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More than one reader has asked: What in the world is the centerfold for? What do the numbers mean? Do you obtain them from reliable sources or make them up?... These are great and weighty questions, and we will begin at the beginning, with the Federal Reserve balance sheet...
William M. McGarr, general partner of the McGarr Fund, fast friend, paid-up subscriber and early proponent of the now-popular idea that joblessness in the service sector is one of the distinguishing characteristics of this weird recession. So when McGarr offered to interpret the meaning of a new cover of Business Week, we eagerly listened.
Money-market interest rates continue to rise in Europe as they fall in America. Virtually unnoticed in this country, the trend to stringency on the Continent weighs heavily on European business activity and stock markets. When the disparity will begin to punish the dollar exchange rate is anyone's guess.
If R.H. Macy & Co. sold bonds, like Morgan Stanley & Co., instead of form-fitted sheets, its problems would be behind it. If bond mutual funds could be lumped into the national retail sales data along with automobiles and sweatshirts, the recession would be over. Americans want bonds...
Quoted Market Prices of Sovereign Debt and Total Return on Box Score
Overcapacity in American banking was a bulwark of the financial prosperity of the 1980s. Too many banks made too many loans. Possessing too much credit, surplus entrepreneurs closed redundant deals. The prices of buildings, houses, corporations and common stocks gratuitously rose.
The column by Kenneth L. Fisher in the August 5 issue of Forbes is headed "Dumb Bears." More economically, it might have been headed, "Dumb" or "Bears." Juxtaposing the two words, nowadays, is redundant. If the bears were not dumb, they would have bought stocks at the bottom and drank away the summer in the Hamptons, toasting the Bush administration.
Fallout from the closing of the Bank of Credit and Commerce International includes the gumming up of world trade, the demoralization of an important class of British depositor and the hurried organization of a "lifeboat," a loan to head off a liquidity crisis, for one of Britain's largest mortgage lenders. All this in addition to the espionage angle.
The bank megamerger -- Chemical and Manufacturers Hanover -- was heralded as the most momentous credit news of JuJy 15. However, Mutual Benefit Life Insurance Co. was taken over by the State of New Jersey on the same Monday. According to The Wall Street Journal, it was the largest such seizure on record.
The Mount Washington Hotel, which was sold at the knockdown price of $3.15 million at a government auction last week, is part symbol and part real estate. The largest structure in New Hampshire, it was the site of the historic Bretton Woods Monetary Conference in 1944. Lord Keynes slept in Room 219.
Lending risk is easy to grasp, but "counterparty" risk on an interest-rate swap (or on an interest-rate floor, cap or collar, or in connection with a reversible swap or "roller coaster") is flummoxing. It is invisible to most investors because it is carried off-balance sheet. Out of sight, it is out of mind.
On June 6, Brian J. Woolf filed for protection under Chapter 7 of the federal Bankruptcy Code at the U.S. Bankruptcy Court in Hartford. His petition is distinctive on at least two counts. First, he owned $700,000, whereas he owed $7.4 million. Second, he was once the Connecticut state banking commissioner.
Commercial real estate is the leper of markets, but no investment stigma lasts forever. Office buildings, warehouses and shopping centers will certainly have their day again, just as other pariahs -- bonds, for instance -- have returned to have theirs. The only questions are which day, which year and which millennium?
NWA, parent of Northwest Airlines, has debt on its wings, but Alfred Checchi, its Bartlett's-quoting co-chairman, is lighter than air. In a speech to the Detroit Chamber of Commerce the other day, Checchi rebuked the leverage artists of the 1980s, not naming himself.
Tucson Electric Power Co. is a cork on the sea of cycles. In the late 1970s and early 1980s, during the energy frenzy, it overexpanded. In the mid- and late 1980s, in the great bull market, it overborrowed (and speculated in the stock market, too). Like a teenager on a street corner, it did what everybody else was doing.
The corporate jet purchased late last year by the Feshbach Brothers, noted short sellers in Palo Alto, Calif., is back on the market again. "The reason we're selling the plane," Joe Feshbach, general partner, told Grant's, exclusively, "is because we need to have the market go down."
Many years ago, when Grant's was still in its formative, Visa Card stage of development, the editor bumped into Steve Hueglin on Broadway. A founding partner of a successful municipal-bond brokerage firm, Hueglin nonetheless managed to convey the impression of a man who was chronically running late for a train.
At the bottom of the Great Depression, the Federal Reserve became an original equity investor in the Federal Deposit Insurance Corp. Now, at what everybody's economics department agrees is the bottom of a petty, one-horse recession, the Fed is to become the agency's creditor.
In 1983, a reader of ours was earning $50,000 a year. Newly graduated from the Harvard Business School, he was not without prospects, but his net worth was on the short side of $20,000. One day a representative of the Boston Company called to make him a proposition. --"Do you want a line of credit?" the man asked our reader. --"I don't know. What's the catch?" --"No catch -- it's free."
On Sunday, The New York Times was sure enough of its predictive ground to print an unhedged economic prediction on its front page: "An Exception to Rule of War: Inflation Threat is Receding." --For years Grant's, too, has thought that inflation was receding, but lately we've begun to have our doubts.
Seth Klarman, 33-year-old investor of private capital in Cambridge, Mass., is successful, affluent and out of sorts. Trained in the Max Heine school of value investing (in which a dollar bill is deftly purchased for 50 cents) he eschews the big picture. He studies companies and tries to ignore Mr. Market unless that manic gentleman is the bearer of gifts.
The proposed acquisition of Tonka Corp. by Hasbro Inc. is a case study designed for Harvard. It illuminates not only the interplay between banks and commercial paper (a favorite subject of ours) and that between interest rates and creditworthiness; it also points up the weak economics of banking.
The best hope for the bond market may be the installment as the chairman of the Federal Reserve Board of the allied commander in the Persian Gulf or of the wondrously named Marine commander, Walter Boomer. American arms so far outshine American banking these days that a switch could only help the dollar.
The Shawmut Inn is the place to stay in Kennebunkport, Me., if President Bush is at his summer home at Walker's Point and you are a White House correspondent assigned to watch him play power golf. The real-estate lending crisis hit home for the GOP on February 1 when this 19th century hostelry turned up in a mortgage foreclosure ad in The Wall Street Journal.
W. Braddock Hickman once posited a truism. Based on research into the first four decades of this century, he found that downgrades of debt issues tend to predominate in bad times whereas upgrades tend to characterize good times. ...Now Moody's Investors Service has amended Hickman and brought him up to date.
Exactly one year ago, Grant's reported on a change in U.S. banking law that allowed Americans to open bank deposits denominated in foreign currencies. For 20 years, the Treasury had discouraged (although not absolutely prohibited) such accounts. Effective Jan. 1, 1990, however, the government changed its mind.
MNC Financial's trophy credit-card company, MBNA Corp., came to market in an initial public offering the other day and flew right out the window. Unsuccessful in lining up a corporate buyer, the stricken MNC (parent of what used to be Maryland National Bank) scored with the public.
Long ago in the commercial-paper market, Penn Central Transportation Co. defaulted. The year was 1970 -- in financial time, the Bronze Age -- and the size of the default was $82 million. Small though it may seem in dollars, the failure caused a wrenching contraction in the paper market and a hasty rescue by the Federal Reserve...
Year after year, since time out of mind, the federal funds rate was the world's greatest interest rate. It was the fulcrum rate of interest in the world's leading economy. It was the interest rate that, more than any other, bore the official stamp of the Federal Reserve Board... Not this year, though.
On D-Day, January 15, Citicorp disclosed its fourth-quarter results, but aficionados are still buzzing about the third quarter. If you are deeper into the vault of banking than we are, you already know about form Y-9C. It is a Federal Reserve document, and it is like the universal form 10-Q but more exotic....
Shad Rowe writes from Dallas: Reckless, self-serving, incompetent lending is a crime against common sense. It is not, however, covered by statute. If it were, Don R. Dixon, the notorious owner of Vernon Savings Association, could expect to remain in prison until Hell freezes over.