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December 23, 1988, Vol. 06, No. 25

Boardinghouse reach

Returns to equity investors have gotten smaller but the fees paid to lawyers, accountants, press agents, investment bankers, commercial bankers and promoters have grown fabulously larger.

Good cheer

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...

How bearish are you?

From the September/October issue of Investment Properties International: Beckham Creek Cave Ozarks, Arkansas Located in the Boston Mountain Range of the Ozarks in northwestern Arkansas...

New junk barometer

Our new Junk Bond Fund index may not be the most volatile indicator in the Grant's collection but it does (as the editorial writers say) bear watching. The index is an aggregate of seven closed-end, high-yield funds that came to market in the past year...


On reflection, it dawned on us, the only thing to know about banks and LBOs is how the bankers are paid. If the real money nowadays is in leveraged-style lending, the case would be open and shut. Bankers would continue to lend until someone, or something, stopped them.

Romania hits par

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.

Export traffic slows

If the shipping news early this year made you bullish on the dollar (as it did us), you are bound to be a little less bullish following a new report in The Journal of Commerce...

Yield curve reprise

Short rates continue to overtake bond yields -- on Tuesday, the peak yield on the government curve was at 1-1/2 years.

Hot loans

A recurring weekly feature in Salomon Brothers' commercial-bank statistics is the strength in national real-estate lending.

Playtex bared

Drexel Burnham's legal crisis has eclipsed the recurring drama of its securities, which is our loss. A proposed new issue of senior subordinated notes of Playtex Family Products Group deserves a look, if only for the sake of the stunning balance-sheet summary...

Unfinished business

Federal Reserve policy, although tight in substance, is accommodative in image. Not since 1974, notes Cyrus J. Lawrence Inc., has the gap between the federal funds rate (pushing 9%) and the discount rate (6-1/2%) been wider.

December 9, 1988, Vol. 06, No. 24

What the yield curve means

In the interest-rate profession, "yield curve" means the alignment of rates over time, from three months to 30 years... A flattish curve is the augury of recession; an inverted curve virtually guarantees one.

On the cuff

In the recession year of 1974, Frederick C. Yeager of St. Louis University took note of some alarming personal-bankruptcy data. Filings per American had risen fourfold since the mid-1950s, and Yeager wondered if the increase was a sign of dry rot.

Nations in debt

Some uplift on the deficit question is offered by the Federal Reserve Bank of St. Louis. According to the bank's coffee-table quarterly, International Economic Conditions, the United States has competition for the crown of world profligate.

Third World debt firm

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."

Brotherly cable

A forthcoming issue of "senior extendible reset notes" of Adelphia Communications Corp. will become a collector's item. The work of living artists, it will prove to be the junk-bond market's answer to Jasper Johns's $17 million "False Start."

Never mind Adelphia

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."

A little miracle

Nelson Peltz, who recently sold his majority interest in Triangle Industries to Pechiney S.A. of France for a fortune, has been pressed on questions of timing.

Foreign central banks buy

David Mulford, the assistant Treasury secretary for international affairs on Tuesday called central-bank intervention a "minor' factor in the world-currency markets.

November 25, 1988, Vol. 06, No. 23

Treasury-bill yields excite

Tuesday's Wall Street Journal was the medium for an unnamed "senior adviser" to President-elect Bush to project an aura of command and imperturbability.

Dollars and cents

When the price of copper recently topped $1.53 a pound, a monetary milestone was passed. Above that price, a red cent theoretically became more valuable in the smelter than at the checkout counter. The penny, briefly, exceeded bullion parity.

Portrait of an artist

"Seek facts diligently, advice never." Frankly in search of advice, we paid a call on the man who wrote that maxim. He is Philip L. Carret, the author of a book called The Art of Speculation, which was published some 60 years ago...

Personal bankruptcies soar

In all of 1946, there were fewer than 9,000 personal bankruptcy filings in the United States. In 1987, there were about 9,000 filings a week. On those numbers hangs a story that, if not uplifting, is fascinating.

That's 'trillion'

In the department of general financial anxiety, CHIPS, the Clearing House Interbank Payments System, a computer network that facilitates the movement of dollar balances among 138 banks in 35 countries, had the busiest day in its history on November 14.

John Reed buys

News that Citibanker John S. Reed bought 100,000 shares of Citicorp common on the first anniversary of the stock-market crash -- the chairman is optimistic on the Latin American debt situation -- was quickly overhauled by the upset results in Brazil's municipal elections.

Pulse of leverage

Our index of highly leveraged equities ("stub stocks") has weakened, junk-bond prices have stalled and a new closed-end fund that intends to invest in bonds of sub-junk grade (USF&G Pacholder Fund, listed on the American Stock Exchange) met a cool reception.

Deutsche mark untaxed

In late October Germany's ruling Christian Democratic Party leaked its decision to exempt accrued interest from the proposed 10% interest withholding tax. The Deutsche mark has been rising ever since...

'Push basement, please'

When Frank W. Woolworth, the American five-and-ten-cent store magnate, built his Cathedral of Commerce in lower Manhattan in 1913, he chose Otis elevators, and as the lucky inheritor of Mr. Woolworth's 40th-floor study, I'm here to say that they're still working.

Liquidity evaporates

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.

November 11, 1988, Vol. 06, No. 22

Short rates beckon

Treasury-bill yields are high enough to give pause and raise questions.

Bond odyssey

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.

Blue blood debt

Under the bland heading "Legal Matters," the new Fort Howard Corp. junk-bond prospectus discloses that Davis Polk & Wardwell, the distinguished New York law firm, will perform the routine duty of passing on the validity of the securities.

Latin debt tumbles

In quiet counterpoint to the recent run of good Brazilian news—the country has wiped out all interest arrears to commercial -bank creditors for the first time since last year—the prices of Latin American sovereign debt are falling.

Leverage loses luster

Our Stub Stock Index -- an average of eight companies capitalized mainly with debt-eased again in the latest week, and junk-bond yields rose.

Free money available

Shad Rowe writes from Dallas: If you pay taxes, have money and are willing to capitalize on the desperation of the Federal Home Loan Bank Board, perhaps you should take a close look at the Southwest Plan.

Another voice in the choir

(Reprinted from Grant's, Vol. 1, No. 1, Nov. 7, 1983.) In a more perfect world, this magazine would not have been born...

Next, the discount rate?

It will be hard to accuse the Federal Reserve of electing George Bush.

October 28, 1988, Vol. 06, No. 21

View from the top

October 14, 1988, Vol. 06, No. 20

Underheating: the evidence mounts

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 old one-two

"Norway pledges support for ailing banking system" -- International Herald Tribune, September 16. "Oslo easing foreigners' stock curbs" -- International Herald Tribune, September 17.

Let's all reach

The Federal Reserve's August "Survey of Bank Lending Practices" is out, and the results show more sporting blood in the veins of buyers and sellers of corporate bank loans. Sub-investment-grade debt, once an unusual commodity in the loan market, has come to predominate...

Perfect timing

From a New York Times financial advertising circular: "Nearly a year after last fall's stock market turmoil, the lucrative and successful mergers and acquisitions field continues to thrive...

Buy marks, sell yen

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.

Harcourt Brace again

Harcourt Brace Jovanovich, the recapitalized publisher, is back in the capital markets again because it has to be. Concerning the recapitalization of the recapitalization, William Jovanovich, chairman and chief executive officer, exulted: "This is a triumph...

Japan Inc. shudders

TOKYO -- Share prices of Nippon Telegraph & Telephone, Japan's largest telecommunications company, sank to a 1988 low Friday on the Tokyo Stock Exchange. -- International Herald Tribune, October 8.

Leverage under the glass

Grant's is a publication of trees more than of forests, but the Federated Department Store-type of transaction deserves to be seen in macroeconomic context.

Red ink

Financial news from the Soviet Union is, if possible, bleaker than that from the Home Loan Bank Board...

Yield curve flattens

That rogue net-borrowed reserve position vanished in the latest Federal Reserve statement week.

September 20, 1988, Vol. 06, No. 19

Danger: Economists see eye to eye

A venerable Wall Street debating technique is to define a consensus that excludes oneself and then to invoke the lore of contrary opinion (i.e., when everyone agrees on something, the superior individual should disagree).

Insult to injury

"Uncle Sam is being asked to provide some financial security for George Steinbrenner [chairman of American Ship Building and principal owner of the New York Yankees].

Just say 'charge it'

The great department-store merchants brought debt to Main Street. As hard as it may be to believe in 1988, at the turn of the century the average consumer was still considered an unacceptable credit risk.

And no vacations, either

"Unscrupulous Japanese companies, facing a nationwide shortage of university graduates, are resorting to kidnapping potential recruits to keep them out of the hands of rival employers." -- Financial Times, September 21.

Thrift prognosis

When almost nobody was worried about the savings and loan situation, Marc Perkins was outspokenly bearish.

Debt prices rally

The Third World debt market stopped sinking and started going up, with Argentine and Brazilian prices stronger by a cent or two in the past two weeks...

Debt and me

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...

Bill rates climb

Money-market rates are rising again, and the banking system has fallen (or been pushed) into a position of net borrowed reserves.

September 16, 1988, Vol. 06, No. 18

If not now, when?

With the producer price index up, domestic capacity utilization rates up and the dollar (taking a three-year view) still way down, the recent action in gold and bonds seems passing strange.

Debtors at bat

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.

All aboard

The threat posed by too much equity capital -- a financial peril largely unexplored until late in the current boom, by the way -- has been addressed,by a number of distinguished journals, notably the Harvard Business Review...

Yield, yes; credit, no

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.

Lemon balance sheets

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.

Lives in a mansion

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...

Enough money

Only a few weeks ago, world central banks were competitively tightening monetary policy, domestic and foreign money rates were on the rise and a condition of net borrowed reserves threatened to rule in the United States.

August 19, 1988, Vol. 06, No. 17

Tokyo's rally thins

The recent trend on the Big Board, where more stocks have been falling in price on a daily basis than gaining, is beginning to worry technical analysts. -- The New York Times, August 13.

Repeat after us

Quanex Corp., a maker of specialty steel products, is offering 1.2 million shares of Depository Convertible Exchangeable Preferred Shares, each representing one-tenth share of a soon-to-be-priced Cumulative Convertible Exchangeable Preferred Stock.

Duracell in debt

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....

Shearson owns it

Shearson Lehman Hutton, which invented auction-rate preferred stock, is thought to own most of the $125 million issue it underwrote for MCorp, Dallas, in 1985. MCorp is sick with the bank-holding company disease.

"Upside -down" loans

Ex-auto sales, retail sales would be weak. Ex-auto loans, auto sales would be very weak. Ergo, auto loans make us strong.

Investment parable

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.

To India Fund holders

From the Financial Times of August 12: The number of Indian companies that are technically bankrupt has been rising at an alarming race, according to a study by the Federation of Indian Chambers of Commerce.

Cullum Cos. buyout

Thanks to wall sockets and the electronic computer, it is possible to project a corporation's financial results many years into the future. The projections are subjective, but the mere fact that somebody made them helps to soothe the nerves of prospective investors...

Dear creditor,

J.P. Morgan pulled the U.S. government's chestnuts out of the fire in the second Cleveland administration, so it may be churlish to carp now, 90-odd years later, when the Morgan bank gets around to asking for reciprocity.

Vacation message

This publication leaves for the country with its nerves shot but convictions intact. It acknowledges that recent reports of business activity have been stronger than it had banked on. However...

August 5, 1988, Vol. 06, No. 16

It doesn't compute

The vaporization of the claims of investors in the nationalized First RepublicBank Corp. (the holding company, not the subsidiary banks) was a speculative anticlimax.

Real soft

In real-estate lingo, a bear market is a "soft" market, a low price is a "realistic" price and a salesman is a "Realtor." Expressed in technical terms, then, pockets of the Northeast market are soft, prices are realistic and Realtors are pacing nervously by their phones.

Onward and upward in financial services

India Growth Fund, the first closed-end fund available to Americans who wish to invest in Indian equities (and who hasn't had the urge?), is being offered through Merrill Lynch.

What says copper?

Copper prices have been slipping, a bearish sign for business activity.

Bottom of the barrel

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.

Quality for sale

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.

Buy us a gross

Goldome New York Capital Corp. III, with an assist from Smith Barney, Harris Upham & Co., has issued $250 million of Exchangeable Share-Adjusted Broker-Remarketed Equity Securities Preferred Stock.

Decimation of credit

Contestants in a debate are allowed to marshal the academic evidence that suits them.

Wasserella scores

"There are lots of people out there writing checks. This is a very liquid world. Capital is not the problem." ...Maybe so.

Thrifty foreigners

The successful investor is a master of paradox. He expects the unexpected, distrusts the experts and loves what the majority hates. He believes that, in markets as in heaven, the first shall be last and the last shall be first.


Ever think your own government sets an insuperable standard for misguided policy? Consider the Germans.

Blue skies return

False alarm. The banking system's plunge into net borrowed reserves was short-lived (the latest fortnightly settlement period brought a return to free reserves). Federal funds continue to trade around 7-7/8%, and growth in the Fed's balance sheet has accelerated.

July 22, 1988, Vol. 06, No. 15

Yeast in yields

Worldwide interest rates are going up -- or, in a less predictive vein, were going up until the moment of this writing, which is Tuesday, July 19. The levitation occurred in all major financial centers, even Zurich...

Roll over, Mr. Avery

What the "shrewd" and "practical" man of business favored when United States Gypsum Co. was incorporated in 1901 was monopoly. What he favors in 1988 is leverage.

Broker speaks truth

Greenwich, Conn., has been singled out in these pages for special mention, but house prices throughout metropolitan New York have been weak for months.

"Monetary pressure" rises

Our Index of Monetary Pressure has staged a dramatic upside breakout, rallying from negative territory as recently as March (and 0.31 in early July) to 0.51 last week, the highest reading since 1984.

Leverage shines

Not to be outdone by the Harvard Business Review (Grant's, July 8), The New York Times Magazine put debt glutton Robert Campeau on its July 17 cover.

Financial animal

Shad Rowe writes from Dallas: I have no business relationship with Richard Rainwater, I am sorry to say. As the scale of his operations and reputation has continued to grow...

Tighter money

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...

July 8, 1988, Vol. 06, No. 14

Bankrupt bank?

By the time you read this page, a get-together of some creditors of First RepublicBank Corp. will have convened and adjourned.


Straws in the wind

Dow Jones-Irwin, the dull-book publisher, is out with a new self-help title, The Challenges of Wealth, a sympathetic treatment of the problems of the newly rich, including a look at the always knotty dilemma: "How money changes your relationship with others."

For the corporate investor

Adjustable-rate preferred stock (ARPS) is a security that was supposed to stay put. It was sold to corporate treasurers both for its alleged price stability and for its unique tax advantages.

World rates rise

Money-market interest rates have risen worldwide. Benchmark three-month yields stand at 1988 highs in Tokyo, London, Frankfurt and Zurich. In low-yield countries, the percentage increases are stunning.

Import growth slackens

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.

Poor loans slip

Brazil and a committee representing its creditor banks came to terms last month, after all. In brief, Brazil will resume paying interest if the banks will lend it the funds with which to make the payments.

Underground economy

So hot is the Tokyo real-estate market that speculation has moved underground. So, at least, reports the Japan Economic Journal, describing a trend toward subterranean development...

Case studies in debt

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."

Vintage whine

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.

Recession yields

We suppose there'll be plenty of time to worry about the behavior of bond prices in the next recession.

Yield curve flattens

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.)

June 24, 1988, Vol. 06, No. 13

Napoleon advances on Moscow

Although opulent, the 1987 Campeau Corp. annual report is dated. On April 1, two months after the close of the Campeau fiscal year, Federated Department Stores entered the corporate fold...

And remember, don't worry

"Bond funds with higher yields aren't necessarily riskier" -- headline in The Christian Science Monitor, June 8.

Global bank credit: The prospect of less

If, as Milton Friedman used to say, every hour on the hour, "inflation is always and everywhere a monetary phenomenon," what is the prognosis for price stability in this year of the drought?

Thrift for sale

Seeking what it calls the "least costly solution" to the sick-thrift dilemma, the Federal Savings & Loan Insurance Corp. is offering problem institutions for sale to private investors.

Sticks and stones

"Buyers' Panic Sweeps California's Big Market in One-Family Homes" was The Wall Street Journal's headline over a snappy page-one story recently about the Golden State property boom...

Solvent banker found

Shad Rowe writes from Dallas: Next month Comerica, a $10 billion Detroit-based bank holding company, will merge with Grand Bancshares. According to the press release, "Comerica will acquire Grand Bancshares for $55 million cash..."


Speaking of the weather, Cycles, the scholarly journal of the Foundation for the Study of Cycles, Irvine, Calif., recently published an essay on the prospects for a drastic change in the world's climate.

Why Brazil sinks

John Dizard writes: They're all a-tizzy in the Brazil market this week. The government has been floating the outrageous suggestion that it might impose a tax on the black, or (sorry) unofficial, debt conversions market...

The dollar on its own

Without saying so exactly, the heads of state convened in Toronto have begun to withdraw support from the dollar. That, at least, is suggested by the data published weekly in a footnote to the Federal Reserve's balance sheet.

June 10, 1988, Vol. 06, No. 12

Now available: free money

People may sound bearish, but not everyone is investing that way.

Inflation on trial

Airborne commodity prices are causing deflationists grief. In a deflationary regime, the dollar in your pocket, should you be so lucky as to have a dollar, appreciates.

Pressing a trillion

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).

BIS reprise

A fine new report on the Bank for International Settlements by Drexel Burnham Lambert (the analyst is Michael Porter) reminded us of our old friend, the central bankers' central bank.

They want yield

"Credit worries recede," said the front page of the last Grant's. They keep on receding, the FSLIC flare-up and threats by assorted Third World heads of state notwithstanding.

Americans save more (you asked for it)

Everyone knows that the Americano is a profligate, a wastrel and a muncher of seed corn. Nevertheless, for the past nine months, the American consumer has been saving more.

Loopy Japanese bonds

The reach for yield is an international impulse. In Japan, for instance, a pending redemption of high-coupon government debt has left a void.

Maybe they're kidding

If Third World borrowers do, finally, renege, nobody will be able to say he was shocked. It is easy to ignore the official threats of nonpayment -- we've heard them all before -- but they've lately become more insistent.

London, meet Dallas

From the announcement of a new Moody's report on risks in British mortgage-backed securities...

D. Trump: role model

At the age of 19, according to The New York Times, Abe Betesh may be the youngest licensed real estate agent in New York State.

Commodity prices roar

The extraordinary strength displayed by the advance-decline line throughout the last half of 1987 and first half of 1988 has been fully vindicated...

May 27, 1988, Vol. 06, No. 11

Credit worries recede

Confirmation by the General Accounting Office that the Federal Savings and Loan Insurance Corp. is, in fact, in the soup, caused no more than a ripple in the bond market...

Bears for Dukakis

Searching for a plausible explanation for the Treasury market's refusal to rally, we reprint a loaded sentence that was buried in a recent Wall Street Journal story...

Lending breakthrough

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.

Cargo rates break

On May 19, futures contracts in dry cargo rates crashed. Trading volume was the highest in the market's brief history. "The violence of the move was quite staggering," said a trader ...

Brazilian debt sinks

The flavor of the week in the LDC debt market has been Chile, where the government has devised a scheme under which homeowners can repay their mortgages with their country's dollar debt.

Deal of the age

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.

A stitch in time

The Federal Open Market Committee leaned slightly into the late March wind, according to minutes of the meeting released the other day.

May 13, 1988, Vol. 06, No. 10

A "thrift" for our time

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?

FICO's rescue

"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...

Tokyo's bear market

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....

Mansions for sale

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....

Bills flash sell

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."

Troubled waters

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.

Paper money rallies

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....

April 29, 1988, Vol. 06, No. 09

Druggist gets a headache

Success, not failure, has been the rule in the leveraged buyout trade, so the recent embarrassment of Revco D.S., the big discount drugstore chain, is news.

Gold for dollars

Taiwan is buying gold, but not for the obvious reasons, according to monetary authorities. The island nation, producer of championship Little League baseball teams and the holder of $74 billion in depreciating dollars, is said to be buying gold for cosmetic purposes.

Insurance net spreads

When the chairman of the Senate Banking Committee, admitted on Wall Street Week recently that the Federal Deposit Insurance Corp. has virtually to insure deposits of any size, even those over the statutory $100,000 limit, a panelist nearly jumped out of his skin.

Lend at your peril

Sign of the times department: Lender Liability Report, a new, twice-monthly publication on the legal travails of creditors, is set for a late May launch.

Lone Star bust

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.

Brazilian debt rallies

The movable feast of the LDC debt market has rolled into Rio. Brazilian paper, confusedly called deposits, not loans, has recently become hot.

Metals cool off

Now that the commodity markets have taken center stage in monetary policy, the break in copper prices is of more than passing interest to bond-holders.

April 15, 1988, Vol. 06, No. 08

What drives deals

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."

Mortgage the Taj Mahal

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").

Wait till 1992

On March 31, Goldman Sachs's "Research Notes" contained a commentary on Metro Mobile CTS, the country's 12th-largest cellular systems operator.

FICO esteemed less

Financing Corp., or FICO, the quasi-public agency charged with the bailout of the Federal Savings & Loan Insurance Corp., continues to suffer market reverses.

Wealth in our time

Economy-wide recessions are unlikely to occur in the future. -- Dr. Edward Yardeni, "Money & Business Alert," March 30.

Tax-rate rally?

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?

If taxes rose . . .

Let us get down to brass tacks. What if federal tax rates -- ordinary, capital gains, or both -- did go up? Might your portfolio spring a leak? Probably, although you would have to make some assumptions to forecast the damage. We ordered up two cases...

Real-estate lenders

Bank investors are so busy grappling with the Third World's debt that they sometimes neglect the First's, especially domestic real-estate loans.

Follow-up on the news

On March 21, we reported that a customer had called his broker with some inside information on a takeover. There was just one thing, though...

Bells peal (con't)

Following is a matched set of news bulletins. First, an April 7 press release concerning the renewed deterioration of American corporate credit quality...

Deep in the heart

The bad news is obvious: Ruined banks require loans, also known as reserves (or even, less technically, dollars).

April 1, 1988, Vol. 06, No. 07

Buy the Federal Register

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.

Ball four

Since the top of the stock market last August, our Grant's Stub Stock Index has excelled. We wouldn't have guessed it, because a stub stock -- a share of a highly indebted company -- is a kind of warrant, or flyer...

Ding, dong, Tokyo

A pair of speculative bells, or gongs, have been sounded in Japan lately. No. 1: Margin balances reached a record high for the third consecutive week on the Tokyo, Osaka and Nagoya exchanges.

Queer notes

Grant's has been chronicling the decline in the creditworthiness of the Federal Savings and Loan Insurance Corp. by listing the institutions that don't want anything to do with its notes. To that list, add a surprising new name: the U.S. League of Savings Institutions.

Loans tick up

Prices for Third World bank loans edged up here and there, notably in the cases of Argentina and Mexico...

In a bear's mind

"My early read on retail sales is that they'll be in double-digits over last March. . . . With the consumer coming in so strong on top of the industrial sector that is pushing capacity limits..."

Without a trace

You may remember the $18 billion market in perpetual floating-rate notes (Grant's, Dec. 15, 1986). Once active in London, it disappeared about a year ago. It was not so much that prices fell, although they did; it was that they vanished.

Value for sale

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."

Beware the spike

And if there were a recession, what then for interest rates? Collapse, of course?

Money vanishes

For reasons both legal and extralegal, monetary growth continues sluggish.

March 21, 1988, Vol. 06, No. 06

Oh, did a bank fail?

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."

Why reach?

In the tax-exempt market, all hands are reaching for yield. The preference for income over creditworthiness is striking...

The meaning of reaching

Concerning interest rates, a man offered to argue either side of the market, promising that, whatever side we took against him, he could make us feel uncomfortable about it. He was right.

Red hot metals

By the gauge of the metals markets, worldwide industrial activity is nearer a boom than a bust.

Termites of credit dept.

Mortgage delinquencies ticked up late last year, as the American Banker reported Wednesday...

"As good as Treasurys"

The New York papers have only so much space to devote to Texas banking disasters, so an allegation about sweetheart audits at Texas savings and loans got short shrift last week.

A 'luckless twelvemonth'

For those who never read the history of the 1930 rally, we think Wall Street's flip to the bullish side only several months after the crash has much of the flavor of an instant replay. -- John Mendelson in the Dean Witter Reynolds "Technical Market Comment," March 7.

March 7, 1988, Vol. 06, No. 05

Macy all over again

If Edward S. Finkelstein, Macy's chairman and chief executive, saw anything incongruous in a heavily indebted company (his own) proposing to borrow again to finance a gigantic merger less than five months after a global stock market crash, he bit his tongue.

Print it

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.

House price alert

The right to a capital gain on the investment in one's home is a right that Thomas Jefferson overlooked, but it is dear to the hearts of most Americans.

Mexico flash

As the Street expected, the Mexican debt exchange was neither hit nor flop.

Deflation pilgrimage

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. "

Risky bottom-fishing

John Boland, the owner of a small, battered position in BancTexas, writes from Baltimore: To go bottom -fishing in Texas is to ask repeatedly, "How low is low?" and to answer as often, "Lower than you think."

Offshore assets surge

It happened last month: The holdings of U.S. government securities by foreign central banks surpassed the Fed's holdings of U.S. government securities.

February 22, 1988, Vol. 06, No. 04

Farley for president

The new Farley Inc. debt prospectus went through several editions in preliminary form, and now the final is out. It is a 1980s period piece.

Scrappy scrap

Scrap prices are up again, which will give the bears on business something to think about. According to the trade press, some ferrous scrap grades have recently pushed through their October 1987 highs...

Asset famine

When Bankers Trust reported enormous fourth-quarter gains in foreign exchange and securities trading, the analytical fraternity rushed forward to shake its hand.

Owner anxious

Roxbury, Ct., circa 1885 "APPLE BROOK" On a secluded dirt road lies a fairytale setting of almost 3 acs with rolling lawn...

Sumitomo on Holiday

Japan has become such a financial powerhouse that Japanese banks have far surpassed their American counterparts in international assets, while Tokyo has topped New York as a center for international lending. . . .

Junk -grade candidates

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.

Seeing the light

John Dizard writes: Like town drunks at a revival meeting, Latin debtors are standing up and saying they were lost but now they're found. Brazilian and Argentine officials are giving witness about the futility of a confrontational approach with the banks...

February 8, 1988, Vol. 06, No. 03

Bells peal in Brooklyn

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?

Foreign holdings gain

The Federal Reserve and the leading foreign central banks continued their strange convergence in the latest banking week.

Cheap dollar bills

Minerals & Resources Corp. (MNRCY), the Luxembourg-based gold and resources holding company, is in the investment doghouse again.

El round trip

John Dizard writes: There's a weird inversion of respectability going on in the LDC world. Sovereign debt and socialism, as any bank lending officer can tell you, are on a bobsled to hell.

Brazil repents

The Brazilian Government's declaration last year of a moratorium on $68 billion of commercial bank debt interest was "the worst error that we have yet committed."

Too little, too late

Financing Corp., the "mixed ownership government corporation" organized last summer, is a shell. However, it is a shell draped with an American flag.

Cash is comfy

Seth Klarman, general partner of The Baupost Group, investors in Cambridge, Mass., devoted a section of his annual report to the luster of cash...

Letter to the editor

Sir: The wonders of modern corporate finance never cease to amaze me, but often I seem to miss the subtleties. Take, for instance, the purchase of Sterling Drug by Eastman Kodak...

Bank dividend scheme

Except for the sale of bank stocks, we have been at a loss for a constructive solution to the money-center bank dilemma. Everybody knows what's wrong: The banks need capital.

Money flows again

News that Creditanstalt-Bankverein AG, Austria's largest bank, was expected to accept the resignation of Hannes Androsch, its disgraced director-general, sent

January 25, 1988, Vol. 06, No. 02

A kind word for bonds

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.

Hanover spreads widen

For the stock market's money, Manufacturers Hanover Corp., at a 16.6% indicated dividend yield, is a junk credit right now.

Wait 'til this year

It will surprise no investment-grade bondholder to learn that 1987 was the pits.

Greenwich rounds the bend

Following the 1929 stock-market crash, Paul A. Dahlgreen, an alert Greenwich real-estate broker; appealed to his neighbors to invest in the lovely lanes, villa-lined seashores and undulating ridges directly underneath their own feet.

Mexican terms disappoint

John Dizard writes: "This is a total piece of garbage! This is absolute nonsense! You have nothing!" That's how one major West Coast bank welcomed the long-awaited term sheet for the famous Mexican debt exchange.

Argentine fortunes sink

Taking Argentina at its word that it may not be able to pay its debts, or may not get around to it, we have reprinted the accompanying table by First Boston Corp.

Hot shipping news

The world's obsession with the monthly U.S. trade deficit deepens. Release of the November installment last Friday made news around the world.

Defaults: no sweat

Corporate bond defaults climbed last year -- but total returns in the high-yield bond were none the worse for that...

The "offshore Fed" expands

Despite heroic, if illegal, efforts by the private sector to refurbish the nation's money supply, growth in the various "M's" dwindles.

January 11, 1988, Vol. 06, No. 01

Argentina-just say no?

Argentina economic data go from bad to worse, but the country has kept a sense of humor.

Skin deep

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.

Good news from Iran

An Associated Press dispatch from Nicosia Christmas Eve quoted an Iranian official as declaring that real estate agencies and car dealerships are "false professions" and that agents and dealers might be put to death.

Mexican flimflam

John Dizard writes: As we old Zen students say, no amount of polish can make a mirror of the brick. But that's probably why none of us work at Morgan Guaranty, which has just come up with the successor to the Dawes and Young plans, the Mexican debt exchange.

Blue-chip consumers

The percentage of Americans late on their mortgage payments in the third quarter of 1987 marked the largest decline on record and dropped to the lowest level in more than eight years, according to a survey released today by the Mortgage Bankers Association (MBA).

The yield curve smiles

Galen Blomster, vice president with Norwest Bank, Minneapolis, can forecast the economy without even turning on a computer.

Bullish on tax exempts

If the top income tax rate were a stock, would you sell it now? Probably not. Taxes are down and it is easier to imagine the top rate rising than falling. For reasons not altogether clear, confiscation has a resilient political appeal.

"You really want an order? Then buy a million IBM!"

The following message went out over the Drexel Burnham communications system on December 23: TO: ALL BRANCH MANAGERS...

Thrift jolt

Although a certified bankrupt, the Federal Savings & Loan Insurance Corp. is a creature of the federal government.

Texas Air losses

Rumor dept.: According to an allegedly knowing source, Texas Air's fourth-quarter loss will be closer to $4 a share than the $2 to $2.50 a share expected by the Street.

Shouting match

A New York brokerage firm that was short of Japan Air Lines was surprised to receive an indignant telephone call last month from the general counsel of the New York office of Nomura Securities.

Money growth collapses

Where did all the money go? To Tokyo and Frankfurt? At last report, year-over-year growth in M-1, the narrowly defined, formerly preferred, all-American aggregate, was down to 1.3%.

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