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Bad news finally reached the point of diminishing returns in Europe on Tuesday as the threat of nuclear obliteration by the leader of the Russian Liberal Democratic Party, Vladimir Zhirinovsky, hit government securities prices. Bad news is the ancient bond tonic -- to a trader, there is nothing like a depression -- but Zhirinovsky proved that there can be too much of even a very good thing.
Two pithy and (from the bondholders' point of view) appalling comments on business inventories from the National Federation of Independent Business: "Seasonally adjusted, inventories have never been 'tighter' than in November." And: "Nobody has any inventories -- a very 'lean' position."
In 1993, the Year of the Mutual Fund, brokers are well accustomed to receiving unsolicited phone calls from hopeful strangers. Tom Waldeck, a broker with Rodman & Renshaw, New York, recently has been getting some of this attention, but he calls the experience new and astonishing. There is one key difference: Waldeck is a commodities broker.
So successful a purveyor of mutual funds is First Federal Savings & Loan Association, Waterbury, Conn., that the American Banker recently reported on its exploits. "The $2 billion-asset bank has doubled its fund sales in each of the four years since it launched the program," the paper said. "The tally for this year is expected to hit $40 million."
Now that the Chicago Board Options Exchange is preparing to list an option on gambling stocks -- a play within a play if there ever was one -- and farmers in Tunica, Miss., are gleefully selling prime cotton land to casino developers at 100 times more than the land was priced on last year's tax rolls, a skeptical investor will ask again if the financial-assets bull market may not be overdone.
Downsizing, the No. 1 management concept of the 1990s, was field-tested and proven during the 1980s. Does anybody remember the tax-driven railroad-equipment boom of the 1970s? In 1979, American manufacturers produced 100,000 railcars. In 1983, they made only 5,000. Now they are racing to keep up with demand in what is shaping up as the best railcar year since 1981....
Fremont, Ohio, population 19,000, is the hometown of Bowlus Trucking Co. and the county seat of Sandusky County. Bowlus, a third-generation, family-owned business that serves eight states within a 350-mile radius of Toledo, has just put through its first across-the-board price increase in 12 years. It was 5%, and it stuck.
"In the latest sign of banks' push to get into the mutual-fund business," The Wall Street Journal reported last Friday, "Dreyfus Corp. said it has held but terminated talks with a possible merger partner, understood to be Mellon Bank Corp., Pittsburgh." The news carried more than one Grant's reader back to yesteryear...
For the handful of Grant's subscribers who did not attend the colossal and unprecedented 10th anniversary conference last week at the Hudson Theater in midtown Manhattan (very close to Broadway), Seth Klarman, value investor and author, led off the day with a wistful reference to his incisive 1991 book. Its title was "The Margin of Safety." If only he had thought to name it "The Safety of Margin," he said, it might have changed his life.
"My story starts in the 16th century.... " So Simon C.B. Hunt, chairman of Brook Hunt & Associates, began his analysis of the base metals markets at the Grant's conference. Starting after the medieval period (a time of remarkable price stability, as he was able to show), Hunt made his way up to 1993 and a provocative, bearish view of the industrial future.
James S. Chanos, general partner of Kynikos Associates, turned to the stock market. He invited the Grant's conference attendees to consider the historical record: "There hasn't been an IPO boom that ... hasn't been followed by, if not by a bear market, at least by a very serious correction..."
The purchase of an out-of-favor base metal, nickel, and an obscure, valueladen equities market, India's, were the investment ideas offered up to the Grant's conference-goers by Marshall Auerback, the general partner of T/A Pacific Select Investments Ltd., New York, a transpacific hedge fund.
On the eve of the presumptive triumph of free, or semi-free, markets in the shape of the North American Free Trade Agreement, documents slipped to the Dow Jones News Service show that Alan Greenspan was concerned recently about the vulnerability of the Federal Reserve to political assault.
Sky lands Park Management, would-be developer of the future home of the New Jersey Cardinals baseball team of the New York-Penn League, went public on September 24. It is a start-up company with professional management, a NASDAQ symbol (SKYP) and revenues in the high four figures: $7,862 (seven thousand, eight hundred and sixty-two dollars).
Talley Industries Inc. is virtually the 1993 economy in miniature. It is the United States, or a large portion of it, under one corporate roof. In this sense, perhaps, it may constitute another one of those cyclical economic indicators that is not subject to government revision.
As the field turned for home in the fifth race at Aqueduct last Saturday, it was Captain Moonlight, Holy Mountain and My Quincy battling for the lead. "But from the rail," came the announcer's call, "Money of the Mind comes on through and opens up. Money of the Mind drawing off by three or four. Captain Moonlight, then Holy Mountain. Money of the Mind five lengths clear on the wire!"
Department of unforgettable bullmarket facts: Of the individuals who represent the 520,700 new customer accounts opened at Charles Schwab through the first nine months of this year, 45% had no prior brokerage relationship (although many have held mutual funds or owned IRAs).
In a week in which the broadly defined money stock, M-2, rose by $4.2 billion, the market capitalization of 17 big telecommunications and telephone companies was raised by $16.2 billion. The monetary comparison is important because common equity has become a new kind of corporate currency.
A decade ago, when the yen was low and the dollar was high, American exporters feared not only for their markets but also for their solvency.... One million and one newspaper editorials deplored the decline of American "competitiveness." Today, everything is different and yet also -- déjà vu as seen in a mirror -- the same.
In September, the Clearing House Interbank Payments System, the monetary-data superhighway that facilitates dollar-denominated currency trading among 121 banks worldwide (and that Sumner Redstone only wishes he owned) logged daily transactions that averaged some $1,142,664,000,000, a total greater than the sum of currency...
Expertly appraising the present value of the future earnings stream of a pair of truck-stop/casino/hotels situated on either side of Interstate 15 at the California-Nevada border, 20 miles from the nearest fire station, the stock market has settled on the sum of $1 billion.
Except for the Brewers, the lowest of the low in baseball's American League Eastern division, Milwaukee currently has no recession, let alone depression, let alone deflationary debt contraction. Bankers are competing to lend, in fact, according to the Milwaukee Business Journal...
Bulls may agree on the decade, but not on the relevant historical analogy to the decade. Do the 1990s most closely resemble the 1930s, 1950s or 1960s? Wall Street wants to know. (If you are prepared to suggest the stagflating 1970s, you are not bullish and are, therefore, not consulted.)
The surprise jump in August housing starts -- to an annual rate of 1,323,000, the highest pace since the 1,437,000 reported for February 1990 -- is compatible with the bulging order book of Republic Gypsum Co., Dallas (see page 1), but not with the theory that the Federal Reserve is merely pushing on a string.
A money manager recently was asked by a Long Island neighbor if things were jumping on Wall Street. Assured that they were, she replied that she had guessed as much. Her father, at his wits' end over the lowercase interest rate he was earning at the bank, had plunked half of his life's savings into a mutual fund, even though, she added, he had never owned a share of stock before in his life....
First USA, another stock-market valuation miracle, was part of the salvage of MCorp, the sunken Texas bank holding company. Organized as MCorp's credit-card and retail-banking subsidiary in 1985, the company was sold to Lomas & Nettleton Financial Corp. in 1986 and to its own management in a leveraged buyout in 1989.
To elaborate on the results of the August survey of the members of the National Federation of Independent Business (see page 1), they were miserable. The Federation, which numbers 600,000 firms nationally, canvasses a random sample of its members each month; 828 responded in August.
Not even President Clinton himself would claim that the 13-year decline in global interest rates is the direct result of the new tax legislation, even if his staff would swear to it. Perhaps Americans in every walk of life are too ready to impute overarching significance to domestic events...
Interest rates have fallen in the United States despite the Clinton administration and its deficit "reduction" plan and the Federal Reserve and its monetary policy. They have fallen in Europe despite the European Exchange Rate Mechanism and the Bundesbank. Last month in Europe, as a matter of fact, the two best-performing bond markets were Italy's and Britain's, markets and currencies that used to be among the standout worst-performers.
Copper stacked in London Metal Exchange warehouses does not represent 20 weeks worth of consumption, as reported in the last issue of Grant's. It amounts to approximately three weeks worth. The error forces an analytical issue. If the higher number was bearish, as the Grant's argument had it, how can the lower number not be bullish?
A market that closes its eyes and buys 100-year corporate bonds at a yield pickup of only 80 or 95 basis points to 30-year Treasurys is not one that conscientiously stays at home at night in a flannel robe to study The Bond Buyer. It is not the kind of market that thinks as much as it should about taxable municipal bonds.
In London, the summer's composite deflationary economic message is posted at the Polo Ralph Lauren shop on New Bond Street. "Sale" says a discreet sign on the front door. "Office to let" says a bolder sign one flight up. To judge by the relative size of the lettering, real estate is in even greater oversupply than designer apparel.
We take it as gospel that the $500 billion "deficit reduction" measure proposed by the Clinton administration would, if passed, enlarge the deficit by taxing the growth out of enterprise. However, that is not the mainstream creditor view, and the bond market has been levitating, according to the financial press, on the gas of fiscal hope. Therefore, a question: What if the budget doesn't pass?
The French government of Edouard Balladur set out to issue 40 billion francs of partially tax-advantaged, privatization-linked bonds this month. Instead it sold 110 billion, thereby making the Ballabonds the greatest success in the annals of French public finance, at least from the government's side.
Nine months after the 1992 European currency crisis, central banks are poorer, speculators are richer and certain currencies are, in the official euphemism, "newly floating." In other words, the British pound and the Italian lira are no longer anchored to the European Rate Mechanism, but unhinged from it.
The trouble with the consumer price index is that it has no financialassets component. It is without a NASDAQ, call option or junk-bond subindex. Americans buy securities just as they buy gasoline and "Jurassic Park" T-shirts... Yet the rising cost of mutual funds was nowhere reflected in the allegedly benign May CPI report.
Minnesota Mining & Manufacturing Co. turned bearish on the U.S. economy last week and Women's Wear Daily issued a downbeat appraisal this week. However, to give equal time to the other side of the argument, Allied Capital, for the first time in about three years, has turned bullish.
Adam Glick, a still-solvent New York real estate investor, is out of practice at buying buildings, having chiefly stood on the sidelines and watched the market drop for the past five or six years. But now, he says, his company is on the verge of buying a property in Raleigh, N.C.
Are you, personally, a taxable entity? Are you not now paying federal income tax at the alternative minimum rate, but at a higher rate? Do you happen to be bullish on natural gas? And, finally, could you bring yourself to buy anything legally classified as a "tax shelter" after the shelter-related loss, recrimination and litigation of the past decade? If so, read on.
Western Mining Corp. (WMC), based in Melbourne, Victoria, Australia, is a Depression baby. It was founded in 1933. Later it diversified out of its original gold mining business into aluminum and nickel and other commodities that the world nowadays cannot seem to find enough warehouse space to contain.
In flight from 3%, a person may buy a cat or a dog instead of a yield. Wall Street will always sell what comes to hand. We are thinking now of Stone Container Corp., the highly leveraged, highly wrecked paper company, with its bank debt, senior debt, subordinated debt, preferred stock and equity. But there are other fixed-income anomalies, and we will get around to them.
Currency may or may not travel well, but it travels frequently. An unpublished Federal Reserve study offers support for the claim (quoted gingerly in the last issue) that as much as 60% of U.S. currency may be held outside the United States. The number is as provocative as it is fantastic-sounding.
In Germany, the intransigence of central bankers is matched only by the secretiveness of corporate executives. As the Bundesbank refuses to yield to the misery of the recession, so Deutsche Bank (to pick only one illustrious name) declines to make an official declaration of its true net worth. Now, or so a knowledgeable observer contends, change is afoot.
For months, Grant's has been trying to understand, even to rationalize, the weakness in M-2. We have written about finance-company lending, which the conventional banking data do not incorporate, and the unfathomable speed with which electronic dollars change hands today...
"Whether they wanted to be in the market was irrelevant," said Van Siler, a managing partner at R.J. Walls & Co., Princeton, N.J., in the white heat of Tuesday's bond rally. "They can't stand the pain," he added, describing the state of mind of the surviving bears.
"We have 12 years of data showing that higher yen rates do nothing to improve the U.S.-Japan electronics trade balance... There is no discernible relationship." Nevertheless, the dollar stands at an all-time low against the yen. To what end? To raise American wages? To stimulate the domestic economy? To stir the political pot?
President Reagan's order prohibiting federal employment for striking members of the Professional Air Traffic Controllers in August 1981 made Labor Day that year grim for American unions. But by the end of the next month the Treasury bond market stopped going down and began to turn up....
The No. 1 investment characteristic of gold bullion is that it pays no interest. Like a checking account or a surgical glove, it is sterile. The No. 2 characteristic is that it depreciates, but No. 2 is a corollary of No. 1. In a time of low inflation and high real interest rates, people want yield.
You watched him play. You read his book. Now, unless speculation is going out of style this month, you'll be able to buy his stock. Wilt Chamberlain, the basketball giant and Lothario, has licensed the use of his "name, likeness and persona" to a restaurant company that plans to go public at a market capitalization of some $40 million.
From 1985 to 1991, finance-company business loans nearly doubled, while commercial-bank business loans rose by only 24%. In 1990, 1991 and again in 1992, finance-company business lending went up (if only a little), while commercial-bank business lending went down. These facts prompt a question....