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December 21, 1990, Vol. 08, No. 24

This is your yield

Let's say that you are a corporation in search of a guaranteed investment contract, better known as a GIC. Consulting the financial pages, you see that the average GIC is quoted at a yield of around 8%. In a GIC transaction, you pay an insurance company a certain sum of money...

Weird yields

Balance sheets, unlike party-goers, dress soberly for New Year's Eve. Yields become distorted as portfolio managers strive to avoid even the appearance of controversy over the December 31 reporting date. This year, especially, preferences are running strong for Treasury bills and top-grade commercial paper.

Bear air

Bears may not build mansions on Fifth Avenue but the Feshbach Brothers, Palo Alto (Calif.)-based short sellers, have bought a corporate jet.

Needy jobless funds

This is a note on the unemployment insurance (UI) trust funds -- state and federal -- and what they signify for business activity and the national condition.

Forbearance, ahoy!

The speed with which the Fed threw good news into the breach of Citi's bad news was impressive. It suggested, at a minimum, that the central bank was more concerned about the health of the No. 1 bank, which it regulates, than about the international standing of the nation's currency, which it also regulates. Theorists may look for a pattern.

Railcar traffic slumps

The Journal of Commerce, reporting on one of the favorite economic indicators of yesteryear, offered bad news leavened with hope last week...

Muni spreads tighten

Even acknowledging the usual caveats, there's surprisingly little difference in yield between top-flight and less-than-top-flight municipal bonds.

Odd man out

Whatever Americans think of American interest rates, foreigners must increasingly think that they're low. Three-month money rates top 9% in Germany and 8% in Japan. In the U.K., which just suffered its biggest monthly increase in unemployment since 1981, three-month yields top 13%...

Good health!

Today brings the publication of an accounting rule that, more than any other that the Financial Accounting Standards Board has promulgated lately, will change the way American business presents its accounts. The subject of this seminal ruling is post-retirement benefits, particularly health care. (Pensions are separate and distinct.)

Stub Stock/Sovereign debt/World money/Total Return

A 6-1/2% symbol

For years, the Federal Reserve discount mechanism has been a show piece. In theory, banks could avail themselves of the privilege of accommodation at rates that were frequently less than open-market money rates. In fact, few have done so...

December 7, 1990, Vol. 08, No. 23

'Year-end' starts early

Pierre Bérégovoy, the French finance minister, is not a household name in America but he, like Alan Greenspan and James Baker, believes in lower interest rates and abundant liquidity.

Dirt bonds

In Colorado in the 1980s, ordinary people bought high-yield municipal bonds. Frequently, the bonds were issued to finance improvements on raw land. The issuers were not the real-estate developers themselves but "special districts" created for that purpose...

Gold: a vexation

A new report by Adolphe J. Warner of the Deutsche Bank Group is titled "A Decent Burial for Gold," and it is just as bearish as that. The gist of its argument is that gold is washed up -- kaput -- and there is no hope for it, now or for all time....

Talk of Faitfield

It is easy to forget how big the boom was and how long it lasted, but there are still occasional reminders of the glory days. One was the recent sale of a pair of lordly Connecticut mansions....

Banking abroad

The Federal Reserve is a mighty institution, but its regulatory authority stops at water's edge. It may reduce reserve requirements at home but not abroad. On the authority of Reuters, there are banking worries now in Indonesia. The Fed can regret this fact -- "Everybody is looking for quality right now," a trader at one of the state banks in Jakarta said -- but not directly address it.

Stub Stock Index/Copper - Dec. 7, 1990

Thank the foreigners

Monetary policy is no longer as simple as the Federal Reserve buying a tractor-trailer-full of Treasury bills from Citibank. There is a foreign dimension...

November 23, 1990, Vol. 08, No. 22

Low estate of the states

Last Saturday, Gov. Mario M. Cuomo of New York proposed a Draconian series of steps meant to close the state's yawning budget deficit.

Fiscal front lines

North Carolina's financial problems resemble New York's....

Foreign rates rise

The prime rate may fall, and the reason might be the easy Federal Reserve Board. The Treasury bond market might continue to rally, and the reason may be the softening domestic economy. But interest rates no longer stop at water's edge...

Relief for Ft. Howard

Morgan Stanley's announced plans to raise $250 million in new equity capital for Fort Howard Corp., the leveraged paper-products manufacturer, galvanized the surviving junk-bond market last week.

Under the weather

The snow that stranded Susan Sterne at her home in Stowe, Vt., on the day of the Grant's Fall Credit Conference fell without warning, but the weakness in consumer spending is no surprise at all. Sterne herself predicted it.

Past, present, future

The recent lift-off in the shares of Wells Fargo & Co. would be notable even if Warren Buffett didn't own 5,030,600 of them. For all intents and purposes, Wells is a real-estate bank...

Old ways die hard

UPI -- Wells Fargo Bank said Friday it has bought 127 acres of land in California's Central Valley...

Annals of real estate

Shad Rowe, our Dallas correspondent, reports that real-estate developers being pursued by creditors have hit on a new gambit.

World money/Scrap Metal/Total Return - Nov. 23

Tug of war

November 9, 1990, Vol. 08, No. 21

Promises to invest by

The rise in German interest rates last week -- specifically, the rise in one, technical, German central bank rate -- was the kind of news that does not travel well or coherently across the Atlantic.

CCI for Christmas

Drexel Burnham Lambert, the former Wall Street trendsetter, was among the first to offer its employees -- indeed, to insist that they accept -- annual bonuses in the form of the firm's own common stock. Now that policy is under consideration at Citicorp.

Amazing yield

The omniscient, 12-cylinder prose style of the Time stable of magazines was the style selected for the first-ever Time Warner Inc. annual report. "At a time of spiraling global demand," the combined managements thundered, "we are the preeminent source of media and entertainment."

Lone Star's banks

If there were ever a "troubled company" (and the newspapers are full of candidates), it is Lone Star Industries, the country's No. 1 loss-making cement maker.

Space available

Hopefully, people will say that the real-estate dilemma (and therefore the banking dilemma) is really no worse than it was in 1974. Contending that this is the 1974 recession all over again, they will say that we will certainly live through this debacle even as we survived that one. No doubt we will. But how little 1990 has to do with 1974 is depicted in the accompanying graph ...

Bank loan watch

Grant's hereby begins a watch of the growing market in bank loans.

Correction of meat loaf

In our September 28 piece on CAFCO and other "special-purpose corporations," headed "Meat loaf à la Citicorp," Grant's committed errors of fact and interpretation...

Macy vs. Nordstrom

Junk-bond prices are down. Are they therefore cheap? In the junk-bond market nowadays, there is no "they." There is only "it." It is a company-by-company market, now more than ever.

Stub Stock Index/Market price of sovereign debt

Easy but ineffective

So far, at least, the Federal Reserve has failed to bestir the banking system (it has, however, frightened the currency market).

October 26, 1990, Vol. 08, No. 20

Turning now to liabilities

For weeks, the creeping up of yields on Citicorp's auction-rate preferred stock was deemed to be of no general interest. All but the most obscure and single-minded financial media (e.g., Grant's, October 12) ignored it.

State of subterfuge

Notice was taken last issue of the fact that New York State "borrowed" $87 million from its own Property/Casualty Insurance Security Fund in 1983 but hasn't yet gotten around to repaying it. Incorrectly, it was suggested that this transaction was out of the ordinary. It was not. The truth is that management-by-gambit is the everyday fiscal style of the Empire State.

Net worth certificates

The monetary base is tripping along at almost 9%. As recently as the end of 1989, its annual rate of growth was only 3%. What could be less deflationary than that flying leap?

Investment'-grade fright

As some "good" banks have gone the way of bad banks, so some investment-grade bonds have gone the way of junk. In the contraction phase of the credit cycle, trouble begins at the fringe and worms its way into the core. It begins with the thrifts and ends with the banks...

Take my keys, sir

The top credit professional of the 1980s was the banker. Thus, it follows that the top credit professional of the 1990s will be the repo man. If so, "Bulldog", skip tracer and "credit adjuster" extraordinaire, is a man to know and study. He describes himself, simply, as "a leader in my field."

Highest yield ever

The low estate of Standard Chartered (the fifth-largest commercial banking group headquartered in Britain, according to Moody's) constitutes another geography lesson in credit.

Golden loathing

On October 11, Hanson, the U.K.-based Anglo-American conglomerate, dropped its plans to sell a part of its stake in Newmont Gold, the giant U.S. mining operation, via a public equity offering. It cited a lack of interest. On October 16, gold bullion plunged by $18.25 an ounce to close at $361.50 -- lower than its price before the Middle East blew up.

None but the best

Yet another symptom of the contraction in credit is the shrinking market for lower-rated commercial paper. We do not mean junk-grade names but the all-American second tier: companies rated A-2/P-2.

World money market rates/Scrap Metal Index - Oct. 26

The poor dollar!

"The U.S. dollar has fallen by an average of 15% against other currencies since the start of the Gulf crisis," the Financial Times noted the other day, "yet you would hardly notice it from most discussion in the U.S. on economic policy. It has been scarcely mentioned in the many days of congressional debate on the budget."

October 12, 1990, Vol. 08, No. 19

Junk bonds went to jail

There will be no community service for the high-yield bond market, which was packed off to Leavenworth in 1989. On Feb. 13, 1990, Drexel Burn­ham Lambert and its client, Integrated Resources, both filed for protection under the federal bankruptcy law.

What Franklin means

Franklin Savings, the cerebral $8 billion Kansas thrift that is now the object of a tug-of-war between the Office of Thrift Supervision and its former management, has inspired a reader to write in.

Citicorp's preferred

Rumor: Sizable sums of money have recently been withdrawn from New York money-center banks and depos­ited in the New York branches of leading European banks, especially German and Swiss.

Window on currencies

Not one listed German bond has defaulted in the past 35 years, accord­ing to a new report by the Deutsche Bank Group. What does this stunning fact mean?

What insures insurance

With the rout of the common stock of Travelers Corp., the similarities be­tween insurance companies and banks have received closer attention on Wall Street.

Fourth and long

Finding himself in the position of having to do some explaining, E.L. Byington Jr., chairman of the board and chief executive of Charter Federal Savings Bank, Bristol, Va., addressed his stockholders this year in metaphor....

Credit: a progress report

As the financial news worsens, the bears become richer. Some of them have purchased new automobiles or been written up in the newspapers. Shad Rowe, our justly celebrated Dallas correspondent, was recently invited to address the investment club of a local fire department....

Worldwide dollar payments/Total Return Box Score - Oct. 12

Liquidity soup

The Federal Reserve System contin­ues to expand its assets. So doing, it accommodates the demand for currency both at home and abroad. What about the demand for bank credit? And what about the supply?

September 28, 1990, Vol. 08, No. 18

The world turned upside down

The Soviet Union has renounced communism, Olympia & York has announced a sale of its assets and Japanese banks have asked for a loan (see inside). Nothing is the same as it was. Probably, the capital of upset is Tokyo, and it was Japan that John Dizard, our man in Washington this week, found to be the center of attention among the top international bankers...

Bank dividends too high

That cut in bank dividends (Grant's, June 8) happened after all, but not before records were shattered. Chuck Clough, from whose September Merrill Lynch Investment Strategy piece the nearby graph is borrowed, notes that money-center dividend yields now top certificate-of-deposit rates...

Then make an "X"

"Zabau, a two-year-old Chinese Shar-Pei with shiny brown wrinkled fur, a long black tongue and orange eyes, has been getting credit cards in the mail since December..."

Absolutely scrutable

So much of what's going on in the world today was clearly and concisely explained on May 9, 1989, in the back of the third section of The Wall Street Journal. As you may remember, the story was on page C21. It was headed "Japanese Share of International Banking is Swelling, Says Bank for Settlements," and it led off this way...

Loans for everyone

Because banks make bad loans, they find it increasingly difficult to issue commercial paper. Eaton Vance Prime Rate Reserves Fund is a closed-end mutual fund that invests in bank loans, often loans to leveraged corporations. It has just launched a commercial-paper program...

Ashes to ashes

To fill just 2,000 jobs in the New York City Department of Sanitation over the next four years, no fewer than 101,000 people applied to take the upcoming written test...

Philadelphia story

Once a month the Federal Reserve Bank of Philadelphia asks local manufacturers "How's business?" and once a month the results go faithfully unreported. But this month's results are deserving of at least one long, horrified glance.

Meat loaf a la Citicorp

In a bear market, the essential truth about banks is driven home like a nail. The truth is that banks are blind pools. The value of their assets may or may not be a mystery to their officers and directors. It is certainly not revealed to their public investors. Consider the titanic case of Citibank.

Bond insurance now

By coincidence, the stock of Municipal Bond Investors Assurance Corp. lost 27% last week, exactly matching the loss in the shares of Industrial Bank of Japan on the other side of the world. Big events stir up big ideas: Maybe the synchronized break in financial stocks presages a credit contraction of global dimensions. (Then again, a bull might suggest, it may only presage a global rally.) We now scale down to the practical, subcosmic questions. Does the stock market know something that the bond market doesn't? Or vice versa?

Total Return/Stub Stock Index - Sept. 28

Dollars to Argentina

As noted in previous issues, Americans may now hold foreign currency in domestic bank accounts. As reported in last Friday's Financial Times, Argentinians may soon be allowed to keep bank deposits denominated in dollars. The new rule would acknowledge the de facto "dollarization" of the Argentine economy.

September 14, 1990, Vol. 08, No. 17

The monetary base color it greener

Let's take stock of the monetary aggregates. The money supply -- M-2, for instance -- is expanding slowly. By "slowly," we mean year-over-year growth rates of 5% or less. Bank reserves, the dollars that depository institutions keep on ice in vaults or with their local Federal Reserve Bank, have scarcely grown in the past year. What has grown is currency. Measured year-over-year, it is up by almost 9%.

Bear market story

In the bull market, a move from Avenue of the Americas one block east to Fifth must have seemed not only logical but also inevitable, and Harvey Sandler, the media-stock exponent, signed a lease some time back for new office space on the 45th floor of the General Motors Building.

Bricks, mortar, debt

Although solvency in a real-estate developer does not automatically make that person or institution newsworthy, neither, these days, does insolvency.

MNC's best friends

After the close on Tuesday, MNC Financial, the frequently downgraded and real-estate-laden Maryland bank-holding company, broke the good news: It will pay its regular quarterly dividend again. You can't count on much in the banking business these days, and the MNC announcement was a tonic for frazzled nerves.

Hot light on GE

There being no quadruple-A bond rating, as what's-his-name from Beverly Hills was always saying, the credit of a triple-A company has no place to go but down.... Only 12 American industrial corporations still command the top debt rating of both Moody's and Standard & Poor's.

One deal up close

The consumer is leveraged, GE Capital Corp. is leveraged and now CUC International is leveraged, too. The story of this triumvirate is a study in Wall Street and the times.

Japanese dividend yields

You might be surprised to learn that, even following the break, the composite dividend yield on the Tokyo Stock Exchange is not much more than 0.50%. That comes from the back of The Japan Economic Journal...

Stub Stock Index - Sept. 14, 1990

Chase held a party

The usurious terms exacted from Chase Manhattan Corp. in its auction of notes on Tuesday -- roughly 13% for two-year funds -- is a new reminder that the principal engines of credit creation are themselves having trouble getting a loan.

August 17, 1990, Vol. 08, No. 16

Nice timing

The government may regret the credit contraction, but it is also helping it along. Under the press of deficits, it is scaling back on guarantees, demanding more real capital from its citizen borrowers and generally doing the opposite of what Lord Keynes would have it do in a recession.

View from ringside

David Gladstone is president of Allied Capital Corp., a lender to dry cleaners, taco franchises, pizza franchises, muffler shops, tire shops, light manufacturing companies, radio stations, junkyards and other Main Street businesses.

Bankers Corp.

Under the heading of More Solvent Banks Than You Imagined, a new entry: Bankers Corp., holding company for Bankers Savings, Perth Amboy, N.J. Like Jamaica Savings Bank, which was featured in the last issue, Bankers is a recently converted mutual savings bank. Again like Jamaica, it is more or less out of step with the times.

That Dreyfus yield

Did you know, Mr. and Mrs. Money-Market Mutual Fund Investor, that real-estate loans at Japanese banks climbed by 22% in the 12 months ended last March? Possibly, you did not know that. And, just possibly, you are wondering why you know it now.

Let him/her speak

On Monday, the portfolio manager of a top money-market mutual fund chatted with John Britton of this staff about Japanese banks. The fund in question -- SLH Daily Dividend Fund...

Quality for a song

The corporate bond market, as distinct from the corporate stock market, seems to be entertaining a remarkably sanguine view of the future.

Banking on oil

Whatever else it might be, the dustup in the Middle East is an Exogenous Event. An Exogenous Event is an unexpected disturbance from outside. In boom times, investment bankers assumed that nothing could, or would, intrude on prosperity...

Worldwide dollar/Total Return/Quoted prices/Scrap Metal Index

Who can tighten?

The question is: Which countries can afford to raise interest rates, and which ones can't? Alternatively: Which are the resilient financial systems, and which aren't?

August 3, 1990, Vol. 08, No. 15

The paradox of preferred

When a stock falls out of bed, the papers mention the selling, which is always "heavy." What they usually fail to mention is the buying. By definition, it, too, is heavy. It is, in fact, just as heavy as the selling, down to the last share.

A tale of two banks

Slow and steady When other banks did things -- clever and plausible-sounding things conceived on Wall Street -- Jamaica Savings Bank didn't. Fast and brilliant If a photographic negative of Jamaica Savings Bank exists, that image might look like Silicon Valley Bancshares.

Currencies on deposit

For whatever it might say about the complacency of the public in the face of a depreciating dollar, there's been no rush to open up domestic bank accounts denominated in currencies that tend to appreciate...

No bottom in Texas

"It is unbelievable to me," complains a friend from New York, "that you are sitting in the middle of the real-estate opportunity of a lifetime and you are either too lazy or too stupid to do anything about it."

Cetes, ole!

The best news about Mexico is very good and the worst is terrifying.

Maxwell Newton, R.I.P.

As a rule, the only night of the week that Maxwell Newton didn't write was Friday. On the other six days and nights, he turned out thousands of words for an astonishing number of outlets...

Total Return/Money market rates - Aug. 3

Yen rates climb

The break in the dollar must mean something, but what? [T]he composite dollar index is almost back to the 1987 lows...

July 20, 1990, Vol. 08, No. 14

The only bullish debt contraction ever

When Alan Greenspan proposed to treat the nascent credit contraction with a quarter-point cut in the federal funds rate, the stock market leapt for joy. The bond market rallied, too, but the dollar fell ...

Very anxious sellers

Around New York in the 1980s, the Hamptons were the No. 1 summertime weekend destination of the rich and the soon-to-be rich alike. Because money was no object from Monday through Friday, it followed that anything went on Saturday and Sunday, too.

Drowning in liquidity

LONDON -- U.S. and other bank lenders are becoming mired in a deepening real-estate recession that is starting to plague Britain. . . .

Up with deutschemarks

Curiously, the dollar has fallen as the stock market has risen. While the Dow Jones Industrial Average pushed to a new high last Thursday, the U.S. dollar index closed in on a new low... It was a day of paradox, not to mention capital gains, for those in step with the new thinking, and aggravation for those on the other wavelength.

Money market vise

The domestic commercial-paper market, which is about as invisible as a half-trillion dollars can be, continues to show selective symptoms of the credit contraction.

Datum du Jour

Houston, N.J.

The Newark Star-Ledger reports a 44% jump in mortgage foreclosures in New Jersey in the first six months of 1990 compared to year-ago levels, "a reflection of the 'alarming' state of an economy in which real-estate values are plummeting...

Battlefield commissions

Money market rates/Stub Stock/Total Return Box - July 20

Not quite Brazil

Contrary to any impression created by the dramatic graph below, the Federal Reserve System has not yet gone Latin.

July 6, 1990, Vol. 08, No. 13

Cost of capital: the little and the large

Nothing spoils the taste of an English muffin like a newspaper story disclosing the sale of a company the stock of which one happens to be short. News of the sale of ILFC, the aircraft-leasing company, to American International Group for $1.3 billion, stopped breakfast cold on June 26.

O&Y under the glass

To sell short the Reichmann family of Toronto would seem to be, in almost equal measure, unprofitable and impertinent. The Reichmanns have built one of the world's great real-estate fortunes. They are the No. 1 landlord in New York City. They have accumulated sizable assets in energy, newsprint and retailing...

O&Y 11—a few details

Not all is mysterious in the affairs of Olympia & York Developments Ltd. No. 59 Maiden Lane, an O&Y building in lower Manhattan that financed itself in the Eurobond market in 1985, is open every business day for inspection by the general public. Grant's visited the premises on Monday.


What's new in the Eurodollar futures market is the hush. Prices have meandered lately but haven't leapt or plunged.

From the regions

In formerly booming California and currently sinking New England, news on house prices (and thus on consumer confidence) is remarkably similar.

More shrinkage still

"Aggressive" money-market mutual funds, which buy lower-rated commercial paper, are officially extinct, reports John Britton. The last of the so-called aggressive funds quietly slipped in to the quality-conscious mainstream last month.

Solvent bank found!

Shad Rowe writes from Dallas: With $38 million in assets, the Buckner State Bank in East Dallas is not "too big to fail" -- an unlikely event if there ever was one. It is too small to notice, however, and that is too bad.

Mr. Shulman speaks

"Yesterday, Today and Tomorrow: The Coming Default Crisis in Commercial Mortgages" is actually the headline over a sell-side research report.

Market prices/World money/Scrap Metal/Total Return - July 6

'Fed's gotta ease'

Meeting in Washington on Monday and Tuesday, the Federal Open Market Committee received explicit instructions from the usual authorities on what to do, when to do it and why.

June 22, 1990, Vol. 08, No. 12

Seventeen leading questions about RJR-Nabisco

No sooner did news break of a $1.7 billion capital infusion into RJR-Nabisco than the junk bonds of the boom time's biggest LBO soared.

Joe and Jane in debt

News of a decline in the delinquency rate on consumer installment debt between January and March was received with something like gratitude. "Banking industry experts hailed the finding as strong evidence that consumers are not taking on more debt than they can handle," the American Banker reported last week.

Boundless real estate

The new annual report of the Bank for International Settlements examines the impact of liberal bank credit on real-estate markets worldwide. Every reader of Grant's knows the American side of the story, but the BIS helpfully puts the national facts in global perspective.

Provocative graph

The nearby picture of gold denominated in Swiss francs was submitted by a reader who, like us, has been wrestling with the question: "Whither gold in a time of deflation?" To date, admittedly, the answer has not been bullish.

Insurance alert

The surge in bank and thrift failures is common knowledge, but the property casualty blight has not yet made a deep public impression. For most of the postwar period, property-casualty insurers did not go bankrupt. But in each of the six years ended in 1989, an average of almost 30 failed.

Too many dividends

Following last issue's piece on bank dividends, H. Erich Heinemann called with a comment. Heinemann, chief economist at Ladenburg, Thalmann & Co., said that the story was all right as far as it went, but that it didn't go far enough.

Paper issuance shrinks

The accompanying table, compiled by John Britton of this staff, sets out the vital signs of 10 of the largest low-rated borrowers in the commercial-paper market. We offer it in the belief that change occurs at the margin, not in the center of things.

Never say die!

You wouldn't guess it, but real estate lending by banks continues to bump along at the rate of 10% a year.

World money/Total Return/Third World/Stub Stock - June 22

The great shrink proceeds

The monetary contraction is no illusion. Bank reserves -- the yeast in the dough of monetary growth -- are actually lower today than they were in early 1988. Nor has just one measure of the money supply shown a lack of bounce. Each and every one is decelerating.

June 8, 1990, Vol. 08, No. 11

East Side story

For us, the most telling passage in The Wall Street Journal's Monday story was this one: "The weakening real-estate market made bankers less willing to lend based on a property's theoretical resale value. They now are insisting on strong cash flow, and at some of Mr. Trump's properties, cash flow doesn't equal debt payments."

Bank dividend peril

The stock market is not in a worrying mood, but federal regulators are preparing to tighten the rules under which bank holding companies pay dividends. There have always been rules. There is now an earnings test and a capital test...

Eurotunnel in debt

Eurotunnel, the Anglo-French construction consortium, is the ultimate bird-in-the-bush investment. It is a start-up that does not expect to open its doors to paying customers until 1993 nor to pay its first common dividend until 1998.

Truth in budgeting

Scan the pages of the Treasury Bulletin (if you can). Note that the annual increase in the federal debt is always larger than the annual increase in "the budget deficit." Read the daily newspapers. Note that Gramm-Rudman Hollings targets are always receding into the mists of the future, like the next recession. Bears are prone to brooding about these things...

At ease, investors!

Following the commercial-paper default of Mortgage & Realty Trust (Grant's, March 30), a ripple of credit concern spread through the money market mutual fund business.

Icahn under surveillance

Carl Icahn, the man who would buy USX, is having some unpublicized trouble with a company that he bought, Trans World Airlines. If TWA is not in the soup, the bond market is paranoid.

Grovelling Correction

In our last issue, we presented the bullish and bearish cases for investing on credit news... We hereby set the record straight.

Total Return Box Score/Worldwide electronic dollar - June 8

Money rates ease

For several months, a banker friend related last week, Chemical Bank was conspicuous in the market for jumbo certificates of deposit.

May 25, 1990, Vol. 08, No. 10

This regrettable rise in prices

We have been smart, and we have been dumb; smart is better. Recently, without the Editor's consent, gold has fallen and bank stocks have risen. Most stocks have risen. Gold stocks, however, on which we are bullish, have fallen.

Roll out the 90s

Credit is shrinking, but saving is on the rise. Credit is debt. Saving is the difference between income and spending.

Downsize in credit

Like a sweater after washing, credit has shrunk a size. The sleeves no longer reach to the end of the wearer's wrists, and the feeling around the waist is strangely snug.

Citicorp loses caste

Tuesday's downgrade of Citicorp will reverberate long and loud in the half-trillion-dollar domestic commercial-paper market.

Van Gogh on the cuff

Sale of the world's two most expensive paintings to a leveraged Japanese collector last week overshadowed release of the new 1989 Sotheby's annual report.

Life at the margin

In today's skittish commercial-paper market, a substandard rating is tantamount to a notice of eviction. A new case in point is Tektronix, the Oregon-based electronics manufacturer.

States show red

The fraternal twin of the growing federal deficit is the state and local deficit. By statute, 49 of the 50 states must balance their budgets, but no law makes it easy. As a rule these days, tax receipts are weak and cash balances are low.

Superpowers converge

Financially, the United States and Soviet Union seem closer than ever to genuine, mutual understanding.

Japanese money machine

Japan's chronic trade surplus with the rest of the world isn't its only source of liquidity. There is, to boot, that most traditional paper-money source: soaring bank credit.

Quoted market/Stub Stock/World money/Total Return - May25

Fed credit quickens

The level of total bank reserves -- in effect, the leash on the dog of lending -- is little changed from the spring of 1987. By that light, the Federal Reserve is tight. On the other hand (don't you have two?), the Fed has lately stepped up its credit-creating activity. Compared to levels six months ago, central-bank expansion is brisk.

May 11, 1990, Vol. 08, No. 09

Default in our nation's capital

To borrow from Sen. Lloyd Bentsen, Washington Bancorp. is no Citicorp. It is smaller, by a factor of about 100, and notorious.

Hitler vs. Stalin

A week ago, Sam Donaldson, ABC television correspondent, interviewed Donald Trump, the inventor of real estate, about the allegations concerning the shrinkage in Trump's net worth. The following excerpt is for the ages.

Washington whispers

Rumor has it that top administration and congressional figures have been given a glimpse of the Treasury's tax receipts for April -- and found the numbers shockingly low.

Paper issuer grounded

Eyeing the accompanying graph, you wouldn't say that the downgrading of USAir Group's commercial paper on April 6 took anyone by surprise.

Citicorp cycles down

The business expansion may or may not be ending, but it is seven-and-a-half years past beginning. This is the time to be rich, not the time to be getting rich. Yet the nation's largest banking institution has finished the decade looking tattered and recession-worn.

John Reed gossip

Chairman John Reed to leave Citicorp in five years, taking the "information-based" businesses with him in a leveraged buyout? Citi: "Absolutely ridiculous."

Sell bank bonds

Emanuel Friedman, Eric Billings and Russ Ramsey hung out their investment shingle in the heat of the Washington summer last year. They did not set up in business specifically to advance the thought that the subordinated debt of bank holding companies is sometimes mispriced. But that single idea has helped to win their brand-new firm an impressive clientele. w

Then there were two

As recently as February, some $6.4 billion was invested in six "aggressive" money-market mutual funds. Now, according to the Donoghue Organization, only two aggressive funds are left...

Quoted market/Dr. Copper/Total Return Box Score - May 11

•Quoted market prices of sovereign debt •Dr. Copper—the metal with the PH.D. in economics •Total Return Box Score

Risk spreads narrow

If credit is becoming a more hazardous commodity, you wouldn't know it from the money market. The spread between commercial paper and Treasury bills has closed to its narrowest point in about three years...

April 27, 1990, Vol. 08, No. 08

'Trust us,' they purr

In praise of TED



Certain Factors

Use of Proceeds, Proposed Refinancing and Concurrent Offering


Highly Leveraged Financial Position

Ability to Service Debt; Inadequacy of Government Receipts to Refund Outstanding Debt and to Cover Fixed Charges

Price Inflation

Price Deflation

Contingent Liabilities of the Government

Mortgage Guarantees


Student Loans

The Monetary Unit; Possible Conflict of Interest

Estimates and Projections

April 13, 1990, Vol. 08, No. 07

Way out in left field

Washington produced a pair of memorable financial events on April 4, but only one made news. Publicity lit up the Treasury's confession that the public debt went over the $3 trillion mark. But the "preamble" of the House Republican Research Committee Task Force on Fiscal and Monetary Reform got no ink and no network air time.

Mutt and Jeff

Chalk Talk, a publication of the Nassau Educators Federal Credit Union, reminds us that it is still possible to get a loan in America, the international credit contraction notwithstanding.

Fearless flying

News that the on-again, off-again UAL deal is on again isn't the only bolt from the blue of aviation finance. Aeroflot, the official airline of the speculative-grade Soviet government, is now borrowing on investment-grade terms.

Risk doesn't pay

An "aggressive" pitcher throws at a batter's head. What does an aggressive money-market mutual fund do? The answer isn't as easy to come by as it used to be.

Inside bankers' heads

Wanting to know what senior lending officers at the 60 largest commercial banks are thinking about, the Federal Reserve Board asks them. In February's canvass, it asked about merger related loans and home-equity loans. The results constitute new evidence of the growth of Calvinism in lending.

Profits slump

One reason for the rise in commercial-paper issuance is the slump in corporate profits.

World money/Total Return/Electronic dollar/Quoted market

Regulators part company

The Federal Reserve Board, which runs open-market operations, has become a little easier, but the Office of the Comptroller of the Currency, which conducts examinations of federally chartered institutions, has not.

March 30, 1990, Vol. 08, No. 06

String up Marvin Roffman

By publicly criticizing Trump's Taj Mahal casino project on the eve of its supersonic Atlantic City opening, Marvin Roffman offended more than the great entrepreneur. He violated the canons of Wall Street.

Banks walk

The real story behind the default on $13 million in medium-term notes by a big real-estate investment trust is that it happened at all. It was not supposed to happen because a squadron of banks had promised to lend if the company asked them to. The company asked all right, but the banks didn't lend.

Under surveillance

Thomas W. Wathen is not only the president, chief executive officer, chairman and controlling stockholder of Pinkerton, but also one of its top borrowers.

Apotheosis of the 1980s

Lincoln Savings & Loan Association, the scandal-plagued thrift formerly headed by Charles Keating Jr., made a total of $33.75 million in loans to Covenant House, the scandal-plagued nonprofit home for runaways...

What did he say?

In the bond market, there is interest-rate risk, credit risk and complexity risk. Complexity risk is the possibility that, come the time to sell, you can't make anybody understand what you want them to buy.

Inside Japan

A cruel twist to the break in Tokyo is that so many bears are not participating in it. Short interest in Japanese American Depository Receipts is the lowest in years...

Engines that can't

Debt-laden railroads are struggling again, and why shouldn't they? The average railroad is almost the photographic negative of the model debtor. Railroads are cyclical, capital-intensive and regulated.

Credit-card trends

The last great junk-grade debtor, the American consumer, pays 20% for the privilege of borrowing with a credit card from a major, too-big-to-fail bank...

Debt recedes

Debtors need debt. Having borrowed at high rates of interest, they need high rates of growth with which to produce cash flow. In the absence of growth, they need inflation. If lenders won't lend, the weakest debtors won't pay.

Total Return/World money/Scrap Metal Index

The Fed relents

If the United States were alone in the world, the monetary data would be as expansive as they seem. As the growth rates in the upper right-hand box suggest, the Federal Reserve has recently opened the throttle.

March 16, 1990, Vol. 08, No. 05

Shrinkage without bounds

Lately The Wall Street Journal and its intellectual consorts have become 100% Americans on the great issue of credit. Correctly, if belatedly, observing that the tide of debt is ebbing, they have demanded that someone do something to stop it.

Another damn shoe

What is the value of your junk-bond mutual fund shares, Mr. and Mrs. America? The Investment Company Institute, in a memorandum to its members stamped "URGENT," recently advised that the pricing of high-yield bonds will imminently become dicier. Presumably, it may also become lower...

Cornucopia common

Safeway Inc., the supermarket chain, is one of the miracles of the age. According to Fernand Braudel, sugar was a luxury before the 16th century, and pepper was a luxury in the 17th century. The 1,100 Safeway stores each carry sugar and pepper and as many as 45,000 other items, not excluding barbecue and Chinese takeout.

Kohlberg speaks out

"I am here to be of help if I possibly can." Jerome Kohlberg Jr., a founding general partner of Kohlberg, Kravis, Roberts & Co., spoke extemporaneously. His testimony before the Senate Banking Committee on March 2 began modestly and never veered into indiscretion.

How quality pays

In the last issue, much was made of the nationalization of credit risk and the resulting institutionalization of bad lending. The system must eventually come a cropper, we decided, because bad loans don't pay...

Insurance warning

Raider, raid thyself

No student of Trans World Airlines (latest 10-Q is dated September 30) will be surprised to learn that TWA bonds are flying at treetop level.

Total Return Box Score - March 16

Shorter and fewer loans

We don't know why lenders have begun to say "no" in a number of different languages, but the trend is unmistakable.

March 2, 1990, Vol. 08, No. 04

Somewhat less than prime

The market in junk loans, as distinct from junk bonds, turns on a difference of opinion. The public is eager to buy the mutual funds that promise "prime-plus" yields on speculative-grade bank debt. But banks have become reluctant to make the loans that stock the funds' portfolios.

Bull market in safety

The acquisition in 1955 of the old First National Bank by what is today Citicorp was a credit watershed. By a mile, the First was New York's most conservative banking institution, and it was an adherence to old-time doctrine that had cost it deposits in the fat years following World War II.

Cannes to Little Rock

Exotica boomlet

Like so many steam pipes, electrical cables, telephone lines, water mains and sewage drains, the modern financial infrastructure is out of sight and out of mind.

Third World oddity

Our index of sovereign-debt prices is deceivingly dull. Brazilian prices have sharply rallied and Polish prices have fallen...

More Drexel fallout

A regularly scheduled auction of the money-market preferred stock of a Boston junk-bond fund failed last Friday for want of enough bidders.

Mr. Mikuni speaks

In New York last fall at the Grant's conference, Akio Mikuni, founder and proprietor of Mikuni & Co., the independent Japanese bond-rating service, addressed the great Japanese financial paradox...

Squeeze in Taiwan

West Germans shake their heads over American speculation, Americans roll their eyes over the Japanese and the Japanese stare in wonderment at the Taiwanese. Possibly, therefore, Taiwan -- where brokerage firms outnumber listed companies -- is the least inhibited bull market in the world.

Commodity worms turn

The ebbing of the credit tide has uncovered hypodermic needles on what had been one of the most pristine beaches of banking -- commodities lending.

World yield curves - March 2

Federal resolve

Recent visitors to the sanctum sanctorum of the Federal Reserve left with the conviction that the Greenspan board means business.

February 16, 1990, Vol. 08, No. 03

Highly unconfident

The Trumps were the perfect couple, Michael Tyson was the invincible heavyweight champion and Drexel Burnham Lambert was the No. 1 junk-bond purveyor, until recently. Like a house guest who overstays and then leaves without his luggage, the 1980s ate and ran.

One bank can

Now that a credit crisis is knocking at the door, a look at the new annual report of Davenport Bank & Trust Co. may help to steady the nerves and improve the flow of oxygen to the vital regions.

Problem children

The accompanying graph plots the recent decline -- and, before that, the relentless rise -- in the nation's problem banks. A "problem" bank is one that is suspect in a test of capital, assets, management, earnings and liquidity.

High -yield collectibles

The junk-bond market has been every bit the disaster area that the press has made it out to be. There have, however, been bright spots.

Klarman baits a hook

Seth A. Klarman, an investor of private capital in Cambridge, Mass., is now, and has been for some weeks, buying junk bonds--a few issues--with conviction.

Call Wachovia

For 20 years, the Federal Reserve Board "discouraged" American banks from accepting deposits denominated in foreign currencies. The practice was not outlawed but -- tantamount to outright prohibition -- was severely frowned upon. The reason given was that the dollar needed help, not competition. ...No more.

World money/Stub Stock/Scrap Metal/Worldwide - February 16

A swell situation

In the past several months, the Federal Reserve has eased enough to worry seasoned observers.

February 2, 1990, Vol. 08, No. 02

Beyond junk bonds

Plainly, someone isn't paying attention. In a panic, many people are distracted. The result of a panic is, ultimately, profit for someone. The questions are when and for whom. The panic in junk bonds raises other questions, however.

Trump for the bid

A coincidence in the latest Playboy: Donald J. Trump, the subject of the Playboy interview, and Miss March, Deborah Driggs, share the same basic philosophy of life. Says Miss March ("from sunny Southern California"): "I'm daring. I'm outgoing, edgy—an explorer. There's not a lot I haven't done, but if you have any ideas, try me." Says Trump: "As long as I enjoy what I'm doing without getting bored or tired... the sky's the limit." So, then, go for it!

Comstock lightens up

If you know nothing else about 30-year Treasury bonds, you probably know that Comstock Partners owns them. What UAL is to Coniston Partners, T-bonds are to Comstock.

Absolutely full circle

Swedish Match is going private in a leveraged buyout. J.P. Morgan & Co., the still-solvent United States bank holding company, is leading the deal (and also investing for its own account). The proposed capital structure is the 1980s to a tee...

Imagine this

On January 24, the editor of Grant's addressed a meeting of the Institute of Chartered Financial Analysts in Boston. The topic was junk bonds...

Stub Stock Index/Scrap Metal/World money market - February 2

Words and deeds

The chairman of the Federal Reserve Board, Alan Greenspan, did the government bond market no good by remarking that foreign buyers of Treasury securities might become scarce.

January 19, 1990, Vol. 08, No. 01

For want of a little loan

In boom times, when Drexel Burnham said it was "highly confident" of its ability to sell high-yield debt, the market listened. When Drexel's customers protested that there could be "no assurances" about their ability to service that debt, the market didn't listen.

World rates rise

For the most astonishing interest-rate fact of the new year (money-market division), we nominate the Swiss franc Eurorate.

Recapitalize the Fed

The Federal Reserve Bank of New York is a semi-public enterprise housed in a Florentine palace, but its genus and species is bank.

Japanese dividends

George Gilman, proprietor of The Business Picture, pronounces this diagram the most amazing he has yet produced. It traces the dividend yield on Japanese stocks...

Worldwide electronic/Stub Stock Index/World money - January 19

Rock and a hard place

Surveying the American landscape, a Federal Reserve chairman could see what he wanted to see. He might decide to worry about inflation (climbing energy prices) or deflation (falling copper prices). He might worry about too much debt or too little...

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