the central bank be said to be accommodative: That is the measure of free reserves, defined as excess reserves (balances held by banks over and above the legal minimum) minus borrowing from the Fed.
Although Grant's has been around for only five of the past 88 years, we have dedicated our fifth anniversary issue to a grand tour of the 20th-century American bond market: from the Gold Standard Act of 1900 to the Federated Department Stores subordinated discount debentures of 1988 and a look beyond.
Technology stocks have fallen, retail sales are lackluster and monetary growth is suspiciously weak. Bond yields are down from their late summer peaks in the United States, Canada, Germany, Japan, Britain, Switzerland, the Netherlands and France. Yield curves have flattened around the world.
The Deutsche mark, 40 years old last June, has been about as good as paper money has ever been or (given the history of governments and printing presses) is likely to get. Literally from the postwar ashes, it has risen to become the world's No. 2 reserve currency and a monetary symbol for the quality-conscious Federal Republic.
On September 22, the editor of Grant's addressed a conference of the Investment Management Institute in New York on the topic of "Risks in Banking: Asset Quality and Capital Exposure." His remarks follow: My assignment this morning is to defend the proposition that the glass of debt is half empty, not half full. It is a familiar role, as I am a half-empty kind of fellow, born and bred...
Debt forgiveness is winning adherents above and below the Rio Grande, and a new chapter in the Michener-length story of Third World finance may be opening. From quarters as predictable as Buenos Aires and as unexpected as New York, some radical ideas are gaining respectability.
Bond-market personnel have returned from vacation to heaven on Earth. Treasury securities are well bid for -- August's crop of business data was on the weak side -- but so, too, are speculative-grade issues. Money market rates, notably short-bill rates, are easier. Credit spreads are tight.
The topic of automobile dealers is, admittedly, a platonic one from the investor's point of view, but it appealed to us because the Ford or General Motors or Honda franchise business is a Norman Rockwell type of business. If one were seeking a glimpse of mainstream American finance, one would want to know about the finances of 25,000 car dealers in this, the sixth year of the Reagan boom.
Shad Rowe writes: This is the story of a Texas-size house and the people who lived in it. The house, situated in Preston Hollow on a street called Gaywood near North Dallas, is arguably the most prestigious residence in our city. What commends it to the attention of the credit-minded reader, though, is not its splendid grounds or Roman statues but its rich, 50-year history...
John Naisbitt, Mr. Megatrends, now prophesies an end to the business cycle. In the futurologist's opinion, booms and busts are things of the past because global financial markets have become the efficient regulators of interest rates and inflation. That will be music to the ears of Duracell, the battery manufacturer that recently became the object of a Kohlberg, Kravis & Roberts leveraged buyout....
In what was the biggest initial public offering up until that time, Duff & Phelps Selected Utilities, the billion-dollar closed-end utility fund, was brought to market on Jan. 21, 1987. Four days later, the Dow Jones Utility Index made its all-time closing high. The price of a share of the fund went up a little and down a lot.
The insurance business used to be quaint: Until Underwriters Reinsurance Co. broke ranks late last year, no property/casualty insurer had done a leveraged buyout. Now Underwriters Reinsurance, formerly Buffalo Reinsurance Co. (est. 1867), has entered the modern age, and imitators are known to be following.
Credit quality is cheap in the corporate bond market. Top-of-the-line securities yield less than middling grade, as always, but the gap has been closing. Thus -- an opportunity for the retrograde, credit-minded investor -- the cost of trading up in quality has fallen: Safety costs less.
Since late November 1984, the Federal Reserve has kept the nation's banks well provisioned with reserve dollars. From time to time, banks in need of funds with which to settle their accounts at the Fed would make application to the discount window, and the Fed would obligingly write a check...
Growing U.S. exports have helped raise depressed outbound liner shipping rates but several senior executives have told me their companies are really hurting on the import side, where rates have fallen by 30% or more. -- Don C. Becker in The Journal of Commerce, June 29.
The Harvard Business Review is as au courant as debt. In the May-June issue, it published a piece fetchingly headed, "Why Not Leverage Your Company to the Hilt?" On tap for the July-August number is an article in a similar vein, "Corporate Raiders: Head 'em Off at Value Gap."
Like the fighter who didn't do his road work, E-II bondholders have cast a beseeching glance in the direction of the referee. Lawsuits have been filed and a creditors' protective group, the Institutional Bondholders' Rights Association, has been formed, and the association has issued a press release.
Bill rates are up, bond rates are down, and the yield curve is flatter. As suggested in the piece on the next recession, a flattening curve is more or less predictable in the late stages of a business expansion. (Is anything entirely predictable? A veteran campaigner must doubt it.)
In a talk last month before the Federal Reserve Bank of Richmond's Payment System Symposium in Williamsburg, Va., E. Gerald Corrigan, president of the New York Fed, reiterated his concern about the big dollar-payment systems (he is a longstanding worrier on the subject, as are we).
The headline in The Atlanta Constitution read, "Georgia Federal home equity loan won't require appraisal," and the story led off: A new loan that allows customers to borrow up to the full value of their homes -- without a home appraisal -- has been introduced by Georgia Federal Bank.
The rocket-ship rise of the common stock of Triangle Industries presents an object lesson in the sweet uses of leverage. On the up side, many are the blessings of debt. Assets can be purchased with it and earnings can be lifted by it. In a rising market, debt is the stepladder from which hardly anyone slips and falls.
Countless man-years have been devoted to the search for the perfect investment. It has almost become a banal occupation. However, the hunt for the least perfect investment has attracted relatively little interest. Where is this grail -in -reverse? What would it look like if one came across it?
"Debt securities issued by Financing Corp. (FICO), an organization created by Congress, are now qualified investments for 'AAA' rated financings." So adjured Standard & Poor's last month, and FICO—the quasi- public agency established to bail out the Federal Savings & Loan Insurance Corp. by borrowing up to $10.825 billion—thereby grew in market stature. Also fortifying the FICO name was a new private placement of FICO debt, the 10s of 2018, which Salomon Brothers promptly converted into a series of zero -coupon bonds. (It was the first such issue of agency zeros and amounted, in a way, to a play within a play...
Speaking of real estate, Tokyo residential property prices vaulted by 68.9% in 1987, according to the National Land Agency. It was the greatest boom year on record. In 1973, the runner-up year, prices advanced by a mere 36%. File those data under "history," however. The news this spring is that prices are falling....
In Greenwich, Conn., a springtime rally in house prices was once a perennial event, like the return of the robin or the rose. In the boom years of 1985 and 1986, the upturn started early, pre-robin, but this year it began late. Indeed, sales volume from January through March was the lowest in a decade. House prices registered only narrow gains, and condominium prices actually fell. Business picked up toward the end of March, but the pre-rose auguries are mixed....
Late Tuesday, the three-month Treasury bill fetched 6.35%, 35 basis points more than the discount rate. The bill rate (but not foreign money rates—see the back of this issue) has been moving up, so the gap between the stationary discount rate and the rising bill rate has been widening. "It is a relatively rare event when the bill rate passes decisively through the discount rate," John Mendelson, the Dean Witter Reynolds market analyst, cautioned on Monday, "but often this action has preceded sharp movements in the market."
When brokerage firms got into the bridge-loan business last year— lending to corporate borrowers to facilitate this or that ultraleveraged transaction—we thought we heard a bell. When banks entered the same business, grabbing market share from the brokers, we could have sworn we heard another. Now—by the way, what round is this, ref?--the American Banker reports that Manufacturers Hanover and Citicorp each have organized $1 billion bridge--loan funds to share the high returns available in junk-grade lending with other financial institutions.
A cash machine at an East Side bank was very nice to customers on Sunday—it doled out $20 bills as if they were $5 bills . . .. Word of the friendly machine quickly spread and a line formed of customers eager to put their bank cards into the slot and strike it rich.—New York Post, April 26. All the malfunctioning cash machines in New York can't explain the bulging American currency stock....
There has been a good deal of confusion about this, but Texas is actually part of the United States. However, economic developments that are good for Texas are not necessarily good for the rest of the country, and vice versa. In fact, booms and busts in Texas seem to run countercyclical to the rest of the country.
Money drives deals, as everyone knows, and the volume of deals has soared this year. Junk-bond issuance is way down. Bank lending, therefore, is way up. Martin Lipton, the noted takeover-defense lawyer, recently went so far as to say that "money to finance takeovers is available in unlimited amounts."
Like the Bible, Trump: The Art of the Deal is a book that repays deep and repeated study. It is, perhaps, even greater than the Bible, for it speaks to today's reader on subjects both mundane ("Sometimes it pays to be a little wild") and spiritual ("The point is that you can't be too greedy").
Why, demands Arthur Schlesinger Jr. in his 1986 book The Cycles of American History, does the public occasionally vote out statesmen in the Roosevelt tradition for poseurs like Reagan? Why the periodic flings with free markets and low tax rates, when what the people want (Schlesinger is sure of it) is "affirmative" government? Why not liberalism all the time?
The Rev. Jesse L. Jackson is the bears' favorite son. He is the candidate of short sellers and put buyers as much as he is of blacks and ultraliberals. He is the standard-bearer of low stock prices, high interest rates and volatility, and any bear who has not contributed handsomely to his campaign is an ingrate.
Suppose that, with the government's blessing, you could borrow to the hilt against the value of an asset. Suppose that the privileged asset were common stock. People would say, "You're a fool not to own stock, and you're a fool not to buy it on margin. You can't afford not to borrow, because the interest is deductible."
In the week that First RepublicBank of Dallas went 10-gallon hat in hand to the Federal Deposit Insurance Corp., a New York investor called his broker to place an order. He said he'd heard about a pending merger and wanted to cash in before the deal was announced. There was just one thing, though, he said: "I don't know whether the company is Quaker State or Quaker Oats."
Late last month, a member of the President's Council of Economic Advisers said in a public place that the United States could simply print the dollars it owes to foreign investors if it ever felt it had to. He hastened to add that that was not his idea of sound policy. But, he said, the presses could roll in a bind.
Trammell Crow, the king of the Dallas real-estate developers, is credited with a number of pithy business sayings. Builders are optimistic and leveraged fellows, and Crow's remarks are sometimes inspirational, e.g., "In the history of America, the buyers have been right and the sellers have been wrong," and, "The only thing you have to do to become rich in the real estate business is to keep your assets and live a long time. "
When David Boaz, writing in The Wall Street Journal, broke the Pat Robertson debt story recently (in 1984, the GOP presidential hopeful proposed a kind of jubilee, or sanctioned welshing, to solve the debt predicament), he neglected to add that the Robertson campaign itself had run up debts of $2 million.
At a dinner party in Westport, Conn., on a pretty summer night in 1985, the conversation turned to the problems of the rich. A well-tanned, middle-aged woman spoke up. If one's husband commutes to work by helicopter, she said, the helicopter must land on one's lawn. And if one's lawn has been freshly cut, the cuttings are bound to be scattered into one's swimming pool. Can nothing be done about this nuisance?
Although opinions are proverbially cheap, Grant's has been without a point of view on the bond market for the past several months. Our inclination has been bullish, but an inclination is weaker than an opinion, which is weaker than a conviction. An investment position is a conviction with money riding on it.
Revlon is the beauty company with the ugly balance sheet. It sells Charlie, Moon Drops, Jean Naté and Norell -- discloses ratios of debt to capital that could curl your hair. However, beauty is in the eye of the beholder, and there are people -- indeed, Revlon employees -- for whom hyper-leverage is pure gold.
The following message went out over the Drexel Burnham communications system on December 23: TO: ALL BRANCH MANAGERS...