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December 22, 1995, Vol. 13, No. 24

How little they know

Some good, at least, would come out of a single European currency. For the first time in decades, the earth's population of central banks would decrease.

Circle comes full

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. . .

It's the top

Next April, the tallest free-standing observation tower in America is expected to open to a non-acrophobic clientele in Las Vegas. If window washers, bridge-painters and high-iron workers will find the thin air familiar, others may gasp....

Stocking stuffer

For the bull who has everything, a last-minute gift idea: "The Whiz Kid of Wall Street's Investment Guide: How I Returned 34% on My Portfolio, and You Can, Too," by Matt Seto (with Steven Levingston).

But the fish are real

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...

Edible is better

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.

Ill wind

Even if rock-bottom yen-denominated interest rates have not yet made Japan prosperous again, they have made it more fun-loving. Soon the island nation may be able to reclaim its rightful place as a world leader in stock manipulation.

The best 72 hours

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.

The new correct interest rate: 5-1/2%

Arguments for another reduction in the federal funds rate were instantly available after the Fed delivered 25 basis points on Tuesday...

December 8, 1995, Vol. 13, No. 23

The Bank of Japan drops a hint

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.

Hedged to a fault

The September 10-Q report of Amerada Hess contains a suggestive bit of disclosure. The company has stepped up its forward sales of crude oil.

Bears' complaint

"Our funds are actively managed," Fidelity Investments said Monday in reply to The Washington Post, which had accused it of talking up certain stocks while quietly selling them down...

Yield deficiency syndrome

Investors continue to ransack the world for yield: Japanese nationals are buying Treasurys, and American citizens are buying a type of hybrid preferred stock that Wall Street, trying to be helpful, created specifically for the yield-deprived.

'Stock Mania'

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.

Bad debt merchant

The proliferation of sub-prime auto loans, B-grade and C-grade mortgages, bottom-rung credit-card receivables, low-margin syndicated bank loans... would seem to mark the credit expansion of the 1990s as a worthy, opportunity-laden successor to the boom of the 1980s.

Making it up as they go along

"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."

November 24, 1995, Vol. 13, No. 22

Behold the unauthorized

Despite a world economy that, on its better days, achieves only a brisker rate of creeping, commodity prices have firmed in recent weeks.

Investment fever

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.

Old country ages

The oxymoronic France Growth Fund, which is listed on the New York Stock Exchange, generated a cumulative return of only 3.5% in French-franc terms between its inception on May 18, 1990, and what must have been a slightly subdued fifth birthday party last spring.

Golden volcano

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?"

One goes up, one doesn't

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.

Credit cycle orienteering

The news in the numbers is shrinkage. Thus, the three-month annualized rate of growth in total nonfinancial debt (government, corporate, personal) declined to 3.5% in October from 4% in September; the October reading is one of the lowest in the past three decades...

November 10, 1995, Vol. 13, No. 21

On the advisability of not defaulting

Over the past 12 months, the 30-year Treasury bond actually delivered a higher total return than the stock market. The margin of outperformance, 32.92% to 29.60%, was remarkably strong for an asset class that is under the cloud of default.

Power surge

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."

Risk dresses down

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....

High tech unwinds

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...

Clean sweep

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....

October 27, 1995, Vol. 13, No. 20

Snapshots of the year 1931

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.

One bank too many

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.

Interest-rate bet

It is the working hypothesis of Simon Long, reader and interest-rate speculator, that the Eurodollar futures market--so deep, so allegedly knowing--is, first and foremost, an anxiety receptacle.

No growth whatsoever

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?

Tech wreck '95

"The tech sector is not independent of the economy," Fred Hickey, editor of The High Tech Strategist, told the conference-goers. "It is cyclical."

Newly backward countries

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.

Harkins vs. Siegel

The great debate at the Grant's conference turned not so much on the merits of equities--each contestant agreed that they have excelled over the long run--as on visibility in the financial future.

Up with stuff

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.

Zell: the next decade

Sam Zell, capitalist and real-estate developer, warned the conference-goers that the American construction crane is becoming an endangered species.

When Rubin was a civilian

The inventory correction, according to William V. Sullivan Jr., ace money-market economist at Dean Witter Reynolds, is ending or over.

October 13, 1995, Vol. 13, No. 19

Same country, same currency, new plot

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.

Real money in Asia

Hardly a week goes by without foreign central banks collectively laying in another $3 billion to $5 billion--not because they are bullish, but because they are worried.

Consequences of 3%

By every outward appearance--low interest rates, a technological revolution, a capital-investment boom, a great bull market and a minuscule inflation rate--the U.S. economy would seem to be beyond improvement. Only one cycle ago, of course, it wasn't....

Hear the optimists

"We see strength in housing, residential and commercial, that is broadly based and in most regions," Simpson went on. "We hear California is not that strong, but that would make it the only part of the country like that."

Cheesecake goes public

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....

Weak efforts near and far

The truth about the inevitable, looming, titanic Japanese reflation is that the Bank of Japan is resting on its oars.

September 29, 1995, Vol. 13, No. 18

Race to the bottom

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?

No guts, no etc.

Samples of the public utterances of a pair of our leading tech-stock fiduciaries--from the Bloomberg wire on September 21...

New flow chart

In the absence of hard, up-to-the-minute Commerce Department data on the contribution of computer technology to the gross domestic product, Grant's has assembled some of its own.

Wasting assets

For those who subscribe to the macroeconomic views of the chairman of the Federal Reserve Board, but not to Pulp & Paper Week, a news flash: shipments of cardboard boxes and the prices of waste paper are both keeling over.

Red, white and blue

Long-shot equity investment is one quintessential form of American finance. The debtor-in-possession loan is another. Neither is indigenous to any other industrialized country.

Behold the unauthorized

With the eruption of Mount Ruapehu in central North Island, New Zealand suddenly has a more pressing problem than its 9%-plus 90-day bank bill rate.

Real and ersatz

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.

September 15, 1995, Vol. 13, No. 17

From the great state of Idaho

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.

Only first class

In a world such as this one--a service economy doing business in a stock-market boom--Summit Aviation is more than essential. It is inevitable. It is the complete, air-land road-show transportation company.

New bankruptcy boomlet

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.

Best-case finance

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.

A touch of fall

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.

August 18, 1995, Vol. 13, No. 16

Soros gives up his secrets

The Waterloo of the middle-aged bond buyer in 1995 was the falling dollar. Knowing full well that weak currencies tend to promote inflation, financial instability and rising interest rates--he had read it a hundred times--the gentleman stopped buying.

Mean regressions

Normandy America Inc. is a start-up reinsurance company with a concept. Its concept is that equities excel. So deeply wedded is Normandy to this idea that it proposes to invest in stocks almost exclusively.

Reflation report

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.

Aluminum bellwether

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?

Even more bearish

An error crept into the graph in the last issue that plotted the valuation of the Standard & Poor's Industrial index. The July 1994 dividend yield should have been 2.4%, not 4.2% as shown.

Most contrary

"The import price index for industrial supplies and materials is up 11.1% for the 12 months ending June 1995. The export price index for industrial materials and supplies is up 17.1% for the 12 months ending June 1995....

August 4, 1995, Vol. 13, No. 15

Like pixie dust

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.

1995 in reverse

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?"

Peter Lynch who?

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.

Cuba, si!

Since the turn of the year, the 4-1/2% Cuban bonds issued in 1938 by the regime of Gerardo Machado and unserviced since 1961 by the regime of Fidel Castro have rallied by some 35%, climbing to 54 cents on the dollar, a price at which they yield nothing.

Hugs for Hughes

If you are still with us, the singular rally in the Cuban 4-1/2s prompted thoughts of the early de-Stalinization of Cuba and thus of a new market for Hughes Supply, the Orlando (Fla.)-based construction-materials wholesaler.

1991 all over again?

The main impediment to an unbiased understanding of the Japanese debt predicament is the still-fresh recollection of the American one.

Follow the trend

At a recent one-day conference on semiconductor stocks--the hottest, most momentum-worthy, most levitation-prone group in the market...

Physician, heal thyself

The editorial-page essay in Tuesday's Wall Street Journal on the urgent need for reflation by the Bank of Japan was signed by none other than a senior Federal Reserve Bank economist, Robert Laurent.

July 21, 1995, Vol. 13, No. 14

The Bank of Japan lights a match

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.

Behold stuff

One of the top non sequiturs of the global-business slowdown is the base-metals pickup. As a rule, recessions are bearish for the prices of aluminum, copper, lead, nickel, tin and zinc, yet those markets have risen lately as if the people who trade them don't watch television.

New cycle dawns

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. . .

Stocks in a loft

Jay Diamond writes: I came upon Select Equity, managers of money and purveyors of value-oriented investment research, right above the Time Cafe, at 380 Lafayette St. It's a loft space on the third floor of an industrial building. . .

Every man a king

New insight into the bulge in consumer installment borrowing was provided in Monday's Wall Street Journal report on the Wharton School junior who . . .

July 7, 1995, Vol. 13, No. 13

Story fatigue: a market at risk

Nothing can match the emotional experience of a truly bad interest-rate call, except, perhaps, the financial experience. An amazing new interest-rate fact, on the other hand, almost always improves the quality of debate.

Momentum in value

New evidence that the bears live on the wrong planet was made available on Monday when shares of Paradigm Technology Inc. vaulted to 24-1/2, up $2 and change on the day and up from the $14 initial new-issue price set only the prior Thursday...

They don't hedge

When the professional short sellers are losing their minds, their money and their positions, who or what is behind the steady, record-setting rise in the number of shares sold short?

Block party finance

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.

Borrowing yen

The only thing better than borrowing dollars, a bond bear proposed in the last issue, would be borrowing yen, the currency that contrarians love to hate (and wish they had not hated for so long). But, our man asked, how could he go about doing it?

New Russian revolution

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.

Not forgetting the obvious

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.

June 23, 1995, Vol. 13, No. 12

Solvency through speculation

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.

New capitalist tool

The fledgling direct-mail industry in Russia starts out with one world-class advantage: KGB mailing lists.

Culture Vultures

"When tempted to buy," said the banker James Stillman, who could have collected art but chose to collect money instead, "I always find myself mentally calculating on the back of the canvas what the interest on the money would amount to at 6%."

Vigilante in person

Donald Trump is hitting up his creditors again (they are enchanted by his sincerity), and the merger of two California supermarket chains has produced a grand total of $136 million in fees and expenses for the deserving promoters...

T Boone's lament

Miscalculating in the 1980s, T. Boone Pickens, chairman of Mesa Inc., bought natural gas reserves with borrowed money. W

Pipe down

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).

Bear gets a loan

Michael Aronstein, a contrarian whose bearish views on real estate once put the fear of God into the home-owning readers of Barron 's, has just bought a house. Not the least of the charms of the 4,000-square-foot colonial in Rye, N.Y., he said the other day, is the mortgage.

Who bosses whom

The bond market is the Cowardly Lion and Alan Greenspan is the Wizard of Oz, according to the monetary theory of Bert Ely, the Alexandria (Va.)-based bank consultant. . .

Merger bull market

The number of announced merger and acquisition transactions stands at 180, either a record or a near-record...

Robert Crandall for Fed chairman

Concerning the business climate, a pair of clarifying dispatches...

June 9, 1995, Vol. 13, No. 11

Preempting deflation

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?

Or maybe, a depression

In the global village, everybody, sooner or later, believes the same thing. Now we believe in the "soft landing."

Spain, old and new

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.

No recession here

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...

Long prefers short

Simon Long, of Junction Partners, New York, speaks with authority on Eurodollar futures because he bought them near (but not at) the lows of late last year. He suffered with them, and rode them up and up. He is still bullish on them--although not on bonds.

German rate call

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.

Deflation central

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...

Empty Wall Street

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.

Calling all sources

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.

May 26, 1995, Vol. 13, No. 10

Lenders fall down on their knees

"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....

Sell common stocks

Mr. Market has become his own greatest advertisement. Even on the odd day when somebody forgets to bid and the Dow Jones Industrial Average does, by mistake, go down, everybody knows that it will presently go back up again. The Beardstown Ladies have willed it to happen.

Rain on the grain

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.

Where in the world?

From a Global Finance roundtable on investment in Asian infrastructure, an exchange between one of the panelists, Charles Walker, and the magazine's moderator...

Bank of Chicken

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.

Who's on first in Japan?

Despite expectations, rumor and logic, foreign central banks did not reduce their holdings of Treasury securities as of the latest Federal Reserve reporting date. Rather, they increased them, by almost $4.2 billion....

May 12, 1995, Vol. 13, No. 09

How to interpret a panic

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....

Credit saturation

In all of American financial history, no real estate developer has ever been known to refuse a loan. On the other hand, one leveraged insurance company just did.

Meeting adjourned

As a follow-up to last issue's report on the Ratner Rebels, the Signet Group preference shareholders lost the battle at the May 5 Extraordinary General Meeting...

Reserve-currency curse

Late last month, Hapag-Lloyd AG, the German shipping and tourism giant, asked shippers to entertain the possibility of freight rates invoiced not in dollars, the world's principal unit of account, but in nondollars.

Gold per capita

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.

Thanks, hello

From a front-page story ("Thanks, Goodbye") in the May 4 Wall Street Journal concerning the alleged continuing blight of corporate layoffs...

'What else could go right?'

So asks Nancy Lazar, economist at 1ST, who anticipated the bond-market improvement long before it happened. What else? indeed. One potential source of cheer for disaster-hungry creditors...

April 28, 1995, Vol. 13, No. 08

Prepare for lift-off

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. . .

Luddite bonds

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.

Dear Bank of Japan

Three gentlemen evidently unknown to each other have independently arrived at the same subversive monetary idea. They ask: Wouldn't an Asian central bank be better served by diversifying out of dollars than by blindly accumulating more of them?

Blame the dollar

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.

Showdown for Signet

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."

Stuff at a discount

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?

'Great News!'

Bank of Boston is beating the drum that you, favored, pre-approved customer, may borrow up to $25,000 against the equity in your home. "Bank of Boston's new equity options allow you to access up to 100% of your home's equity," the advertising copy says...

April 14, 1995, Vol. 13, No. 07

The marginal banker says 'yes'

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.

Burning rubber

"Soaring residuals worry bankers," read the headline in the April 3 Automotive News. "In their eager pursuit of leasing business, banks and captive finance companies are inflating residual values on leases [on cars and trucks] to all-time highs," said the story itself.

After the yen

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.

Distant early warning

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.

High-yield oil

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.

Bullish on deflation

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.

Three big bears

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...

Ten funds now!

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.

Used pipe dream

The prize for the most suggestive anecdote of the day by a commodity-oriented speaker went to Kris Mahabir. Mahabir reported that, in the past six months, the price of reconditioned oil-drilling pipe has vaulted to $11 a foot from $1 to $1.50 a foot...

How do you spell complacency?

Reuters reports that the treasurer of a small Northern California county has been rebuked for earning too little on her unimaginative, low-yielding investments.

March 31, 1995, Vol. 13, No. 06

Now heed Bill Farley

Pushing up stock prices, if possible without violating the letter of the federal securities laws, is one of the top quarter-end occupations on Wall Street, but Main Street, too, holds inflationary aspirations.

Stock clubs

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

Up with crude

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.

Pricing 'oiliness'

Another contrarily bullish sign for crude is the lower regard for oil exploration and production stocks held by Wall Street. The standard E&P company changes hands at perhaps five to six times cash flow, down from eight or 10 times as recently as the winter of 1993

Salomon and who?

It must say something about the bond business when Salomon Brothers, J.C. Bradford & Co. and Olde Discount Corp. prepare to team up to underwrite $50 million of something called Structured Treasury Escalating Pass-Through Certificates...

Crisis in money

Either the monetary turmoil of 1995 is a crisis of a particular brand of currency, or it is a crisis of the institution of managed currencies: of central banks, floating exchange rates, G-7 meetings...

William F Rickenbacker

The death of Bill Rickenbacker, son of the famed World War I ace, deprives this publication of its most demanding, literate and appreciative reader.

Three thousand miles' perspective

"Suppose," said the Financial Times last weekend, raising the consciousness of its North American readers, "the Bundesbank or Bank of Japan were in charge of monetary policy in the U.S....

March 17, 1995, Vol. 13, No. 05

Tight and loose, drunk and disorderly

Is American policy too tight? Or, to ask the same question another way, is the federal funds rate too high? Has it choked off business activity, bank lending, agriculture and wholesome speculation?

Derivatives made easy

"Some 18 months ago, at a press conference given by a German bank, the question of derivative regulation was raised," wrote James Morgan, columnist for the Financial Times, just after Barings failed.

Buck privates

One of the hottest investments of the season is private equity: buyouts and acquisitions, venture capital and mezzanine debt. Yet one of the colder public equities is Allied Capital Corp., the Washington, D.C., lender to (and investor in) small business.

Walk on the dollar

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.

Zero percent interest

Yield-conscious as the average American may be, the federal government last fiscal year paid out no less than $86.1 billion in personal income-tax refunds on which the average taxpayer earned nothing.

Decliners lead advancers

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....

Utilities part company

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.

So lovely on paper

Telefonica de Argentina, the big, profitable Argentine telephone duopoly (it's got the southern half of the country), issued $300 million of U.S. dollar-denominated notes last October, the 11-7/8s of 2004. What could go wrong?

Then there were 115

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.

Less zip to the balance sheet

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...

March 3, 1995, Vol. 13, No. 04

Let the orphans sleep in the snow

The currencies against which the U.S. dollar has not declined in 1995--the Mexican peso, the Polish zloty, the Zambian kwacha, to name some of the leaders--can provide only so much comfort to Alan Greenspan.

Chez emerging markets

"Most investments don't pay off," remarked Daniel M. Collier Jr., New York dealer in foreign and obsolete securities, military memorabilia and rare documents and manuscripts. "You know that."

Earthquake finance

"In the long run, you can't stop the fundamentals," a bullish Tokyo stockmarket analyst told The New York Times two days before the eminent firm of Barings PLC fell into the Singapore River and drowned....

The next Barings

Big hat, no cattle

Announced share repurchases by American corporations set a record last year: $68.1 billion in 985 separate press releases. But wait. Since 1985, according to Securities Data Co., two-thirds of the announced buyback programs were never completed....

Brokers: a pair

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?

High cotton, low CPI

Cotton prices closed in on $1.06 a pound on Tuesday, some seven cents higher than the previous modern high of 99 cents, which was set in the inflation-rich year of 1973. By contrast, of course, 1995 is inflation-poor....

More stinking pesos

If the Mexican currency were actually being monetized (Grant's, February 17), the circumstantial evidence would include a bulge on the Fed's balance sheet. And, indeed, the catchall item called "other asset" has grown...

February 17, 1995, Vol. 13, No. 03

In shortage: bonds and boxes

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...

Long shots

Like the dud comet Kohoutek, inflation has disappointed the millions of sets of eyeballs that have been trained to the spot where it was supposed to make an appearance. The fear and theory of inflation we have had, but not the thing itself.

Mexican fandango

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...

Game of inference

The weakening peso-dollar exchange rate points to trouble in the announced $48.8 billion rescue plan. What could the sticking points be?

Argentina for sale

Measured by air miles or monetary systems, Argentina and Mexico are worlds apart, yet the bond market insists on calling them neighbors.

Making book

In literature, as in markets, all things have their season. To judge by the No. 13 entry on The New York Times nonfiction best-seller list last week, now is the time to buy common stocks and never to sell them.

Conspiracy corner

Do you deal in derivative securities? we asked a Federal Reserve spokeswoman. Our question was prompted by a story about the Bank of Japan...

Such a bargain

Like bond yields of 30%, price/earnings ratios of 1-1/2 times do not exist in a vacuum. They come into being for a reason. Nowadays, the reason for a P/E ratio of 1-1/2 times is frequently Russia.

Words to live by

Despite higher interest rates, the pace of borrowing and lending continues to quicken.

February 3, 1995, Vol. 13, No. 02

'Hello, Rush? This is Alan'

The most frightening news in the events leading up to the Mexican financial rescue on Tuesday was that the chairman of the Federal Reserve Board had called Rush Limbaugh.

Fish story

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."

Power surge

Before the end of this year, if all goes according to plan, the New York Mercantile Exchange will begin to trade the ultimate weather-sensitive commodity: electricity futures.

Throw the bums out

Central banking has become a modern-day cult, according to "The Central Banks," a provocative new book just published in Britain (but not yet in the United States; the London publisher is Hamish Hamilton).

Bullish on grain

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.

Last of the bailouts?

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.

January 20, 1995, Vol. 13, No. 01

New this year: no-fault capitalism

Fannie Mae minestrone

Top of the cycle

Danger: curves ahead

Perpetual turnaround

Be short, be sore

Tokyo meets New York

Bullish on adversity

A southerly flow of deflation

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