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December 22, 1989, Vol. 07, No. 25

They carted away the bull

As the decade packed up its bags and put on its hat and coat, Jerome Kohlberg sued Henry Kravis, Drexel Burnham Lambert issued 15% payment-in-kind preferred stock to its own horror-struck employes and the New York Stock Exchange removed a 3-1/2-ton bronze bull that an Italian-born sculptor had deposited on Broad Street to symbolize the power and resilience of America.

Grant's rebuked

Our front-page report on the suspension of interest payments by a Goldman Sachs limited partnership on a Philadelphia office building it had purchased in palmier times has elicited a pair of responses...

High yield continent

Unlike Columbia Savings & Loan or Federated Department Stores or Charles Keating, the Australian dollar has ridden out the tempest in leverage so far...

West Point sinks

The nearby picture of West Point-Pepperell common may or may not be worth 1,000 words, but it will have to do. You'll recall that the non-consummation of the West Point acquisition by William Farley is one of Wall Street's least talked-about acute embarrassments (Grant's, November 10)...

Hammer falls lightly

A newly restored 7,500-square-foot house in Old Brookville, Long Island, fetched an unexpectedly low bid at auction recently. A reader and his wife toured the property before the hammer fell....

Good old bank

The Merchants Bank of New York lends money and gets it back again. It earns a profit and keeps a liquid balance sheet (September 30 assets: $646 million). It has no debt capital, no executive dining room, no Third World loans, no bond-trading department, no junk bonds and no limousines...

Debt lifts rates

The bond market is divided on the great topic of the day. The government market prefers bad credit to good (or thinks it does), whereas the non-government market prefers good credit to bad.

Rosenberg loves bonds

Joe Rosenberg, speculator par excellence, is no more an establishmentarian than von der Linde, but he happens to be bullish on governments. He is very bullish.

Quoted market/Stub Stock Index/World money - Dec. 22

A little more gas

It is possible, staring hard, to discern a bend toward accommodation in the latest Federal Reserve data (though no such change is visible in the year-over-year numbers).

December 8, 1989, Vol. 07, No. 24

The wicked witch is ill

Compared to the breakup of the Soviet empire and the simultaneous organization of the first postwar Yugoslav stock exchange, the news from Drexel Burnham Lambert falls short of momentous. Still, it grabs the lapels and holds them tight.

Grant's sues broker

Grant's filed suit in federal court on Tuesday for copyright infringement.

'Nah, we're gonna skate'

Stephen A. Wynn, the Las Vegas debtor and casino operator, recently took it upon himself to criticize neon. He employs it sparingly at his downtown casino, the Golden Nugget, and even more discreetly at his new South Sea-style pleasure dome, the Mirage. "To me, neon is Wednesday Las Vegas," he said...

Peace and quiet

If bond futures are so quiet that they can only get livelier, a course of action is indicated.

Japanese rates bite

You wouldn't know it by watching the Tokyo Stock Exchange, but the Japanese money market no longer constitutes a speculative tail wind.

Borrow more—please!

"American consumers are laden with debt, but instead of staggering under the burden, they have plenty of borrowing power in reserve -- enough, some economists suggest, to help ward off a recession."--NY Times

Name this tycoon

"If the following is any indication," a reader submits, "debt -- not cash -- is now the aphrodisiac of choice." From the "Strictly Personals" section of the November 27 New York Magazine:

Mark this date

The junk-bond market faces a triple-witching day of its own.

Real-estate credit woes

In view of Tuesday's disclosure of mounting credit problems at Freddie Mac, the travails of the government's mortgage-insurance agencies may soon hit the front page, further enhancing consumer confidence. T

Scrap Metal Index - Dec. 8

Belay that easing

Even if the Federal Reserve Board hasn't eased, business activity has. The chill is evident in industrial metals prices...

November 24, 1989, Vol. 07, No. 23

Philadelphia story

Inflation in the early 1980s produced high interest rates. High interest rates produced disinflation, which has produced defaults. One recent default in Philadelphia is notable. It involves a group of investors who bought the Pennwalt Building...

Towering debts

The World's Tallest Building will be mortgaged, not sold, and the Nation's Largest Retailer professes to be happy about that. Sears, Roebuck & Co. had hoped to realize more than $1 billion from the sale of Sears Tower. It has settled instead for a 15-year mortgage-financing and option-to-purchase transaction...

New junk bust

Memorex Telex Corp. 13-1/4s of 1996 were offered at 80 without a bid on Tuesday. That in itself would be almost humdrum -- bids are scarce all over -- except for one chronological fact. The issue was brought to market, by Drexel Burnham Lambert, only last summer. The rate of decay in credit is accelerating.

Loans under the lens

Comptroller of the Currency Robert L. Clarke, although not a member of the Federal Reserve Board, let alone of the policy-making Federal Open Market Committee, let alone of the Bush Cabinet, is lending the weight of his office to the contraction of credit.

Davey Jones loans

Years ago bankers saturated the market for leveraged credit on dry land, and the misadventures of indebted airlines suggest an exhaustion of the financial possibilities in thin air. What has not received its share of notoriety is leverage at sea, on lakes and in inland waters. The boat market is suffering from overlending.

Let's never pay

The financial response to slumping sales in the auto market is even easier credit...

Up with low yields

This is an upbeat note on a pair of low-yield investments, although "low yield" is used advisedly.

Walesa bonds slump

Now that Poland is knocking on the door of the West, its debt obligations are heading south. Quoted close to 40 cents on the dollar last month, Polish bank debt fetched only 22 cents this week.

World money/Dr. Copper/Quoted market/Stub Stock - Nov. 24

Currency rumble

What is going on? Rates of growth in the conventional monetary aggregates have dwindled almost to zero. By every known measure -- Fed credit, adjusted Fed credit or the monetary base -- the central bank is expanding its balance sheet at a crawl.

November 10, 1989, Vol. 07, No. 22

Farley said 'soon'

Periodically, William F. Farley, the Chicago underwear titan, quits his aerie on the 63rd floor of the Sears Tower to meet with the press, address top-level audiences on commercial and economic topics or search for borrowed money to finance his billion-dollar acquisitions...

Literary news

The author Tom Wolfe, whose "Bonfire of the Vanities" constituted an accurate leading indicator of Wall Street, told a Manhattan gathering last week...

Why the Fed eased

A theory, for free: Inflation is guiding monetary policy in most of the world's financial centers, but deflation is calling the tune in ours.

Big three slump

For those who believe in bellwethers, and even for those who don't, a curiosity: Three of the world's biggest securities issuers -- IBM, NTT and RJR Holdings -- are making new lows in the financial markets.

The Commie fund

The question of how far contrariness can go has finally been answered by S.G. Warburg, the distinguished British merchant bank. Grant's, which has merely been willing to swim against the tide of speculation, must cede primacy to a firm that seems eager to fight its way into the collapsing mine shaft of the world economy: Eastern Europe.

Banks: the long view

In this issue, Alan Greenspan, central banker, will describe the decline in the quality of American banks since the mid-19th century. Others will be more specific, citing Florida and the Southeast. It's common knowledge that banks began to suffer a defection of investment-grade borrowers as long ago as the 1950s and that succeeding borrowers have frequently fallen short of blue chip.

Net-net Mike

Total Return Box Score - Nov. 10

Bond rally

Dr. Copper -- the red metal, as John Mendelson observes, is an erudite economist -- has been falling, dragging down bond yields and money-market rates.

October 27, 1989, Vol. 07, No. 21

Friday the 13th and Monday the 19th

On the Sunday after the Friday of the 190-point stock-market break, The New York Times reported with a palpable sense of relief that the Federal Reserve was going to reliquefy, or rescue, Wall Street.

Straws in the wind

Pricing in the junk-bond market, often a shot-in-the-dark affair, has recently become the object of an investigation by the Securities and Exchange Commission.

Brokers exceed stocks

The New York Times reported last Saturday that Taiwan would field 250 brokerage firms by year end...

Defaults of the future

Now that the high-yield bond market has gone to rack and ruin, a value-seeking investor may reconsider his prejudices. If junk was barren of value at a premium of 350 basis points to Treasury notes, it must be a little less barren at a premium of 680 basis points.

GMAC, move over

Texas, the Athens of modern American debt, is pioneering in auto finance. Urcarco Inc., a Fort Worth-based chain of "we finance" used-car retail lots, is going public.

More junk food

Only a few debt hobbyists, bankers and professional short sellers have heard about the Church's Fried Chicken leveraged acquisition, let alone read the inch-thick proxy statement. It is the kind of transaction that has fallen between the cracks of the 1980s.

Quoted market/Scrap Metal/Electronic dollar/Total Return - Oct. 27

Now and then (continued)

Treasurys yield less today than they did after the 1987 crash but private-sector interest rates are higher. The differences, which are striking, offer a plausible explanation for the weakness in profits and business activity in recent months...

October 13, 1989, Vol. 07, No. 20

In praise of low yields

What investors have chased in the 1980s is yield -- not total return, but promised rates of interest. Promoters have sold it and investors have bought it. The decade has produced high-yield debt issuers, high-yield brokerage firms, high-yield public-relations firms and high-yield countries.

TVA on Wall Street

The Tennessee Valley Authority is a triple-A-rated borrower with a junk-quality balance sheet. It is a sterling credit not on its merits but on account of its bloodline. Its founding father was Franklin D. Roosevelt, its sole stockholder is the United States government and its traditional creditor is, or has been, the Federal Financing Bank.

Loan line clogged

Manufacturers Hanover Trust Co. is taking advantage of investor hunger for the $11 billion Time Warner Inc. refinancing facility to clear some of the slower-moving credits from its inventory.

Char-broiled debentures

Financial leverage is making the business of eating more suspenseful. TW Food Services, the corporate owner of Quincy's, Denny's etc., is up to here in debt after its acquisition last summer by Gollust, Tierney & Oliver. Now it is trying to sell more than $1 billion in "senior subordinated notes,"...

Stub Stock/World money/Total Return/Copper prices

It's worse in London

Alan Greenspan, chairman of the Federal Reserve Board, declared his independence from both the U.S. Treasury and the G-7 on Tuesday, saying (in effect) that attempts by central banks to manhandle the world's currency markets are futile.

September 29, 1989, Vol. 07, No. 19

In search of new money

A reader of Grant's, Paul Isaac, coined the term "pier loan" to distinguish an unsuccessful bridge financing from a successful one. A pier loan, as distinct from a bridge loan, stops in the middle of the water. It does not convey the lender safely to dry land.

Bye-bye, Brady

John Dizard writes from Washington: President Bush invited a group of non-U.S. bankers to the White House for tea and a sales pitch for his friend and tennis partner, Nicholas Brady. It didn't work.

Bankers on the edge

Now that the junk-bond market has temporarily lost its appetite for new issues that go to 85 from par before the first coupon payment, will commercial banks pick up the torch?

Japan discovers credit

Like the $150 muskmelon, the Spain Fund entered the Japanese valuation orbit recently when the price of its shares vaulted to a 100% premium to the value of its underlying assets. Nomura Securities, the Sears Tower of world brokers, bought the Spain Fund as if it were going to be the next IBM. It bought it on the opening and the close and broadcast its intentions to the Street. Tuesday's net gain was an even dozen points.

Waittng for Farley

One of the high-yield dogs that hasn't barked is West Point Acquisition Corp., a subsidiary of Farley Inc., the acquiror of West Point-Pepperell. West Point dropped from sight last April with the completion of the tender offer and the settling of the dust from the rancorous proxy fight.

Just sue the debtors

Shade Rowe writes from Dallas: The Resolution Trust Corp., the government's latest best hope for the forever-lingering S&L crisis, represents a radical change in policy.

September 15, 1989, Vol. 07, No. 18

Less money to borrow

Monetary growth has undergone a stunning reversal in recent years. Rates of expansion have collapsed, not only in this country but overseas. In the United States, growth has fallen in the broad and narrow aggregates alike.

Bankers at large

MCorp, whose collapse in March led to the second-costliest federal bank bailout ever, has agreed to forgive $8.8 million in personal loans made to its top executives as part of a benefits package...

Solutions—and problems

Valley National Corp. is the Phoenix bank holding company over which bulls and bears have cordially drawn daggers. The object of dispute is the bank's asset quality, specifically the quality of its real-estate portfolio.

Fingers -crossed bonds

The Dear John letter addressed to the unlucky holders of Seaman Furniture's 15% subordinated debentures last month complained of unfavorable business conditions in and around Long Island. "The macroeconomic climate in which we operate has been very harsh recently, and our sales have been sluggish...

Scorched earth

The fraudulent-conveyance suit brought last week by Crowthers McCall Pattern Co. against its alleged despoilers has business and legal significance that may prove far-reaching.

The disquiet of junk

Perhaps you, too, were away on vacation when Jerome Kohlberg Jr., a man whose abhorrence of publicity is almost as impressive as his net worth, sued Henry Kravis and George Roberts, his former partners in the firm they jointly founded more than a decade ago. The grounds of the suit, in layman's language, was greed, and Kohlberg's state of mind at the time of filing, evidently, was fury.

Market Psychology/E-dollar/Total Return/Scrap Metal - Sept. 15

Yields bite slowly

The chairman of Moet et Chandon, the largest champagne producer, was in the Financial Times on Tuesday, seeking to allay the rumors of "champagne rationing" that have recently swept some European capitals.

August 18, 1989, Vol. 07, No. 17

'No,' the creditors whispered

One credit debacle a day is what the market has come to expect, and it is out of sorts when it doesn't get it. Seaman Furniture, Resorts International, Cuisinarts, Ohio Mattress and the Resolution Trust Corp. (a/k/a/ the United States Treasury) have become staples of the morning news.

Wild blue yonder

When the Dow Jones Transportation Average soared by 94.06 points in a single session—that was Monday, August 7, Marvin Davis Day—even the bulls might have been taken aback. Senior observers must have rubbed their eyes.

Federal hammer falls

The overhang of the assets of ruined S&Ls in the commercial real-estate market is sometimes regarded as a theoretical problem, but a Pittsburgh bank is treating it as down-to-earth. Grant Street National Bank (in Liquidation) is the receptacle of the questionable loans that Mellon Bank shed last fall. It is the so-called bad bank, whereas Mellon is the so -called good bank.

Market Psychology/Stub Stock Index - Aug. 18

This contraction in credit

Perhaps you noticed the two spare sentences on the cover of U.S. Financial Data for June 29: "The M1 money stock declined at a 4.6% annual rate from the four weeks ending Dec. 19, 1988, to the four weeks ending June 19, 1989. A six-month drop of this magnitude previously has not occ

August 4, 1989, Vol. 07, No. 16

Dancing the recession jig

Bad news about the nation's economy is almost universally treated as a winning lottery ticket (or was up until Tuesday afternoon). Such outpourings run true to form for the bond market, where recessions are thought to be heaven-sent.

Once more into debt

No better questions are available in 1989, and no purer specimen is available for study than the new Dr Pepper. The company's adventures in debt constitute a real-life illustration of the investment-bankers' credo: "Every good idea must be driven into the ground like a tomato stake."

Asian ebb tide?

In the last issue, attempts were made to reconcile the vibrant American stock market with the depressed American money supply. A map was drawn of Leverage River and its tributaries. It was suggested that the Federal Reserve is no longer the sole source of domestic liquidity (if it ever was). Liquidity is forthcoming from a variety of sources, both foreign and domestic...

Lending at I ,700 to 1

The fable of modern leverage was enriched last month when a bankrupt short-line railroad sued Citicorp for lending it too much money.

Citicorp again

Only for the brave... Citicorp's credit quality has taken a turn for the worse.

Real-estate appraisal

A reader kindly submitted an annotated copy of the latest Coldwell Banker office vacancy survey. In the table of historical vacancy data, he repeatedly scrawled the inflammatory word "Normal?" In so doing, he called attention to the fact that office vacancy rates that may seem "normal" are by no means the norm.

Electronic/Total Return/Market rates/Sovereign debt - Aug. 4

Market leads Fed

The bond market's rapture with the possibility of a business recession is its own, not the Fed's, doing. The measured decline in the cost of overnight borrowing followed the spectacular fall of bill and bond yields of the past several weeks. Markets have led Mr. Greenspan.

July 21, 1989, Vol. 07, No. 15

Leverage River grows muddy

For some time, the elegant schematic presentation of credit creation in the centerfold of this publication has failed to explain the gusto in speculative markets. If the Federal Reserve is tight (as it's been for a year or more), why is the stock market high?

Pigeon investors

When not copping fees or facilitating the expansion of corporate debt, Peter G. Peterson, investment banker and moralist, sometimes favors the public with his views on the decline of America.

Gypsum in debt

Like Brazil, USG has been reduced to the expedient of borrowing to pay its creditors. Unlike Brazil, USG is a wallboard manufacturer, the largest in the world. It is headquartered in Chicago. It has 15,000 employes, 22 wallboard plants, a $200 million revolving credit line...

Weird science

First Executive Corp., the insurance holding company with the accent on yield, proposes to offer its stockholders a $300 million rights package. The offering is notable from A to Z. For one thing, the timing is provocative...

Measures of Markte Psychology - July 21

Money whizzes by

For the most alarming monetary news of the month, we nominate a report in the current International Bank Credit Analyst. Francis A. Scotland, managing editor of that distinguished Montreal-based monthly, recently returned from Europe.

July 7, 1989, Vol. 07, No. 14

Interest rates part company

It isn't easy to accept that the United States government is the ultimate triple-A credit--there is that little matter of the Federal Housing Administration indebtedness, for instance--but it is evidently the world's favorite, and we won't presume to argue. At press time, three-month Treasury-bill rates had traded below 8%. The Federal Reserve is tight, monetary growth is anemic and the dollar is strong (the rise in German interest rates notwithstanding). The economic data are weak....

Yin and yang

"Debt gets you out of bed in the morning," said the letter to the editor of the Financial Times. "The high returns in LBOs are generated from two sources: strong performance incentives and strict control of new investment." You have read that argument before but rarely in a publication with a London address....

Nikkei put warrants

The wonderful Herbert Stein remark about patience--"If something can't go on forever, it won't"--has been as good a motto as any to lose money by in this epic bull market. In general, things that can't go on forever have kept right on going. Donald Trump, "trophy" hotel prices, leveraged cable-TV companies, Wasserstein Perella & Co. and the Japanese stock market all come annoyingly to mind. However, the inevitable can happen, even in the roaring '80s--the break in Integrated Resources is proof--and the Japanese market may yet have its well-deserved comeuppance....

And to the southwest...

For better or worse, no put warrants seem to be available on the seething bourse in Taipei. Reuters and Agence France Presse reported on June 26: A fraud scandal that threatens the careers of Taiwan's biggest stock market players sent share prices crashing on Monday...

Bond's bonds founder

At last report (Grant's, May 12), the public debt of Bond Brewing Holdings was offered at 79 without a bid. Now, at least, there's a bid. It is 60.

Orange County schizoid

Nomura Securities last month offered some 10-year Eurobonds secured by a 45-story Manhattan office building. "The yield, guaranteeing 3%, will vary according to rental fee revenues from the building," the local press reported.

Taking-a-shot bonds

The Trans World Airlines senior secured 15s of 1994--dubbed "light bulb bonds" for the unusual spare-parts collateral that supports them--came to market last month in a cloud of innovation....

The next debate: "re-ignition"

Whatever the macroeconomic equivalent of Lyme disease might be, the domestic economy seems to have caught it. Auto sales, machine tool orders, durable goods orders and help-wanted advertising are among the obvious symptoms.

June 23, 1989, Vol. 07, No. 13

Sparring partner falls ill

The story of Integrated Resources is a 1980s' miniature. It is the story of illiquidity, debt and credulity. It is also the story of inevitability.

Debt has consequences

At 13-1/4% or so, Carter Hawley Hale's junk bonds constitute the cream of the high-yield retail crop. The Campeau constellation -- Allied Stores and Federated Department Stores -- fetch as much as 21-7/8%, and in the past week or so Macy debt has pushed well above 13%...

World debt rankings

Page for page, the Bank for International Settlements annual report is the most laconic document in finance. The bank, as you know, is a central bankers' bank, and its prose is as suitably cautious as its balance sheet.

Building trouble

Whatever the opposite of "frenzy" might be, that condition has increasingly come to rule in and around New York. From Washington, D.C., to Boston, house prices have turned soft and condominium prices have broken.

Latin debt rallies

The past two weeks brought upticks in the quoted prices of sovereign debt -- Argentina, to 15 cents on the dollar from 12; Chile, to 61 from 59; Mexico, to 40 from 39; Yugoslavia, to 50 from 47, and -- most impressively -- Venezuela, to 37 cents from 36.

An excellent Investor

Seth Klarman, a Cambridge (Mass.) investor under the influence of the movie "Rainman" and the bull market in nearly everything, has created a financial screenplay. Raymond is the idiot-savant character in the film; Deal maker is a composite of people you might run into on Wall Street...

Market Psych/Stub Stock Index/Total Return Box

Mr. Greenspan squeezes

The Fed is creating bank credit at rates that, in the past, have been associated with recessions.

June 9, 1989, Vol. 07, No. 12

How odd: Swiss rates rise

Swiss yields, stepping out of character, are leading the world in dramatic interest. Little more than a year ago, three-month money rates in Zurich were quoted at 1-1/2%. It was obvious that, barring a run on 0%, they had nowhere to go but up. But nobody predicted how high.


The site of the 1989 annual meeting of the Columbia Savings & Loan Association is the Champagne Room of the Regent Beverly Wilshire Hotel, Beverly Hills, Calif. Champagne may or may not be on the menu, but the 1989 "Deferred Compensation Investment Account Plan" is on the agenda, and on that fact hangs a tale.

Hyperactive dollars

NEW YORK -- CHIPS, the New York Clearing House Association's system for moving money between international banks, handled a record $1.26 trillion on Tuesday.

Junk futures weighed

Superconductivity may have run into a brick wall (as The New York Times reported Tuesday) and democracy in China may be under fire, but human progress is irrepressible.

Texas moves north

A day or two after the Boston Globe reported on the blight of condominium-related lending losses among New England savings banks, it also published a not-unrelated item on the rise of local interest rates.

Quantum's chemistry

So short has the New York Stock Exchange new-low list become that a kind of reverse cachet attaches to any company that makes an appearance on it. One such company is Quantum Chemical, the newly leveraged, Manhattan headquartered, 91-year-old polyethylene maker that used to call itself National Distillers & Chemical Corp.

Blind lend to the blind

In a gambit reminiscent of the Pan American bid for NWA, the governments of Brazil, Mexico and Venezuela have reportedly stitched together a loan to the government of Argentina. Argentina might as plausibly have lent money to them.

Bankers at large

Shad Rowe writes from Dallas: When successful, serious and well-intentioned people fail disastrously, it behooves us to take notice. MCorp, once Texas's largest bank-holding company, is in bankruptcy.

Tokyo Stock Exchange/World yield curve roundup - June 9

Less of the same

Do the conventional monetary data mean anything? There are grounds for doubting it. The Federal Reserve System has slowed the gait of credit creation to a crawl, yet the financial economy seems none the worse for that.

May 26, 1989, Vol. 07, No. 11

Investments made in unison

People commit capital nowadays the way Chinese students demonstrate. In Hong Kong, everyone sells stocks. In New York, everyone buys. All over the world, people buy dollars and dollar-denominated assets.

Society story

When Pan American World Airways recently disclosed that it was contemplating a bid for NWA, the parent of Northwest Airlines, the investment world rubbed its eyes. It was as if Peru had declared war on the United States or television's Mr. Rogers had proposed to Kim Basinger. Pan Am has shown a loss for eight consecutive years.

Third World slumps

The enigmatic Brady plan may be bullish for bank stocks -- the money centers are flying -- but it has given no lift to the prices of the underlying debt.

Ayn Rand, roll over

You either liked Drexel Burnham Lambert or you didn't, but you always knew what it stood for. It stood for fees, warrants, bonuses, market share and junk bonds. But in the sanitized, post-Milken era, motives are hazy.

Recession update

Copper, which has a better economic forecasting record than most human beings, is down, but prices of the gypsum makers' junk bonds are down more.

Money wears stilts

The editor of Grant's last week addressed the 14th annual seminar of the Market Technicians Association, in Naples, Fla. Following is the gist of his remarks.

Market Psych/Stub Stock/Total Return/Scrap Metal - May 26

Yen ahoy!

Run your eye down the table of international money supplies in the back of The Economist. Out of 13 countries, the United States leads in an unexpected category: slowest year-over-year rate of growth in a broadly defined aggregate.

May 12, 1989, Vol. 07, No. 10

Cars crash on Main Street

Unless securities backed by auto loans are your job, or hobby, the appearance of CFC-2 Grantor Trust -- Chrysler Financial Corp. receivables -- would not have made an impression.

FICO in a bind

In the 1980s, the great theme of credit is decay. Debtors have tended to become weaker as the GNP has become bigger.

Henry Kravis speaks

The second "K" in Kohlberg, Kravis, Roberts & Co. addressed the friends and clients of Bear, Stearns & Co. recently, and a reader of Grant's was listening in at a branch office intercom. Our friend called the speech inspirational.

Lending at 90 mph

Progressive Acceptance Corp., a glove-compartment-size buyer of junk-grade automobile paper, recently made news by declining to buy the dealer paper it had committed to buy. It said it couldn't fund itself.

What bond shortage?

Ginnie Mae is experiencing losses and payouts that it has not experienced before," Louis Gasper, executive vice president of GNMA, told the Public Securities Association...

Nip and a tuck

Pardon us, but is your nose straight? Are your thighs firm, your stomach flat and your face everything it used to be (before the accident)? Not exactly? An effective and financially accessible solution has become available.

Did you see this?

Catching up on our Pensions & Investment Age reading, we found news. We didn't find it, in fact; Andrew Reinbach of P&IA did. Writing in the April 17 issue, Reinbach disclosed the existence of a set of Federal Reserve guidelines that threaten the "bust-up" style of leveraged buyouts.

Union Pacific conforms

A tombstone ad in The Wall Street Journal two weeks ago juxtaposed some of the oldest and youngest names in American finance. Union Pacific, the E.H. Harriman line, is tendering for as many as 14.5 million shares of common stock. The name at the foot of the tombstone was not Kuhn Loeb & Co., the traditional Harriman investment bank, but Wasserstein Perella & Co., the new fellows.

Watch Mr. Bond

A week ago, the International Herald Tribune carried an exotic little item from Sydney: "The credit rating of Alan Bond's flagship company, Bond Corp. Holdings Ltd., has been downgraded for the second time in seven months...

Brady plan retreats

Greed and fear are the extreme emotions of Wall Street but faith is the everyday, 1980s' psychological staple. Creditors want to believe. They want to believe in Pan Am, the Brady plan, Henry Kravis, securitized auto loans and the government of Bulgaria.

What next?

We are in no position to claim that Tuesday's "contemplated" offer by Pan American Corp. for NWA Inc. is the gaudiest idea of the decade. However, it cannot be far from it.

The other discount rate

Perhaps the dollar is rallying because it is vanishing. Over the past year, rates of growth in adjusted Federal Reserve Bank credit, foreign central bank holdings of dollar balances or any "M" you care to name have been negligible.

April 28, 1989, Vol. 07, No. 09

Money of the mind

All in all, the monetary and banking data are a study in drought. Yet in this ostensibly parched world, stock and commodity prices have made new highs. A number of people seem convinced that they can borrow the money to buy a leveraged airline.

Junk central bank

Lately, the Federal Reserve System has had its balance sheet sacrificially offered up to the thrift dilemma.

Wednesday morning at three

Eurodollar futures trading, helped along by the proliferation of interest-rate caps and swaps, continues to swell. On Friday, April 14, a record 483,708 Eurodollar contracts changed hands on the Chicago Mercantile Exchange...

This is a test

Which of these companies' bonds trade above par and which trade in the 80s and below? Extra credit: Why?

World rates rise

It's the timing of the rise in German interest rates that gives pause. The surprise Bundesbank action occurred just two weeks after the Group of Seven met in Washington. Almost nobody present had advocated a preemptive monetary strike against a domestic price index.

Joe, Jane and junk

In a junk market appraised at $180 billion or so, mutual-fund assets represent a mere 19% of the whole. They may prove to be a volatile 19%, however. B

Klarman on leverage

Seth Klarman, general partner of The Baupost Group, Cambridge, Mass., addressed the recent Grant's conference on leveraged buyouts (LBOs) and junk bonds. Following are his edited remarks...

Less money, more hope

The Federal Reserve Board is leaning against a wind of optimism. Despite the sharp decline in the rate of growth of monetary aggregates, creditors continue to hope for the best and to place their bets accordingly.

April 14, 1989, Vol. 07, No. 08

Way to go, mankind!

The march of progress is brisk and evidently quickening. Agreeing on that, however, bulls and bears will quarrel on the timing of cash flows.

Federal prospects

On the surface of things, the United States Treasury is flush. Receipts are running strong, thanks to growing employment, and the April-June fiscal quarter may produce a little surplus.

That Campeau touch

In search for a reason why Allied Stores debentures should yield 20% -- i.e., a reason more specific than "the economy" -- investors need only have opened Tuesday's Wall Street Journal.

ARMs alert

In general, the debate over adjustable-rate mortgages (ARMs) has turned on one question: Will rising rates, on balance, depress consumer income? It is a good question, but there are others that the credit-minded investor may want to face first.

Junk company scandal

Credit-market investors watch Japanese equities as they would the water pressure in a strategic well. Insofar as high Japanese multiples support higher-than-traditional valuations in non-Japanese markets, the Tokyo exchange is the world's bellwether.

LBO losses surface

Big banks continued to finance leveraged buyouts last year, but the relative gait of their lending declined.

More debt lemons

Facts and figures from a new Ford Motor Credit prospectus describing an issue of four-year, 10-1/4% notes: Net credit losses rose by 56% in 1988 after having risen by 34% in 1987. Net finance receivables rose by 10% in 1988 after having risen by 28% in 1987.

Third World rally

What isn't known, or even invented, about the so-called Brady plan could still fill a book, but the sovereign debt market doesn't seem to mind the confusion.

Bill yields fall

The general public, which sold silver pitchers to the Hunt brokers a decade ago, is currently buying Treasury bills. On Tuesday, the coupon equivalent yield on the three-month bill dipped below 9%. The yield curve, therefore, re-steepened, or dis-inverted.

March 31, 1989, Vol. 07, No. 07

Treasury bonds under suspicion

The case for long-term Treasurys is so clear as to seem unanswerable: At long last, business activity is winding down. Inflation may be winding up, but no less an arbiter of monetary risk than the gold market appears unworried by it.

Fundamental conviction

Analysts from two of the Street's top firms display their adherence to the principles of Graham and Dodd...

Latin loans rally

News of the Brady Plan -- whatever it turns out to be -- caused an upside flurry in the prices of Third World debt.


Proponents of leveraged buyouts like to point to all the modern financial conveniences. One of their favorite innovations is the ability of borrowers to insure themselves against rising interest rates.

Unvarnished forecast

The business expansion probably peaked in January. Signs of a recession are beginning to become unmistakable. Retail sales, led by autos, have started to fall in real terms. Growth in exports continues to weaken.

Polaroid's revolution

The French Revolution will be 200 years old this summer, so Georg Büchner's epigram, "The Revolution is like Saturn -- it eats its own children," will be back in style again. The truth is that it has never been out of style. It has always been true, it has always been quoted and it has always been ignored.

Singapore fling

Westward winged the jet across the wide Pacific. The destination was Singapore, that Switzerland by the equator, mecca of thrift and orchids and humidity, a city-state even less accessible than Fargo. ... The purpose of the trip was to deliver a lecture on finance, but a glance at the local papers suggested that the visitor had more to learn than to teach.

Can you spare a dime?

Credit is freely available, but the price of credit is rising, and the rate of growth in bank reserves is slowing. The price of gold is falling...

March 17, 1989, Vol. 07, No. 06

Interest rates, NTT and you

Periodically, in the manner of central banks everywhere, the Bank of Japan clears its throat and challenges inflation to a fight. It has been easy to ignore these pronouncements, for there has been no inflation to speak of at the consumer level...


Every financial trend is reducible to a simple question: "If it were a stock, would I own it?" Concerning money-market interest rates, the nearby graph of Eurodollar deposit futures does not say, "Buy me."

For art's sake

Florida banking regulators have ordered CenTrust Savings Bank, which lost $10 million in its most recent quarter, to sell a $12 million Peter Paul Rubens painting hanging in its chairman's house, although the chief executive . . . defended the purchase.

Forgive and forget

Nobody is quite sure what the new Treasury Secretary has in mind for Third World debt, but speculators in Mexican paper guessed "higher" last week, pushing the bid to 38 cents on the dollar from 33 cents.

Gee whiz! guy

David Martin Darst is a renaissance man who happens to work on Broad Street. He reads, writes, lectures, runs, teaches, thinks, travels -- and sells stocks for Goldman, Sachs & Co.

Commodity prices climb

There is no easy reconciliation of the monetary data on the upper-right panel of this page with the commodity-price information in the graph below. One is slow (money), the other vibrant (industrial raw materials).

March 3, 1989, Vol. 07, No. 05

If the Philippines were a stock...

The everyday erosion of the prices of sovereign debt is stale bread, but the recent collapse is news. On St. Valentine's Day, Philippine loans were quoted at 46 cents on the dollar. Two weeks later, the price was 38 cents. If the archipelago nation were a U.S. company in the pink sheets, somebody would have called the SEC to complain.

Yield city

The newspapers are full of enticing yields, and they aren't attached to long bonds. Money-market-fund yields are pushing 9%, six-month Treasury bills top 9% and Eurodollar-deposit rates are up over 10%. What is the long-term rate of return on common stocks? Not very different from the 90-day commercial-paper rate...

Famous victory

Radiant in victory, William Farley, the Chicago underwear titan, turned up on Cable News Network's "Moneyline" a week ago to expound on his successful acquisition of West Point-Pepperell.

Reaching for safety

Until just recently, you could take the world's investment pulse by opening the Commodities Research Bureau's Futures Chart Service to the currencies page and comparing the Swiss franc to the Australian dollar.

Ultimate collateral

The German yield curve is flat at 7% -- three months to 10 years -- a state of affairs unimagined by the Federal Republic's monetary authorities as recently as last December.

Sleaze in perspective

What they went to jail for in the old days is only one motif of The Financier, a novel by Theodore Dreiser. First published in 1912 (and available now in paperback from Meridian Classics), the book is a drama of interest rates, adultery, short-selling, stock manipulation, financial leverage, illiquidity, securities valuation and betrayal.

The direction is up

Most thought-provoking interest-rate fact of the week (in a crowded field): "For the first time since 1978, the prime rate has risen above mortgage rates," says Nancy Lazar, economist with Cyrus J. Lawrence. "This has happened only twice in the past 20 years...

February 17, 1989, Vol. 07, No. 04

In explanation of 9%

Unless the January producer price index report was the gospel truth, real interest rates in America are high. Wholesale prices last month climbed at an annual rate of 12.7%, the highest since 1981.

Bid ahoy!

"Anybody who even has to think about the cost had better not get one," J.P. Morgan was supposed to have advised a prospective yachtsman...

This peculiar inflation

Release of the alarming January PPI number was followed by falling prices for gold, copper and scrap metal. All in all -- taking the inflation-sensitive markets along with the anemic-looking domestic monetary data -- inflation has a queer, deflationary cast.

Physician, heal thyself

Duff & Phelps, which rates the public debt of other companies, now will be rated itself. The expected results are B and B-2, respectively, from Moody's and Standard & Poor's. Translation: junk. The occasion for the ratings is a management buyout, with the usual balance-sheet eruptions....

Foul weather bonds

E.H. Harriman's old line, the Union Pacific Railroad Co., sold some equipment trust certificates the other day, and we missed it. We've been kicking ourselves ever since the tombstone appeared in The Wall Street Journal...

Graveside leverage

"Allegheny, Suitors Look to Leveraged Rescue from Bankruptcy," said the stunning headline in the February 6 Investment Dealers Digest, and the story elaborated...

Loan values fall

Rumania, the only Third World country to achieve investment-grade prices for its debt (a feat it performed literally on the backs of its populace) is out of our new Third World index.


Last week, the editor of Grant's addressed the Conference of Business Economists in Washington, D.C., on the topic of leveraged buyouts. Following is an edited version...


Not leaving the matter open to debate, the Federal Reserve System in the latest banking week signaled its intention to lift short-term interest rates.

February 3, 1989, Vol. 07, No. 03

Awash in something or other

The brilliant ascent of world stock markets this year is a fact, and no financial fact is long without an authoritative-sounding explanation.

Orphaned puts

The featured investment topic Tuesday in "Your Money Matters," The Wall Street Journal's personal-finance column, was Japanese equity warrants. "Looking for a way to score big in the soaring Japanese stock market?" the story beckoned Mr. and Mrs. America.

Cold call

A broker, reaching the wrong number, called with a suggestion for making some big money, fast. He said he represented an "acquisition team" that proposed to do a leveraged buyout of a Fortune 500, New York Stock Exchange-listed company. He identified the target as "Wildcat Inc." ("a code name, of course").

Average specimen

Except for the catchy and distinctive spelling of its name, Kash n' Karry Food Stores, a west Florida retail chain, would be almost invisible in the 1989 junk-bond market.


Someone has proposed the 15-minute mortgage decision and that someone is Citicorp. "In a society that features automatic teller machines on every corner and 'eyeglasses in about an hour,' 15 days might as well be an eternity, To compete in the mortgage market of the future, we must stop living in the past. . . . "

Second time around

On Tuesday, Varity Corp. proposed to acquire Fruehauf Corp., the world's biggest and least popular manufacturer of truck trailers, again. The deal was on and off last October. Details are vague, but the stock and bonds reacted as if deliverance was at last within reach.

Tracks of intervention

From time to time, the Federal Reserve is said to "sell" dollars, but this is a misnomer. To suppress a rise in the foreign-exchange value of the dollar, the Fed buys foreign exchange, paying for the yen or marks or francs with dollars...

. . . What they do

In the department of monetary deeds (as distinct from words), Federal Reserve policy has taken an expansive turn.

January 20, 1989, Vol. 07, No. 02

59 Wall Street rings a bell

The 1818 Fund is a new investment partnership with an old sponsor. Its name is Brown Brothers Harriman & Co., the oldest and largest private bank in the country.

It's different now, no?

Seth Klarman, a general partner of Baupost Group, Cambridge, Mass., has submitted the following list.

What's good for GM...

Now that Ford Motor Co. has raised its dividend, coincidentally to a rate that produces a yield comparable to the 5.7% on General Motors' common, GM is expected to raise its dividend, too. That would crown a Cadillac kind of year for the nation's No. 1 auto maker.

Beautiful mortgages

Michael J. Harkins writes: Last summer I was beguiled by a radio spot on WEBE, Westport, Conn., 108 FM on the dial, advertising a way to buy the house of your dreams with a lower down payment and lower monthly payments.

Two little countries

A reader had a riddle. Name two countries with low interest rates, low inflation, low unemployment, hard currencies, stable politics, strong work ethics and a low propensity to wage war.* Answer: Japan and Switzerland. Now, he continued, compare the stock market valuations of each. If you can explain the disparity, you are in step with the times.

Brazilian debt falls

Brazil's willingness to consider another suspension of interest payments competed on the front page of The Wall Street Journal Tuesday with the rebound in reported earnings at Manufacturers Hanover and Chase Manhattan banks

Finance-company debt booms

In keeping with the issue's automotive theme, a note on finance-company credit demands: They were huge in December.

January 6, 1989, Vol. 07, No. 01

Quantum's leap

Quantum Chemical Corp.'s $1.14 billion recapitalization plan promises a $50 special dividend to the stockholders and a mouthful of ashes to the bondholders, and it was to the stockholders that John Hoyt Stookey, Quantum's chairman, addressed a hopeful New Year's message...

1990s, ahoy!

The zany 1980s aren't over yet. New debt securities backed by recreational-vehicle loans (call First Boston Corp.) and time-share mortgages (Merrill Lynch) have been created, and the "Visa Our Treat Sweepstakes" offers hope to millions of overextended consumers....

After debt, hope

A pair of new year's resolutions: Venezuela, the fourth-biggest borrower in Latin America, will no longer make principal payments on $30 billion. Colombia will stop paying interest and principal on its $16.5 billion debt. Each country was the Latin American equivalent of an investment-grade credit.

Blue chip leverage

The Dow Jones Industrial Average has been on a reader's mind, worrying him. People view the Dow as ever constant, he began. Obviously, the Dow is inconstant, because Victor Talking Machine, General Railway Signal and Nash Motors have been dropped from the list, whereas Coca -Cola Co., McDonald's and International Business Machines have been added.

Global yield curves

Domestic concern with a flattening yield curve has obscured the bigger news of rising interest rates and flattening yield curves around the world.

Free thrifts available

Shad Rowe writes from Dallas In a cloud of secrecy last month, the Federal Home Loan Bank Board pledged more than $30 billion it doesn't have to the rescue of failing thrifts, mainly in the Southwest.

Contrarian corner

It ill behooves this publication to smirk at other people's forecasts, but we are bound to report the striking results of the year-end Pensions & Investment Age economic roundup.

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