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Heightening the meteorological drama in the waning days of 1994 is a change in the political winds. We can be sure that the political winds are changing because the President of the United States is rewriting his speeches.

William Michaelcheck was a senior executive of Bear Stearns Cos. in 1991 when he warned against the burgeoning speculation in government securities....

The Sanitation Department is fighting to keep people from stealing garbage....Recyclable trash means cash these days.

An owner of gold mining stocks has a dream for the new year: a derivatives fiasco in which the world's central banks... have positioned themselves against a rising gold price. When a new bull market erupts, our man contends, the central banks will lose both face and money, and the losses of the paper currencies will be gold's gain. It is his holiday thought.

Fort Howard, the Green Bay (Wis.)-based leader in the "away-from-home" segment of the domestic tissue market (the sneezing-out market?), wants to recapitalize itself. It is proposing to raise $345 million in new equity and $1.3 billion in additional credit facilities and term loans.

Last Friday's rescue of a pair of failing Japanese credit unions by the Bank of Japan made history: They were the first financial institutions since Yarnaichi Securities in 1965 to be plucked from the brink by the central bank itself. The intervention will prompt a new round of questions from enquiring readers about post-bubble Japan....

Like fraternal twins, any two closed-end bond funds may look the same without being the same. Many of them are leveraged, but there are varieties of that: straight debt, reverse repurchase agreements, commercial paper, preferred stock, etc. Furthermore, the assets that a fund has borrowed to acquire may or may not be tailored to the debt employed...

"King of carry," published in the Dec. 3, 1993, Grant's, was the story of David Braver, the man who had devoted his career to leveraged bond investment. A year ago, he was buying seven-year mortgages yielding 7.15% with three-month debt costing 3.26%. Now he is not, of course....

In counterpoint to the page one essay about financial contraction, Mergers & Corporate Policy reports a breakthrough in the direction of innovation and bravery: "A new financial firm, Greenfield Financial Advisors, is promoting the mostly untested use of capital raising secured through intangible assets," the newsletter writes.

In financial-market terms, 1994 has been a four-season non sequitur.

Everyone, the bears especially, must remember that all bad things come to an end. One of these days, the last regional bank will kick the last los­ing lot of short-dated government notes out of a sealed, upper-story window.

United Asset Management, Boston-­based collector of money-management firms, made its first acquisition in 1983. It added its 41st and 42nd affiliates in 1994.

On November 16, Chase Manhattan Corp. announced its entry into the hedge-fund business because its wealthy clients were "clamoring" for it, the American Banker reported. ...

What the cough-and-cold economy demands is low temperatures and falling costs. What it has been presented with this autumn is across-the-board levitation: in plastics, cardboard, copper, electric motors and average temperatures.

The looming shortage of vaporizer parts wouldn't worry even a bond­holder unless it were the tip of some macroeconomic iceberg. People doubt that it is, because, in the first place, the American productive apparatus is increasingly service-oriented....

At about six times earnings and about one times book value, the publicly traded brokerage firms had better not represent the cutting edge of stock­market valuation. If the blue chips were valued as Wall Street is valued already, the Dow Jones Industrial Average would stand (or lie prostrate) at something like 1,300.

The Federal National Mortgage Association wrote to protest the characterization of its finances in our last issue. ...

Preceding Tuesday's announcement that Fidelity's stock-market customers have rediscovered money-market mutual funds was the news that banks have rediscovered lending.

The winner of last week's midterm elections was not so much the GOP as the composite editorial-page program of Barron's, Investor's Business Daily and The Wall Street Journal. On the day before the election, capital-gains tax relief was a gleam in a partisan eye. Twenty-four hours later, it was a looming piece of federal legislation.

Gordon W. Ringoen, a San Francisco investor, appeared at the Grant's conference in New York last week as a prophet and seer. He shared his latest thinking on interest rates, inflation, the yield curve and the great American institution of financial leverage.

The government bond market is unregulated as to margin requirements. The stock market, an experienced reader called to insist, might as well not be. Regulation "T," he said, echoing a theme sounded in the last issue, is a dead letter for the sophisticated, leverage-seeking investor.

The name of Benjamin Graham was invoked early and often at last week's Grant's conference. Michael Katz, hedge-fund manager and value investor talked about value on the long and short sides. Marc Perkins, Palm Beach (Fla.) investment adviser, described the opportunity-laden decline of the U.S. energy infrastructure. And Christopher H. Browne, general partner of Tweedy, Browne Co., a firm that actually did business with the father of value investing, identified Graham-like themes around the world.

"Be patriotic," James B. Rogers Jr., investor, author ("Investment Biker") and featured luncheon speaker, beckoned the Grant's attendees. "Get some money out of the country.

If the Federal Reserve is making it costlier to borrow (by 75 basis points on Tuesday afternoon), lenders are collectively making it easier. Thus, The Journal of Commerce reports that the return of easy credit and hungry bankers is threatening to incite a new round of shipbuilding and, therefore, inevitably a new glut.

Consumers may be borrowing more, but that doesn't mean that the credit card purveyors are earning more. On the contrary: Net interest margins have fallen even as lending volumes have risen.

Short-selling on the NASDAQ market has been restricted since September 6. A new rule stipulates that, for an 18-month trial period, no stock may be sold short except on an uptick (or what amounts to an uptick in over-the-counter land).

It is now the Federal Reserve's sworn cyclical duty to thwart the U.S. economy. Likewise, it is the banking system's profit-seeking opportunity to frustrate the Fed.

The difference between the two-year note yield and the overnight borrowing rate constitutes a latent speculative itch. Given a positive spread and a bullish attitude, people will scratch it.

Last June, Paul Raman, analyst with S.G. Warburg, had bullish and profitable things to say in these pages about U.S. chemicals stocks. Now he is bullish on some of the European companies--

In European chemicals, pricing is meager but improving. In European banking, on the other hand, pricing is meager but getting worse.

Old friends are returning to the cyclical stage: loan growth, inventory stockpiling (stuff, not securities) and a new impetus by banks to collect interest-bearing deposits.

Every monetary crank understands the historical tendency of paper money to become worthless. Offsetting this, however, is the tendency of people the world over to accept it--in particular the dollar, even today, in a new bear market--for what it purports to be. Bill Clinton complains that this is an age of cynicism. In monetary affairs, it is the age of faith.

Just as Ford woke up one day without enough "revised" fuel tank assemblies to feed the production line in Kansas City, so the United States government may suddenly find itself in need of a light infantry division that it doesn't happen to have.

"Campbell Resources is the lowest-risk 50-cent stock you're going to find. They have an established, working mine, are trying to expand and have cash on the balance sheet."

A 1993 start-up, 7th Level is in one of the businesses that nobody much before 1993 could even have imagined would be a business. It is engaged in the interactive multimedia entertainment computer software business.

The No. 1 macroeconomic question has been, and still remains: Are interest rates high enough yet to turn back the global business expansion? Or, as children have asked ever since the invention of the automotive backseat, "Are we there yet?"

Last fall, the railroad industry warned that it was facing capacity constraints for the first time in nearly half a century. One year later, this high-grade dilemma is still unsolved.

To judge by the commodities markets, the economy is following Wall Street's instructions exactly. Over the past three months, the Goldman Sachs Commodity Index has rung up a total return of minus 8,45%, which is worse than any coupon security on the Treasury yield curve, even in this, the worst bond year ever...

"History shows," said Business Week, winding up a cover story on the miracle workers at Fidelity Investments, "that the longer your investment horizon, the more compelling is the case for owning stocks. As long as that continues to be true, Fidelity's wondrous stock-picking machine seems likely to approach the long-elusive goal of perpetual motion."

General Motors is coming to terms with a world that is neither inflationary nor disinflationary. It is--let us simplify--nondisinflationary, which only means that the good news on prices is long since out.

A man who has failed to raise big institutional money for his long-term commodity partnerships--failed to duplicate the fund-raising prowess of some of the ruined hedge funds--is bittersweet about rejection. Michael Aronstein, general partner of a pair of domestic commodity funds (up 25% after fees in this begrudging year), says that it's encouraging, from a contrary-opinion point of view, that so many people doubt him.

In the deep of summer, LaRoche Industries, issued $100 million of junk bonds. Only an underwriter's salesman would have called them "high-yield securities."... The transaction was a throwback to boom days, first to the 1980s, when only an optimist expected cash flow to cover fixed charges, but also to the 1920s...

"The real question should not be whether the Fed will tighten," observes Tad Rivelle, fixed-income portfolio manager at Hotchkis & Wiley, Los Angeles, "but rather, is the expectation priced into the market?"

Long ago in 1979, when Jimmy Carter was president and inflation was king, Warren Buffett betrayed a note of exasperation in his annual letter to the shareholders of Berkshire Hathaway Inc.

Like many other real-estate survivors, the Parker company owes its solvency more to what it didn't do than to what it did. Most profitably in the 1980s, it didn't borrow to buy or build at what would prove to be a spectacular, penthouse-elevation market top.

So near to the Commerce Department yet so far, Washington, D.C.-based Allied Capital Corp. is a font of information on small business. Commerce is in the economic intelligence business because it has to be. Allied is in some of the same lines of the business (anecdote collection and microeconomic analysis, especially) because it wants to be.

In American banking in 1994, there is interest-rate risk and credit risk and golf, in that order.

The trajectory of Cobra Golf in the stock market resembles that of a John Daly drive on the fairway, vanishing into a clear blue sky. So far, the one conspicuous difference between the stock and the drive is that the stock has been going up for a full 12 months.

"M-2 growth has never been as low as it is today with 85% operating rates." So says Nancy Lazar, economist at 1ST, in her new Weekly Money Report.

While vacationing on Martha's Vineyard last month, President Bill Clinton played golf with Warren Buffett and William Gates Jr., both members of the billionaires' club, a nontraditional Democratic constituency. Although opposed to the rich in other settings, Clinton has shown himself, in general, to be a man of the bull market.

In the United States, the money supply is very nearly stationary, the pace of car sales is weaker, the gait of new-job creation is slower, and Gap Inc., of all the dynamic retail chains, has reported a 5% drop in same-store sales for August. All of these facts fit the bond bulls' view of a national economy that is obediently slowing in response to a tightening Federal Reserve policy.

As of a month ago, the Federal Reserve's own picked government bond dealers were heavily in debt, borrowers against their own securities. The dealer-borrowing data are always a month old and, therefore, not a certain guide to the future, but the reflex response of the 39 reporting firms is evidently to enjoy the hospitality of the positively sloped yield curve.

The Federal Reserve has raised the cost of bank reserves, but banks have reduced their need for them. The federal funds rate has risen, but so has the volume of non-reservable deposits--notably, the dollars borrowed by banks, both foreign and domestic, from their own overseas offices. Domestic bank deposits, in the meantime, have scarcely grown at all.

As men and women of the world, the readers of Grant's will sympathize with the corporate insider who wishes that the Securities Act of 1933 and the Securities and Exchange Act of 1934 had never been written into law and that Albert Wiggin, the portly, self-dealing chairman of the Chase National Bank, had never been born. Wall Street understands, too...

Is there too little money and credit? In the United States, the pricing of certain kinds of bank loans--e.g., credits to companies of "near-investment grade" standing--continues to suggest the opposite.

Over a five-minute period, the president of a Rhode Island-based automotive supply company counts the trucks that are going his way and then he multiplies by 12. That gives him an hourly rate of flow. Over the years, he told Grant's, 500 trucks per hour has been his average sighting. Last week he saw 660 an hour. "I haven't seen so many tractor trailers on the Ohio Turnpike in years," he said.

To a partisan, William Jefferson Clinton may resemble James Earl Carter, but to nobody, not even Rush Limbaugh, does the Clinton inflation prognosis begin to suggest the Carter inflation record. Where has inflation gone, and when is it coming back? Is it ever coming back?

Lodged inside the unfathomable Bloomberg machine is a corporate history of Alaska Air Group (how do they get it all into such a little box?). Alaska Airlines, the company's principal operating subsidiary, is the 10th largest U.S. carrier, serving a half- dozen Western states and eight foreign cities...

The theme of the annual conference of the International Swap and Derivatives Association is usually a derivative itself. It is derived from the temper of the times. Thus, last year's topic: "New Products and New Participants." And this year's: "Independent Risk Oversight: Risk Measurement and Management."

This just in from Kokomo, Ind.: The cost of newsprint to the Kokomo Tribune went up by 7% on August 1 after rising by 7% last March. In 1993 it did not go up at all. "Unfortunately," says the Tribune's publisher, Arden Draeger, "I see the prices continuing to increase in the near future."

What would the banking system do with more money? On the available evidence, it would lend it at spreads thinner than Kate Moss. Thus, to compensate for the rise in rates and the drop in activity, residential mortgage lenders have begun to relax terms and conditions. . .

So big is a $6.6 trillion economy that a documentable anecdote is available to support every sane forecast. Bulls and bears can match each other by the hour, strong rubber prices being entered into evidence against weak lumber prices, or a hopeful downturn in agricultural tractor inventory being set against a worrisome drop in agricultural equipment retail sales. It can go on all night.

In money-market mutual funds, the obvious hasn't happened. Short-term rates have risen and equity mutual-fund values have fallen, but money-fund assets haven't expanded. In fact, May's total taxable money-fund assets ($466.2 billion) were lower than April's ($477.5 billion); we can't wait to see June's, which are due any day.

The accompanying table constitutes a triumph of investment cryptography: We have cracked a new issue of silver-indexed preferred from Freeport-McMoRan Copper & Gold via Lehman Brothers et al.

The news about the futures market in the Baltic Freight Index is not only that it is going up. The greater news may be that it even exists.

"Russia is in very serious trouble," said Aleksandr I. Solzhenitsyn, recently returning to Moscow from a 20-year exile and after a two-month railroad journey across the nation that, under different management, had kicked him out. "There are groans bellowing across this country."

For every dollar's worth of government securities that the Federal Reserve bought in the past year, foreign central banks bought more--$2.20, at least.

It's official: You can no longer figuratively see through the Dallas skyline. According to a new municipal appraisal, the city's property values rose fractionally in 1993. It was the first such increase in six years.

As filtered through a friend, word from a top Fed insider is that one policy, at least, is foreclosed for the August 16 FOMC meeting. That is whatever policy Wayne Angell, former Fed governor turned noisy Wall Street economist, is predicting that the Fed will adopt.

If the 1990s are shaping up to be a repeat of the 1970s, the Clinton administration is destined to become the financial heir of the Carter administration. Scott E. Smith, a paid-up subscriber from Chicago who insists that he really doesn't mind that the yen puts he bought on the say-so of this publication have gone to 3-3/4 from 12 in only seven months, contributed this interesting formula.

"Russia is like a black hole; it's sucking up everything into the market. Companies can't produce quickly enough; capacity can't increase quickly enough."

Maxxam Inc., a possible investment for the 1990s, has a balance sheet from the 1980s. The company's principal owner, Charles E. Hurwitz, 53 years old, is himself a man of the 1980s--a takeover artist, leverage artist, entrepreneur, one-time owner and director of a failed Texas S&L and former investment-banking client of the former Drexel Burnham Lambert.

Good news from Main Street in the July 7 Journal of Commerce: Cargo volumes and rates are beginning to pick up for U.S. passenger airlines and freight forwarders after four turbulent years marked by stagnant growth and increasing competition.

Advanta Corp., the Horsham (Pa.) credit-card purveyor, is forming a $100 million venture-capital partnership "to seek out private equity investment opportunities in the financial and information-services industries." Evidently, it's diversifying against the day when credit cards become obsolete...

When Jeffrey Sachs, erstwhile adviser to Russia, stood up in London the other day to call for the creation of a bankruptcy court for insolvent governments, the global bear bond market instantly came into sharper focus. Given the growing weight of debt and the absence of help from a new inflation (help, that is, from the borrowers' point of view), the possibility of public-sector default no longer seems outlandish...

The reader who provoked this table, Marc Perkins, chairman of Perkins Capital Advisers, Palm Beach, Fla., says that the numbers are reminiscent of another cycle. As the savings-and-loan industry was felled by high interest rates in the late 1970s, he contends, so Wall Street is at risk in the mid-l990s.

Signs of the times: A pair of funds dedicated to investing in biotechnology are getting out of the business.

Even now, the bond market is irrepressible. As recently as 1989, the so­-called primary government bond dealers together borrowed nothing to finance their own position-taking.

As a last resort, the Federal Reserve Board might consider printing the U.S. dollar on corrugated paper, waste corrugated paper, linerboard or 200-pound test corrugated box, useful materials with a demonstrated ability to appreciate without central bank support.

Viewers who tuned into "20/20" Friday night just for the segment on the toxic bacteria that eats human flesh (broadcast in living color) missed what may prove to be a landmark geopolitical interview.

Yesterday was the deadline for telling the Treasury Department how many foreign investments you own. Let us say that you are an American investor, subject to the Constitution, the Paperwork Reduction Act of 1980 and the other laws of the land, and that you own a certain substantial minimum of foreign securities and/or short­-term foreign investments.

Question: If the rate of bank lend­ing were 20 times faster than the growth of the real economy in which the lending took place, would that be bullish or bearish for the economy and markets of the country in question? Answer: It would be bullish until the day it stopped. Then, the next day, it would start to become bearish.

The coffee-killing Brazilian frost is a parable of cycles. For years, as the coffee bear market ground on, growers despaired, and they skimped on maintenance (Grant's, January 28)..."When you take a crop that hasn't been fertilized for four years and was unhealthy to begin with because of a lack of care, the damage could be untold." Nowadays, the bond market watches the grain market.

Merrill Lynch's announced assault on the corporate-lending business may or may not electrify the securities industry, but it almost certainly will baffle the banking industry.

Whether it's because of their furry ears or the horrific losses they bore in 1991-93, the professional short sellers continue to lack investment charisma.

Rumors fly because they are lighter than air, and the skies were thick with them on Monday and Tuesday.

Numbing accounts of the Japanese deflation--the word, in the case of Japan, has literal accuracy--continue to fill the excellent Nikkei Weekly.

The new temporary chief of the French Socialist Party (the incumbent stepped down after the socialists' drubbing in the recent European elections) is lifting his voice for the old col­lectivist ways.

According to Advisers Capital Management, New York, last week's auctions of two- and five-year notes were heavily purchased "on specula­tion that the Federal Reserve would continue buying." The 1991-93 spec­ulative impulse dies hard.

The Speaker of the House of Representatives has not, after all, been indicted (Grant's, June 17). Our apologies to the innocent man, Thomas S. Foley (D., Wash.).

The essence of inflation is a redun­dancy of dollars, but how do we count the dollars? One handy method is to consult the rates of growth of the familiar monetary aggregates...

The Bank of England, dowager of central banks, ancient protector of the coin of the realm, agent of devalua­tion, gentlemen's club and bawdy house, entertained more than 100 of the world's central-bank governors in London last week on the occasion of its 300th birthday.

In just nine months, from June 1993 to March 1994, the assets of First USA grew by 67% while its credit-card loans leapt by 87%. If the Dallas­based credit-card purveyor were an Olympic long jumper, could it pass a steroid test?

Ted Eckstein, chief executive officer of a national supplier of used auto parts-Rebuilders Automotive Supply Co. of Cranston, R.I.--and a paid-up subscriber, says that business is (a) terrific, and (b) suggestive.

Speakers at the Grant's conference spanned the spectrum of ideology and interest rates. Sir Alan Walters, of AIG Trading Group, predicted a trend of rising real rates, "probably for the rest of this decade," but not because of inflation.

Susan M. Sterne, fast friend of this publication, certified caller of macro­economic turns and the almost certain winner of The Wall Street Journal's bond-yield guessing contest for the first half of 1994, told the Grant's con­ference that the U.S. economy is laboring.

The Firebird Fund lost no money in the hedge-fund debacle of last February and March because it had putting its modest first few millions of dollars to work in its chosen theater of operations: the Russian stock market.

Waterhouse Securities, the stock brokerage firm that the stock market used to love (Grant's, Oct. 10, 1993 ), is going to open a bank...

For most of the 200 years before the start of the great bond bull market of 1981, paper money was condemned as a heresy. No orthodox creditor would readily accept payment in a form of money that did not clink on a counter. Now turn on the television...

"We're not trying to outsmart the smart guys. We're trying to sell bonds to the dumb guys."

The big tent of monetary theory has room enough for the monetarists and the Keynesians, for the Crips and the Bloods and for those who are merely confused.

The new face of credit is the 100% loan-to-value loan. A pair of paid-up subscribers -- as solvent as the readers of any other publication available through the U.S. mails, perhaps even more so -- have seen them with their own eyes.

Except that commodity prices tend to fall over the long run (tending to revert to the cost of production, which itself is usually falling), except that futures trading is inherently leveraged, and except that commodity bull moves hit like hail storms, futures markets constitute the perfect outlet for patient, value-seeking, long-term capital...

The issue isn't whether industrial commodity prices are rising. The question is who will pay the freight and how will the rise be accounted for...w

Despite ample provocation, no international financial panic occurred in the early 1990s. It could have, but didn't, begin in Japan, the provider of almost half of the international bank credit in the late 1980s. Real-estate depressions struck far and wide, yet a worldwide run on illiquid institutions didn't start in Scandinavia, the U.S...

Like an ancient veteran of D-Day, the Carlyle Real Estate Limited Partnership-XIII has visibly been through the wars.

A friend at one of the big banks bet­ter known for its trading prowess than for its book of corporate underwriting business brings news: suddenly, there aren't enough loan officers on the premises...

"We're looking at an old-fashioned physical squeeze," said a London coffee analyst as the bond market prepared for lift-off Tuesday. "Roasters and traders haven't needed to hold security stocks until now, and suddenly they've found there isn't enough coffee around."

On page one of the April 8 issue ("Revenge of the margin clerks"), we incorrectly stated that the credit-risk portion of Salomon Brothers' derivatives book at year-end 1993 was $42.5 billion. In fact, the firm says, it amounted to $8.6 billion. Equity capital was $5.3 billion.

No more high-minded than the next fellow, we, too, have been asking incendiary questions about Kidder Peabody.

The Fed may have its beige book, but Grant's has its David Gladstone, and our source is livelier than theirs.

A paid-up, non-hallucinating subscriber reports that the Bank of Boston is weighing the resumption of non-recourse lending to real-estate developers. In other words, it is contemplating loans to real-estate people who do not agree to sign their own names...

The heretofore unimaginable, from the May 12 Bloomberg screen: Across the street from the Bank of England, speculative development is returning to London as demolition is set to begin on one of its most controversial office developments.

In Russia this season, tank production is rising but wheat production is falling. The official economy of the former Soviet Union, as distinct from the thriving "black" economy, is seized by a "nonpayments" crisis - the Dun & Bradstreet version of hell, in which businesses just stop remitting funds...

When Hans Tietmeyer, president of the Bundesbank, declared last month that "too strong an appreciation of the D-Mark, against the dollar, for example, is not in the interests of our economy," monetary purists raised one eyebrow...

The yield curve became positively sloped — the two-year yield rising above money-market interest rates — in the last days of 1989. For almost 414 years, it has paid to borrow short and lend long, but it has not paid equally well in all theaters of financial operations.

When Wall Street rediscovered the magic of speculating on government securities with borrowed money in the spring of 1991, the Treasury's two-year note yielded not quite one percentage point more than the overnight lending rate.

Like sex, the margin call is an ancient institution, possibly as old as debt itself. The bond liquidation of 1994 has a rich American lineage, one that reaches back to the Civil War, to the aftermath of World War I and to the ostensibly serene years of the second Eisenhower administration....

How economically toxic is the rise in interest rates? Is the U.S. economy still so leveraged, four years after the crest of the 1980s' debt troubles, that a 75 basis-point tightening of money- market interest rates can poison a living and breathing business expansion?

In Mexico, Brazil, Britain, Germany and the province of Quebec, candidates not at all resembling Ronald Reagan and Margaret Thatcher lead the fields in scheduled or prospective 1994 elections. If the global financial markets are nervous, not all the blame can attach to interest rates.

What inflation, exactly? M-3, the all­encompassing measure of bank liabilities, has stopped cold in the past three months...

For more lush years than Wall Street deserved, the Federal Reserve System was loose but the banking system, real-estate-laden and undercapitalized, was tight. Interest rates declined, but a reluctance to lend in America was complemented by a disinclination to borrow. Lending did not expand, as it customarily does, but contracted instead. But now the Fed is tightening as the banks are loosening.

Is the French franc launched on a new crisis? Are French politics? At 3.43 to the mark on Tuesday, the franc was quoted within a pip of its former 3.4305 floor in the European rate mechanism.

First came the Henry Ford automobile, plain and black. Then came the automobile loan, conservative and short. Now -- an automotive revolution for the 1990s -- comes the lease. As hedge funds speculated in the two­-year note, so consumers may drive away a Chevrolet, with little or no money down.

News of the possible lifting of the threatened Zulu boycott of next week's first all-race South African elections sent South African securities higher on Monday.

Caustic soda, a chemical used in the production of alumina, textiles, pulp and paper, suffered the ultimate bear­market indignity last summer. It actually traded at zero.

Morgan Stanley Leveraged Equity Fund II, sponsor of the aborted Sullivan Communications financing (Grant's, February 11), now brings to market the Jefferson Smurfit Corp., a highly cyclical, highly fragile St. Louis-based boxboard and paper­products maker.

It stands to reason that the only elected Democrat in Orange County, Calif., is the manager of the county's highly leveraged, multibillion-dollar, fixed-income investment funds, and he is running for office against a Republican in the middle of a bear market. The lucky man is Robert L. Citron, age 68.

David Braver, president of Braver, Stern Securities Corp., a paid-up subscriber and, on behalf of the individuals whose money he manages, one of the biggest and most successful practitioners of the art of leveraged bond investing, was rueful but undefeated Tuesday....

Wall Street always promised that the bond market would head off the next inflation at the pass by forcing a timely rise in interest rates. What the brokers and their hired economists never explained, however, was that the margin departments, not the "bond-market vigilantes," would precipitate the selling.

The break in the stock market has punished the obvious suspects. Far more interesting is the identity of the group that it so far has failed to reward: professional short sellers.

Bears are massing along the Canadian and Mexican borders. The Bolsa, paying no heed to the rally on Wall Street, fell by 1.4% on Tuesday to a new 1994 low after dropping by more than 6% on Monday. "Although U.S. bond prices rose today and interest rates dropped," Bloomberg reported from Mexico City, "investors are convinced the Mexican government will be forced to increase domestic interest rates to keep foreign capital in the country."

One fine day, perhaps, the convertible bond or preferred stock of your dreams will be quoted at 50 cents on the dollar. Its yield will be high and its conversion premium will be low, but the buyers will be absent instead of grateful. Value is the gift of bear markets, and we are trying to plan ahead.

The municipal bond market -- overleveraged in its own way, short of both buyers and dealer capital, hard-­hit by fund liquidations -- may prove once and for all that cash has a place in even the best portfolio.

At the top of the stock market -- historians will have to try to understand the state of mind -- cash was the lowliest investment asset available. Unlike stocks and bonds, which always seemed to appreciate, Treasury bills never doubled or tripled or constituted the object of a hostile tender offer. They fulfilled no investment function except as a kind of talisman to ward off loss.

From Phoenix comes news that interest rates don't constitute the top potential brake on a very pretty local housing market. The No. 1 looming prospective impediment is the price of land....

Like Elaine Garzarelli, Grant's has its indicators, and we never take our eyes off them. London is our leading indicator of worldwide inflation (despite the huge devaluation of the pound sterling in the fall of 1992 and the brisk progress of the British business expansion...

Was it purely an accident that the oil market went up last Monday as nearly every other market in creation went down? A knowledgeable friend speculates not....

A modest rise in overnight interest rates touched off one of the greatest bond market explosions in living memory. Is the coast clear, or has the use of speculative leverage merely been shifted, not reduced?

The balance sheet of the largest brokerage house in the United States, Merrill Lynch & Co., grew by 43% in 1993. Measured in dollars, its overall assets climbed to $153 billion from $107 billion in 1992.

To Jean-Marie Eveillard, president of the SoGen Funds, instantly goes the Grant's conference prize for the shortest time elapsed between forecast and validating outcome.

The bracing smell of tear gas in Lyon conjured up monetary memories as well as political ones. A great financial consequence of the student riots of 1968, as middle-aged radicals will never forget, was the devaluation of the franc in 1969.

As the Federal Reserve has raised the federal funds rate, so another great and dignified governmental body, the Organization of Petroleum Exporting Countries, would like to raise the crude-oil price.

What drives the average American saver out of the bank and into the stock market? Every schoolboy knows that the answer is 3% CD rates. Perhaps, then, every schoolboy would care to explain why utility stocks go begging at 6-1/2%...

American self-esteem was the poorer for a riveting remark at the conference delivered by Stephen M. Peck, general partner of SMP Associates L.P., a New York hedge fund.

Bullish on things, Frank A.]. Veneroso was not impartially bullish on everything. "When you look at a commodity market to decide whether it's bullish or bearish," he told the Grant's conference, "there are really two variables you want to look at.

"Real estate investment trusts are a joke," Adam Glick, our real-estate speaker, told the conference crowd, "and when I say a joke, I don't mean a joke rhetorically, I mean a specific joke, and I'd like to tell it," which he did...

Not only is it hard to make money in anything nowadays (year-over-year rates of return in the long bond and the Goldman Sachs Commodity index are 3.18% and minus 8.06%, respectively, according to our handy table), but also it is difficult to sustain one's favorite prejudices.

Nothing becomes gold so much as its lengthening list of detractors. The Wall Street Journal, the world's central banks and a number of formerly wealthy and handsome hedge-fund investors are on record with bearish words or deeds. We ourselves got off a skeptical piece on gold-mine equity valuations at what would prove to be the top of the current upswing...

Nomenclature will hold no interest for the victims, but the survivors may be pleased to know that the recent bond wreck probably will go down in history as a panic, not a crash.

David Gladstone, president of Allied Capital Corp., Washington, D.C., has an economic seat on the aisle, and he says that the view is improving. Allied lends to, and invests in, small businesses: 900 or 1,000 of them, mostly east of the Mississippi.

The Texan known as "Bulldog," skip tracer and automobile repossession man, says that his business is turning up. The reason that Bulldog is bullish on the repo trade will come as food and drink to the still-solvent bondholders. It is because he thinks that the economy is weakening.

Election year in Mexico (as we only began to explore in the last issue) is a time for democratic tradition, of which the greatest is that the governing party always wins. So rigidly observed is this precedent that when the incumbents did briefly appear to have come in second in 1988, it was only a matter of time before the results were recalibrated and the party was declared to have come in first after all.

What is wrong with the money supply, and is it (whatever it is) catching? Does it validate the Grant's commodity-price outlook or the economic observations of Bulldog, the repo man? We ask because money is not doing what we thought it would do. In a proper cyclical expansion, bankers would be lending and the monetary aggregates would be percolating.

"Based on recent growth of output and average cash balances, growth of the monetary base should be reduced immediately by two percentage points. The monetary base should grow at no more than an 8% annualized rate."

At a glance, the break in bond prices last week seemed all out of proportion to the monetary cause. On February 4, the federal funds rate was pushed up by 25 basis points, to 3-1/4%. By Tuesday, the 30-year bond yield had risen by 30 basis points, to 6.60%. More than one authority called the reaction unfathomable. What is the Federal Reserve in business to do except beat inflation to the punch?

Exactly according to bullish script, the Mexican stock market did not collapse following the January 1 outbreak of armed revolt in the southernmost state of Chiapas. What the bulls do not usually talk about, however, is one official source of this strength: A Mexican government agency was buying stock along with the optimists from the private sector.

What Alan Greenspan really thinks is that the consumer price index has become so bollixed up that it no longer reflects the true rate of price inflation. Also, that the economy is closer to full employment than it might appear. All in all, according to people who had the opportunity to hear him out before his recent Humphrey-Hawkins testimony, the first 25 basis-point tightening will certainly not be the last.

Roosevelt Savings Bank, based in the seasonally leafy Long Island suburb of Garden City, is as conspicuous for what it sells as for what it doesn't. What it doesn't sell is mutual funds. In this eccentricity it is as different from Wells Fargo, Mellon, Citibank et al. as it is possible for a bank to be in 1994.

Absolutely rejecting the simplifying lead of the Roosevelt Savings Bank, Bankers Trust has introduced a new deposit with a return based on fluctuations of the Japanese yen and the Thai baht.

What does the lagging oil price signify for the future of the commodity markets and specifically for energy markets? The second-best answer is that, in the past, pronounced weakness in the oil market in relation to commodities spelled bullish things for oil -- both for oil and oil stocks. (The very best, at least the most honest, answer would be, pure and simple: "Who knows?")

Any time now, the monetary data will begin to confirm the Grant's world view -- stronger loan demand, more credit creation, faster monetary growth -- but it didn't last week.

Not just anyone may purchase the new junk bonds of Sullivan Communications or its subsidiary, Sullivan Graphics. This rare opportunity is available only to qualified institutional investors. Perhaps the stewards of other people's money are more discerning than amateur investors. Or, just possibly, they are less discerning.

The results of the latest Korn/Ferry International Index of Executive Hiring will cheer and astonish anyone who has come to believe that white­collar firings will go on unabated...

Gary C. Bialis, a Santa Barbara, Calif., investor and commodity speculator and paid-up subscriber, has a close friend in the food business.

Slipping in under the wire of a 3% federal funds rate, Renaissance Communications -- ticker symbol "RRRR" on the NASDAQ information highway -- went public last Thursday.

The 25 basis-point rise in the federal funds rate caused Robert L. Marks, a New York-based consulting economist, not one moment of professional anguish last Friday morning. The truth is that he didn't see the news cross the tape.

The last issue of Grant's, while waxing bullish on platinum, was all but silent on how to express that idea in the marketplace.

A reader, citing an informed, anonymous source, says that counterfeit $100 bills are pouring into Russia, Eastern Europe and the Middle East, regions where dollars frequently constitute the de facto local currency.

"NA," a lay term, means "not available." Fred D. Kalkstein, who kindly runs down the various monetary data now so gapingly absent from these tables, reports that the Federal Reserve of St. Louis (his source of numbers) is undertaking a wide-ranging revision.

Is there no hope for the global economy?

Very, if we try. One of the events that definitely will not occur in 1994, according to Wall Street pari-mutuel clerks, is economic recovery in Europe and Japan. We may therefore conceive that it might.

"Investors Bid Up Bank Bonds, Now Perceived as Safe Haven," said a headline in the January 20 American Banker. For the incredulous reader, an analyst offered an explanation: "There's been a flight to safety in the bank sector and away from industrials and utilities."

For a number of disinflationary years, the leasing of offshore drilling rigs has been an unprofitable, sometimes a hopeless, line of business, but for Chiles Offshore Corp., 1993 shapes up as a kind of miracle. For the first year since 1989, the company says, it expects not to show a net loss.

The owner of an orphaned East German cosmetics company is a New York art collector who heard the crash of the Berlin Wall all the way from his lower-Manhattan apartment.

The price of coffee has been too low for too long. Outlook: bullish. The prices of coffee-related equities have been too high for too long. Outlook: bearish. The busy reader may stop right there.

If the Chinese economy can survive a coming assault of official American assistance, it may be able to survive anything. On Monday, The Wall Street Journal broke the two-pronged deflationary news that Alan Greenspan is planning a trip to Beijing...

Selling borrowed shares of stock -- the classic short sale -- may or may not be profitable, but it is no longer state-­of-the-art. In this, the age of derivatives, a speculator may design his own put.

Gold stocks have many fine attributes -- the readers of Grant's own them, for example -- but value is no longer high on the list. Seasoned analysts will debate the merits of competing techniques of mine valuation.

American credit, which spent the late 1980s and the early 1990s in traction, is up and around again, its vital signs in order and the gleam restored to its eye. Perhaps before long it can resume a life of sin.

What stock buyback announcements were to the wake of the 1987 stock-market panic, corporate layoff announcements may be to the aftermath of the 1990-91 recession: No self-respecting corporate CEO refuses to make one.

It has not gone unnoticed in bond-land that the Chinese and the Indians and the Russians outnumber the Americans, that Chinese wages are lower than the developed world's wages or that the Third World is growing faster than the first. . . . For ourselves, we have been wondering if the bulls haven't overlooked one important detail.

Concerning the possibility of inflation in a low-wage economy — China's prices are rising by 20% a year, or more ...

The rich, too, must live somewhere. They must find an apartment, buy it, renovate it and furnish it, not forgetting to dress the walls in silk. What makes the rich so very different is that they don't need to finance it — at the better Manhattan addresses, in fact, they may not finance it. It is a bull market in rich peoples' apartments...

Not only is Fifth Avenue rallying but also warehouse-club retailing is fading and circulation of the Tightwad Gazette, a monthly newsletter published in Leeds, Maine, is peaking — peaked, in fact, two years ago. Altogether, asceticism is backpedaling....

Even today, some $80 billion of high-coupon, early-1980s-vintage mortgage securities are still outstanding. Why they are still unpaid is a mystery, but it is also, in the opinion of Andrew Kowalczyk, an opportunity. . . .

The steel-scrap market had a better year in 1993 than some of the less successful hedge funds. . . .

The Federal Reserve -- the accompanying picture is worth a paragraph, at a minimum -- has lately reduced the rate at which it buys Treasury securities. However, this marginal slowdown is a pale shadow of the expected reduction in the volume of purchase in 1994 by state and local governments.