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Flashback: In 1992, Eagle Federal Savings Bank, of Bristol, Conn., purchased seven unwanted branch offices in Danbury. The price: the equivalent of 1% of the money on deposit. The seller: the U.S. government. Flash-forward: In November 1995, Eagle signed a letter of intent to sell the same seven branches to another Danbury institution, Union Savings Bank. The price: 9% of the money on deposit. What changed so drastically in such a short span of years. . .
The Rainforest Cafe, one of the theme dining experiences on tap for Stratosphere, went public itself last April. Kids Quest, which baby-sits the children of Stratosphere's grown-up visitors when they, the grown-ups, are gambling or drinking or in free fall, went public last month. Both companies are members of the Grand Casino corporate family...
Corn, which is grown in dirt, is in a bull market. Dynamic random access memory chips (DRAMs), which are fabricated in clean rooms, are in a bear market. Interest-rate speculators, who buy and sell according to the dance of the business cycle and the commodity markets, would like some clarification.
The last issue of Grant's described the curious performance cycle of the Fidelity Magellan Fund. In each of four months this year--August through November--the pride and joy of the nation's largest mutual fund company excelled in the final three trading days.... For this issue, we conducted a follow-up study to check for the existence of a similar lunar cycle in a trio of other high-performance funds.
This just in from Tokyo: Assets of the Bank of Japan jumped by 16.4% in November, the largest year-over-year rise since the late 1980s. It was a rate of gain so enormous--even allowing for the normal year-end seasonal expansion-that aficionados stopped and stared.
PC Quote was founded in 1983, the year of the great technology-stock crash, by "professional options traders inspired by a vision of the limitless business potential of the personal computer," or so the PC Quote corporate history is rendered in the firm's latest annual report. It took a dozen years, but the stock market now sees the world in the same limitless way.
"Seeking to forestall pressures to cut interest rates to lift the still-sluggish economy, several Federal Reserve governors have put forward a new--and surprising--reason why it would be unwise to lower rates: It could encourage a speculative bubble in stocks and bonds."
The accompanying graph (a creation of our colleague Julieann Kelly) explodes the idea, often repeated in the run-up to Dow 5,000, that the baby boom generation is driving up the stock market by the force of its own frugality. Supposedly, it is saving as compulsively as it used to spend.
A reader of ours was invited into the trading room to watch the Dow go up. He says he couldn't help but notice that the Bloomberg screen was lit up with technology stocks. What our reader wanted to know, however, was the gold price. He watched his host, the head trader, fiddle ineffectually at the keyboard of his terminal. "Hey Bob," the man finally yelled across the desk, "how do you get gold on this machine?"
The known common characteristic of gold-mine and Internet shares is that standard securities analysis does not seem to pertain. Gold producers often appear hopelessly overvalued on the basis of their earnings; the new Internet stocks seem just as hopelessly overvalued on the basis of their revenues.
The tax-exempt yield assigned to the new 22-year bonds of the Intermountain Power Agency last month was 6.1%. The bonds were rated AA- on their merits and insured as to principal and interest by MBIA (ultimate insured rating: AAA). Of the $5 billion of outstanding IPA debt, old and new, a broker friend of ours, Jerry Thomas, relates: "There are no willing sellers."
According to The New York Times, the John Simon Guggenheim Memorial Foundation has had to go out with its hat in hand because the bank trust officers who managed its endowment were overly conservative in the 1980s, of all decades. Guggenheim himself, the head of American Smelting & Refining, later Asarco, was a thrusting capitalist of the pre-federal-income -tax type....
The demand for semiconductors is frequently said to be infinite, or even bigger than infinite. "Perhaps," ventured Ray Stata, Analog Devices chairman and chief executive officer, in presenting the 1996, 1997 and 1998 forecast of the World Semiconductor Trade Statistics the other day... However, Stata spoke before the disclosure on Monday of downturns in earnings by Merisel Inc., a leading wholesale PC and software distributor, and in same-store sales by Circuit City...
The Bank of Japan is trying harder. Balance-sheet data for the month of October, just in, show a 5.8% rise in overall BoJ assets, measured year-over-year. Although far from strenuous as Americans would use the word, the BoJ created more credit last month (measured as a rate of change) than in any month since last May. Precious metals bulls will continue to hope for a blatant and heavy hand....
Where global interest rates are not rising because of political worries (e.g., Italy and Canada), they are falling because of economic ones (e.g., Germany and the United States). In contemporary Japan, as in Depression-era America, loans are almost free except to those who actually need the money.
The consequences of the Festival of Low Interest Rates, 1991-93, are stamped on the capital-intensive structure of the U.S. economy. They are printed as well, on the consumer's leveraged balance sheet and on the income statements of the various investor-owned credit-card purveyors.
A New York money manager, stuck up his hand after Van Hoisington had finished his bullish exposition on the government bond market at last week's Grant's conference. Assuming that a bond buyer is in the 40% tax bracket, that inflation eats up 2% of his principal in each of the next 30 years and that the real, after-tax return is therefore on track to be a little less than 1%--assuming all that, he asked, why should anyone buy a Treasury bond?
The dollar bear market has done to the dollar what the baseball strike has done to baseball, James Tarr and John Atkinson told the Grant's conference. It has degraded one of the world's great brand names. What will succeed it is the question that the audience was encouraged to take home and answer for itself.
The presentations on grains and world equities at the Grant's conference shared one common geographical thread: "China probably has replaced the Soviet Union of the 1970s as the preeminent player in the grain markets," said Torn Waldeck, chief of Northwood Financial Services, Greenwich, Conn.
Mexico has earned the respect of every comfort-loving industrialized nation by surviving the rigors of a 43% inflation rate, a 39% treasury-bill rate and a set of mortgage interest rates that range as high as 100%. In the United States, any one of these privations might cause J.P. Morgan & Co. to finance a Bernie Sanders presidential campaign.
William Greenberg Jr. founded his New York bakery in 1946 with the money he won playing poker on a homebound troopship. In 1973, it was a Greenberg cake that was presented onstage at Carnegie Hall on the occasion of the 85th birthday of the songwriter Irving Berlin. Yet fame outdistanced net income....
Complacency in the credit markets reached a new fever pitch the other day when the 7.4% bonds of Santa Margarita (Calif.) Water District, Improvement District 7A, changed hands at par. The remarkable thing (according to Grant's Municipal Bond Observer, which reported the news, exclusively), was that the bonds were then in default. Just as remarkably, the 100-cents-on-the-dollar price was a full cent higher than the 99-cent original issue price. How could this trade, from the point of view of the seller, have been improved upon?
Adding to the monetary confusion, the broad-based aggregates, M-2 and M-3, are growing again, as is the grand total of nonfinancial debt. These developments are confusing only to the extent that a high federal funds rate and a Federal Reserve balance sheet on the verge of actual shrinkage do not connote gurgling liquidity.
JR. Simplot may be the potato king, but the commodity that's made him the toast of Boise is the semiconductor. In the early 1980s, before computer memory became an everyday household necessity, Simplot invested $1 million in Micron Technology. His investment position (to which he has added but never subtracted, according to his spokesman) is today worth $4 billion.
No fewer than 18,000 Americans are seeking bankruptcy protection each and every week, according to Visa U.S.A., which takes a warm, proprietary interest in the subject. If August had been seasonally typical, Visa relates, filings would have averaged only about 12,000 a week.
The big rise in variable-rate debt over the past 12 months--commercial paper and business loans together have recorded their greatest year-over-year advance of the past 15 years, to the tune of $164 billion--constitutes new evidence of the mellowness of American markets. In corporate finance, people continue to prepare for the best.
Now that we have begun to lose macroeconomic faith, we are focusing on a broader and more interesting range of news items, e.g.: new 1995 lows in industrial commodity prices; the persistent shrinkage in the rate of expansion of the Federal Reserve balance sheet; a Tuesday pratfall by Dr. Copper ("the metal with the Ph.D. in economics"), and the report of a looming third-quarter loss in Ford's North American operations, not to mention the new personal bankruptcy riot.
Now that the Bank of Japan and the Ministry of Finance are trying to promote a weak yen and a strong economy, new investment vistas open. Once, Japanese bond yields, stock prices and commodity indices only fell. Now, sometimes, they rise (the 10-year note recently burst through the 3% barrier). And sometimes--notably in the case of the commodity markets--they merely don't fall.
Maxxam Inc. is an anti-bond investment for 1995 and beyond. Bulls on the aluminum, lumber and real estate company are necessarily bears on the next recession, and vice versa. In fact, the basic investment issue of the day may be reduced to one Maxxam-related question: Is the Treasury's debt at current interest rates a better investment than an equity participation in a cyclical enterprise headed by Charles E. Hurwitz?
The well-founded assumption of the principals in the Walt Disney-Cap Cities/ABC transaction that the $10 billion they needed to borrow would fall out of the sky on their heads--not one banker was consulted before the acquisition was disclosed on Monday--constitutes new grounds for monetary wonderment.
In April 1942, The Exchange, a monthly magazine of the New York Stock Exchange, published a letter from a discouraged reader. A company that had earned more than $4 a share in 1941 was actually changing hands in the market at a price of $8 a share, observed the correspondent. "How long has this thing been going on?" sounding as if his subscription to "The Magazine of Wall Street" had lapsed in 1929. "What is a man to believe after thinking for years on end that ten-times-earnings was a reasonable price for a stock?"
Not yet a known miracle-worker, Peter Lynch took up management of the Fidelity Magellan Fund in 1977. Its assets were then $22 million. When he left in 1990, its assets were $13 billion. . . .His retirement was the worst news his investors had ever had to bear, not excluding the 1987 crash or the day the market went down in 1989.
The balance sheet of the central bank of the world's second-largest economy expanded by 8.5% in the second quarter of 1995 (the rate is measured year-over-year). It was the second-greatest increase in any quarter since 1991 and the BoJ's only strong, reflationary outing since the middle of 1994. Maybe it points to a sea change.
When Midlantic Corp. agreed to be acquired the other day by PNC Bank Corp. at a fancy valuation, American banking reached a new and higher state of perfection. Midlantic, which had traded at $3.25 a share during the troubles of 1990 and 1991, was elevated to approximately 14-1/2 times $3.25. LazarusBanc had risen. The great monetary issue of 1995 is whether perfection can be improved upon. . .
Festivities spilled out of the New York Stock Exchange onto Broad Street June 22 as an all-day block party capped another record closing high on the Dow Jones Industrial Average. A middle-aged man in a gray suit, red tie and blue shirt (with white cuffs and collar) bellowed Steppenwolf's "Born to Be Wild" in the shadow of the former offices of the great J. Pierpont Morgan. The old man would have called the police.
Two weeks ago, in central bank telegram No. 5090, Tatyana Paramonova, the acting chairwoman of the Russian central bank, ordered banks to hand over ruble bank notes with "the goal of maximum withdrawal of the cash money supply in circulation." Even Paul A. Volcker never tightened in just that way.
Growth in the Federal Reserve's balance sheet--port and starboard sides alike--has stopped cold. The graph points up the falling-off in the growth of adjusted Federal Reserve Bank credit (i.e., the sum of the Fed's port-side earning assets). On the starboard, or liabilities, side, bank reserves declined--absolutely--at a 7.6% annual rate in the April-June quarter. Erich Heinemann, chief economist at Ladenburg Thalmann & Co., describes it as the fifth and largest consecutive quarterly decline in bank reserves during the current tightening cycle.
As the Japanese financial system sweats under the weight of its desperate debts, American banks are deliberating over what to do with their surplus capital. Citicorp, which less than four years ago could hardly raise a dollar of common equity, on Tuesday offered to retire $3 billion worth. Solvency becomes the bank, which wears it like a new hat.
The measure of the bond market's overexcitement is the rising price of volatility. The reason volatility is going up is that Alan Blinder interrupts Alan Greenspan and the stock market interrupts the bond market. One minute the next recession is allegedly already underway, and the next minute it's not going to happen in your lifetime (regardless of age or family tree).
Time will tell if the Federal Reserve Board has successfully preempted inflation in the United States (it has certainly preempted the bond bears). The job before the Bank of Japan--and, to a lesser degree, the Bundesbank--is to stamp out deflation. Every member of the world economy, not least the hopeful commodity bulls, wishes them well.
It defies common sense that anything measuring $7 trillion from end to end could knock off work and lie down in broad daylight without people noticing, but the United States economy has fooled us. Assuming that it produces nothing but zzzz's for one full quarter--zero percent real growth--what is the prognosis for subsequent quarters? On form, what does one quarter's weakness signify for interest rates?
The world has continued to discover similarities between the old Spain and the new, sometimes to the consternation of the nations under comparison. When, for example, the Spanish stock market broke early this year in sympathy with the collapse in Mexico, the Spaniards were amazed. They hadn't held title to the colony since 1821.
Citicorp made a new 52 week high last Friday, as the bond market leapt for joy at the vision of recession or stagnation or an economic calamity even greater, and therefore better, than either one. Or perhaps the source of the monumental lift-off was civic improvement, such as deficit reduction, or the prospect of so little inflation that the Federal Reserve would soon accommodate the storied soft landing...
A discerning Bundesbank watcher contends that the next German interest-rate move is a foregone conclusion. He calls it certain, inevitable and imminent. According to Allan Saunderson, managing editor of the Frankfurt Money Strategist (the publication is new, Saunderson is seasoned), the German discount rate, now 4%, will be cut, perhaps on June 14 or June 29. The only real issue, he claims, is whether it will find its way to 3%, its customary low cyclical resting place.
In recent days, gold bullion has outyielded the world's strongest currency: 12-month gold lease rates (the rental paid on borrowed gold) have met, and exceeded, the yield on 12-month yen deposits. Each now hovers around 1%. Japan is a sorry mess, with industrial production sinking and the unemployment rate breaking out to new highs...
As recently as 1984, reports Liquidation Alert, Newark, N.J., the 32story office tower at 2 Broadway was appraised at $405 million. Now only 15% occupied--downtown businesses have been migrating north for years--the 36-year-old pile is up for sale by an Olympia & York partnership at a discount to that decade old valuation. The minimum asking price is $15 million.
As the U.S. economy took an unpredicted turn for the worse, Grant's reappraised the statistics, trends and anecdotes that have supported its view that the long bond would not trade at 6-1/2% this year. Our report in brief: We could not locate the wall with which the economy has allegedly collided at a dead run.
"We are currently searching for a bottom in consumer spending with the timing of any potential rebound becoming less certain as income weakens beyond our expectations." Those cautionary words, written by one of the authors of the 1995 bond-market script, raise the possibility of another leg down in interest rates. However, the nation's lenders have chosen not to wait for conclusive evidence of further economic weakness. They are giving away money right now....
Tom Waldeck was a lonely bull on corn and wheat in the dead of winter (Grant's, February 3), but this month he has found company: Global demand has continued strong, Highway 94 in West Alton, Mo., is flooded again and prices have lifted off. "The job of the market for the next 12 months is to ration demand," Waldeck said Monday.
Boston Chicken is the restaurant chain with its own "chief concept officer." The top Boston Chicken concept, formerly chicken, is now "home meal replacement," including meat loaf. That's why Boston Chicken stores are reinventing themselves as Boston Market stores. The No. 2 concept, by the looks of it, is growth, and the No. 3 concept is lending to finance growth. In that sense, the Boston Chicken concept is the bull market on a plate. It is a universal topic.
Perhaps a publication with "interest rate" in its banner should learn the difference between up and down, and between yield and price, so that it does not write "Prepare for lift-off" (as it did on this very page only one issue ago, declaring that rates would rise) when it could have said, with only a little more foresight, "Lookout below!" In predictive matters, misery hates company....
It is the misfortune of American gold bulls to live in America, the land of the $52 Brooks Brothers' all-cotton, pinpoint dress shirt, recently marked down from $60 despite the great bull market in cotton. It is the nation that has grown so tired of waiting for inflation that it has instead bought bonds.
The great issue is whether, just this once, the economy will land softly. If so, the collapse in money-market interest rates--three- and six-month bills are actually quoted below the 6% federal funds rate--would be justified, and the buyers of single-A industrial debentures could be excused (in a way) for paying. . .
Low-temperature superconductors-- substances that, by carrying an electrical current without resistance, hold out the long-range promise of lower electricity bills and magnetically levitated trains--were discovered in 1911.... All of which is preface to a layman's inquiry into the possible investment consequences of last week's superconducting breakthrough at the Los Alamos National Laboratory in New Mexico.
The influential, fashion-forward, Wall Street Journal editorial-page-certified view of the dollar crisis is that it is actually a misnomer. The dollar is not an inflationary specimen; instead, the theory goes, the yen and the mark are deflationary ones. The burden of adjustment should therefore fall to Japan and Germany, not to the United States.
In 1989, Ratners Group plc, a fast-growing, fast-borrowing British retail jewelry chain, floated an issue of "variable term preference shares," a class of security better known in the United States as adjustable rate preferred. In 1990, recession struck. In 1991, chairman Gerald Ratnier, who had taken companywide sales to £635.2 million from £27.6 million in only five years, offered an impromptu public appraisal of a Ratner's sherry service. He called it "total crap."
ASA Ltd., the original closed-end South African gold fund, changes hands at an 8.9% premium to net asset value. On the other hand, New South Africa Fund, a 1994-vintage closed-end South African gold and non-gold stock and bond fund that is heavily tilted to commodities, trades at a 17.6% discount. How to explain the newcomer's discount in view of the the old-timer's premium?
The recent sharp deterioration in loan pricing--borrowers, on the contrary, see improvement--made the front page of last Sunday's New York Times, but the news was upstaged by the familiar radio message broadcast from Autoland, Springfield, N.J., that it will sell a car to absolutely anybody.
Although the dollar/yen exchange rate is demonstrably not our strongest subject, we think we will not turn bullish on the yen right now. Many Asian central banks are reportedly doing just that, however. Long too many dollars, they have been selling them for what will almost certainly prove to be not enough yen.
One potential source of future credit upheaval is the ever-receding cost of a long-distance telephone call. Standard & Poor's alluded to looming competitive changes in the telecommunications market (with its approximately $100 billion of long-term rated debt) in revising its outlook last week to negative from stable for AT&T Corp.'s AA-rated long-term bonds.
Talton Embry, junk-bond investor, workout specialist and advocate of compound interest, invited the oil bulls at the Grant's spring conference last week to examine the depths of their own bullishness. Did they expect the price of crude to compound at an annual rate of 24% over the next 12 years, for instance? Was $2,215 a barrel, the ultimate price implied by such an internal rate of return, in their minds' eyes? If not, Embry suggested a contrary, derivative investment: purchase of the heavily discounted debt of the speculative-grade oil-producing nations themselves, e.g., Algeria, Ecuador, Nigeria, Russia and Venezuela.
Michael Aronstein, who made a midlife transition to commodity investment from stocks and bonds, challenged the universal assumption that inflation is bullish for the prices of things. "Actually, it's the opposite," he contended, causing a buzz in the conference-goers' minds.
If the bond market lives and dies by inflation, why did it very nearly check out in 1994? Last year, as it will come as no consolation for bondholders to remember, core CPI inflation rose at the slowest pace since 1965. James A. Bianco, director of research with Arbor Trading Group, Barrington, Ill., dangled that paradox before the conference-goers, and he made this observation...
Not every single one of the 10 mutual funds that your editor selected for consideration by the Grant's audience was actually in existence on the day of the conference. Then again, in 1995, if a given fund does not exist on a certain Wednesday, it might be up and running by the following Monday.
Two hundred disappointed conference-goers were turned away last Saturday from a meeting of the Detroit Council of the National Association of Investors Corp., the investment-club umbrella organization. The overflow crowd is a bull market omen. Investment clubs, as the famous ladies of Beardstown, Ill., have sdiscovered to their delight and profit, are red-hot.s
Oil prices peaked as long ago as 1980, the same historic year in which gold bullion dove off a tower measuring $800 high. In real terms, oil is cheaper today than it was two decades ago. Energy (if such a thing can be conceived of in 1995) was the semiconductor stock of the Carter administration.
As might be expected, the phones have been ringing off the hook at the Mark Twain Bank, St. Louis, one of the leaders in the retail currency- deposit market. As might not be expected, however, the net volume of currencies purchased by Mark Twain's customers last week did not quite reach $5 million.
The stock market graph was inspired by the news (Grant's, March 3) that the value-seeking investors at Tweedy, Browne Co. are finding more and more Japanese equities to buy. It was an odd thing to hear from Tweedy, because Japan has long had it in for the disciples of Graham and Dodd....
Within the next 12 months, if all goes according to plan, electricity will become another traded commodity, and the clearing price of a kilowatt hour will be discovered on the floor of the New York Mercantile Exchange. Almost certainly, in the dawning competitive world, efficient utilities will reap some new benefit, inefficient ones some new cost.
The Clearing House Interbank Payments System, although not actually invented by Newt Gingrich, incorporates many of the speaker's leading ideas, including the general proposition that nothing is impossible. It might seem impossible, for instance, but it is nonetheless true, that more than $1.2 trillion a day zooms around the computer network called CHIPS. The money--or, rather, electronic instructions to pay or receive money--is sent and received by banks worldwide.
Further to the front-page discussion of Federal Reserve policy, a student goes to the source. What the balance sheet shows this week is a tailing off in growth: year-over-year expansion in adjusted Fed credit has dwindled to 6.8%, one-half of the rate prevailing as recently as 1993...
On Wall Street, it's feast or famine--or both at the same time. Now it's both. Despite record-high stock prices, despite all-time-high trading volumes, despite a brisk gait of investment-banking activity, the Street seems to wish that it had never been born. What could be wrong?
Buyers outnumbered sellers in the bond market by a ratio of five to one on Tuesday, according to a trader on the desk of a downtown neighborhood bank. Near-unanimity swept the interest-rate world just as it did in December. The difference lay in the emotional makeup of the crowd...
To listen to Robert Rubin, Senior Managing Partner of the Department of the Treasury, the $48.8 billion international lifestyle-extension facility for the Mexican government will have no harmful side effects for American finance.... No doubt, officials, being officials, know best, but it has never hurt to look under the rock of a policy conceived in haste...
Like certain inedible commodities found on dry land, seafood is in a bull market. Black tiger shrimp and Australian lobster tail have recently climbed to six-year highs. "We never thought we'd be able to sustain $5 a pound for king crab," said a Pacific Northwest fish processor, "and now it's $11. And Opilio crab--four or five years ago we couldn't go over $2 a pound, and now it's well over $4."
Inventories are the macroeconomic flavor of the week. In the bond market's opinion, they are too high. But there is not too much wheat, corn or rice on the face of the earth. Worldwide inventories of grain are low. Indeed, when measured as a percentage of consumption, they stand near the lowest levels in a generation. We have written variations on this last sentence before.
According to first reports of the Mexico transaction, a $5 billion or $6 billion portion of the United States Exchange Stabilization Fund will be swapped into pesos from yen, deutschemarks or guilders. If true, intervention would be taking the form, known so well to traders, of "catching a falling knife," or buying an asset in mid-free-fall.