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In Alpharetta, a northern suburb of Atlanta, a certain financial-services executive is playing the system like a Stradivarius. His car loan requires no interest payments. His mortgage requires no principal payments. Truly, he is Mr. Interest Only-Principal Only, or--as his friends might have it--Mr. I.O.-P.O. . . .

Late in July, J.P. Morgan Chase & Co. had a couple of bad days in the bond market. The immediate source of the problem. . . .

From the workshops of Credit Suisse First Boston, Merrill Lynch and Lehman Brothers comes an emblematic financing of this high-yield bull market: $200 million of five-year senior notes of. . .

The cautionary argument on commodities advanced in the November 7 issue of Grant's came in three parts: (1) China is the marginal bid in the global commodity markets. (2) The Chinese government has ordered a cooling in Chinese economic growth. (3) Therefore, commodity prices will fall. . . . There is new information. . . .

"Now here is a truly baffling investment idea,". . .

Robert E. Rubin, in his new book of memoirs, describes Alan Greenspan's thought processes during the pre-inaugural phase of the first Clinton administration. On the subject of the federal deficit, the Maestro had a theory. . . .

In a series of disclosures now in their 12th month, Freddie Mac, the No. 2 United States mortgage behemoth, has admitted to lapses, errors and misjudgments leading to a multibillion-dollar restatement of its earnings and capital position. . . . . .Insouciance may reign in the stock market, and it may reign in the bond market. But it doesn't reign at Grant's. Now unfolding is a brief for worry. . .

A technology fund is shutting up shop, and not because, as briefly seemed possible during the 2002 stock-market liquidation, the Internet economy has fallen into a black hole. . . .

Junk bonds and convertibles are drastically overpriced, and some hedge funds are beginning to sell them short. So said the prior issue of Grant's. Of course, that portion of the population equipped to sell short a corporate debenture is, perhaps, as high as 0.001%. What about the rest of us?

Reuters reported from Los Angeles on December 1: "The company that runs one of the worst-performing mutual funds in the United States has taken a huge gamble by hiring the youngest mutual fund manager ever, a 20-year-old stock picker who has not graduated from college.". . .

The world lives in hope that the bad-loan problem may soon stop tugging at the reins of the second-largest economy. . .

Convertible bonds and junk bonds are priced for a more perfect world than the one you read about in The Wall Street Journal. To judge by today's low yields, the corporate debt market has relocated from planet Earth to a far better place. . . .

Laurence A. Tisch, who died on November 15 at the age of 80, had a face that glowed and crinkled. . . .

Addressing the urbane Grant's audience at the chic St. Regis Hotel, Keith Bronstein, of Chicago, discussed soybeans, as he had at a 1998 Grant's event. Five years ago, Bronstein proposed that. . .

"They're perfect widow and orphan stocks, if you don't like the widow or the orphan." So John Boland, general partner of Remnant Partners, Baltimore, laconically characterized some of his micro-cap holdings. He was more respectful toward. . .

Van Hoisington, the bond bull at last week's Grant's conference, didn't insist that interest rates couldn't go up--they have, in fact, spurted higher at intervals through the long, post-1981 bond bull market, and they jumped in the summer. Rather, Hoisington said. . .

That stock prices might possibly be a little high was an idea broached by a pair of Grant's speakers. . .

"This reminds me a lot of New York City in '75-'76," William E. Simon, successful private-equity investor but unsuccessful Republican gubernatorial candidate in California in 2002, told the Grant's throng. . . .

M-3, as you will doubtless remember from that 8 a.m. money and banking class, is a composite of the liability side of the nation’s bank balance sheet. It is an $8.8 trillion number. . . .

Twenty years ago, this journal introduced itself to an intimate band of readers with the following statement of purpose. To those readers, and to all who later joined them, the editor and staff extend their deepest thanks.--J.G. In a more perfect world, this magazine would not have been born. Through most of American history, the purchasing power of the dollar was reasonably stable and long-term rates of interest were low. In those tranquil circumstances, nobody stepped forward to. . . .

Banco Latinoamericano de Exportaciones S.A.--you may call it "Bladex"--is a bank with a past. It is also, in our opinion, a bank with a future. However, there can be no understanding of the prospects without a. . . .

On December 23, at 6:02 p.m. on the basis point, the Federal Reserve System will turn 90 years old. It may dance a jig. For ourselves, we have composed an essay on money and bureaucracy. . . .

The best quarter of American GDP growth since the Reagan Revolution did not turn heads at Wal-Mart Stores, emporium to the world. . . .

1. China is the marginal bid in the global commodity markets. 2. The Chinese government has ordered a cooling in Chinese economic growth. 3. Therefore, commodity prices will. . . .

Within a month of our publishing a bearish review of Sprint PCS, the stock price fell to $4 from $6. . . .

The science of interest-rate forecasting was set back on its heels early Wednesday when the Reserve Bank of Australia raised its overnight cash target rate to 5% from 43/4%, its first move in 17 months. "None of 22 economists surveyed by Bloomberg News forecast a rate increase this month," reported Bloomberg News. . . .

The growth locomotive of the world economy is a communist state with a banking system that resembles the Texas S&L industry at the peak of the Dallas real estate delusion. The biggest and most dynamic stock market in the world trades near the high end of its historic valuation range, and the unchallenged global currency is the emission of a country that is running a current account deficit equivalent to 5% of GDP. Now unfolding is a meditation on risk and reward, keyed on Asia and the United States. . . .

Reader John S. (Sandy) Brasher 2nd, of New Orleans, asks a pertinent question about the ubiquitous ads for the redesigned $20 bill ("The New Color of Money. Safer. Smarter, More Secure"): "Have you ever seen a monopoly advertise more?". . .

Even before adjusting his stock market returns for the size of his family, Dan DeClue leads a volatile investment existence. The Millennium Value in Biotechnology L.P., of which he is general partner, was up by (#)% in 2001, its first year. . . .

The summertime drop in bond prices shot a small hole through the managed accounts of Hoisington Investment Management Co., Austin, Texas. They were down by (#)% in the third quarter vs. a drop of (#)% in the Lehman Aggregate Bond Index. But that did not shock. . .

South Korea is emerging from recession, but not with its customary V-shaped gusto. Recovery is "sluggish," according to Andy Xie, a Morgan Stanley economist who recently went calling there. . . .

First up is a surprise $39 billion drop in M-3 last week, cause uncertain. A falloff in mortgage refinancing activity is a leading suspect. . . .

"We started in January 1997, and it's been a bear market in Asia since that day. . . ," says James C. Ayer, the Ayer behind the Tiedemann/Ayer Asian Growth Fund. Yet, since inception, the partnership has produced compound annual returns of (#)%-plus. Notice the absence of parentheses around "(#)%." Over the same stretch, the Morgan Stanley Pacific index has fallen by (#)% a year. Following is an exploration of Asian finance. . . .

A new futures contract on the U.S. Consumer Price Index is rolling off the assembly lines of the Chicago Mercantile Exchange, but it isn't the first of its kind. . . .

If the recovery is jobless, it is also loanless. Or, at least, it is almost business-loanless. Lenders have every thing they need to lend--money, lawyers, short memories (thank you, Michael Lewitt)--but one: They can't find the borrowers. . . .

Hedge funds have boosted their exposure to stocks (relative to their "benchmarks") to the highest level in the past year, International Strategy & Investment reported last month. And the firm added, "This suggests that hedge funds have indeed started to play the long side in an effort to boost relative performance.". . .

The fast-rising supply of Swiss francs is the picture of a former safe haven. M-2, that slice of the Swiss money supply comprising cash, checking accounts and savings accounts, showed year-over-year growth in August of an un-gnome-like (#)%.

The Peninsula Technology Fund of San Francisco was founded on Oct. 1, 2001, to invest in what the bursting bubble had splattered. The founding partners' enthusiasm was evidently not contagious, because $(#) million was all the capital they initially could scrape up. . . .

Thanksgiving for the dissatisfied American cell-phone consumer will fall on November 24 this year if, as expected, the Federal Communications Commission takes action to make mobile phone numbers mobile. . . .

Aficionados of silver trading point out that the December futures contract is quoted at a slight premium to the March contract, whereas, by rights, it ought to be at a slight discount.

In the June 30 quarter, the Federal Home Loan Bank of Pittsburgh essentially broke even. On a capital base of $2.25 billion, it earned a grand total of $2.4 million. To help pay a 2.25% quarterly dividend, it found $10 million in the retained earnings account. There are 12 banks in the Home Loan Bank System. . . .

"Risk" and "reward," perhaps because they both begin with the letter "r," are easily confused on Wall Street. But in emerging markets, the words--in fact--are frequently synonymous. In recent years, the riskiest emerging markets have tended to deliver the highest investment rewards. . . .

In the past 30 days, the word "deflation" has appeared just 2,898 times in the English-language media, or that portion monitored by Factiva, a joint venture of Dow Jones and Reuters. That is down from 7,758 such sightings in June, 4,977 in July and 3,446 in August. And we would be willing to bet (but unable to prove) that the recorded incidence of the Chinese word for "deflation" has also declined. . . .

From the American vantage point on transpacific debtor-creditor relations, there is nothing to be improved upon. Asians produce; Americans consume. Asians ship merchandise east; Americans move dollars west. And then something even more wonderful happens. . . .

On Monday, the editor of Grant's gave a talk at the New York Institutional Gold Conference. An expanded version of his remarks follows: My name is Jim. I'm a value investor, and I own a stock with a 53 P/E ratio. In addition, I hold a long position in a certain precious metal, in the company of a record number of self-avowed "speculators." These are the things I have to live with. . . .

Though trading at 53 times earnings . . .Newmont Mining is simultaneously quoted in the market at a 3% discount to what a calculating bull might regard as its "net gold value." . . .

"At 95 cents a share," Grant's said in the May 9 issue, "AES common was an option on the solvency of the company. At $6 per share, it's on option on prosperity, both the company's and the world's." On Tuesday, the value of that option came into sharper focus

Whereas active members of the Fed frolic at Jackson Hole, Wyo., Calgary, Alberta, is the place for retired central bankers. . . .

The U.S. General Accounting Office has been asked to investigate the possible manipulation of exchange rates by China and other Asian countries for the purpose of enlarging their exports to the United States. . . Happy to be able to contribute to the narrowing of the federal budget deficit, even by a little bit, Grant's has taken it upon itself to perform the GAO's work pro bono. . . .

Now comes a securities analyst comparing mortgage REITs to Internet start-ups. James Delisle, of Independent Perspectives LLC, says that the mortgage REITs actually make the dot.coms look substantial, because it is so much easier to whip up a mortgage REIT today than it was to sell an Internet promotion then. However, he advises, don't start a mortgage REIT. . . .

The parallel boomlets in Krispy Kreme Doughnuts (KKD) and the low-carb Atkins Diet have left us scratching our stomachs. . . .

At Tuesday's meeting, the Federal Open Market Committee polished its syntax and wrote an intelligible sentence: "In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period." . . .

On Oct. 6, 1979, the Federal Reserve vowed to lay inflation low. Chairman Paul A. Volcker delivered the news at an emergency Saturday press conference. In recent months, the Fed has vowed to raise inflation up. Gov. Ben S. Bernanke so declared last week in a talk at the University of California at San Diego.

Low interest rates may be the Federal Reserve’s idea of an economic cure-all, but they’ve been the wrong panacea for Post Properties, developers of trademark apartment buildings in the currently unprosperous Southeast. Chapter and verse from the 2002 Post annual. . .

A particularly informative feature of the Fannie Mae Web site is “Answers from the CEO.” Tuesday’s installment was tinged with controversy: “CEO Frank Raines Addresses Accounting Issues in Freddie Mac Report: Can you assure us that Fannie Mae does not have the accounting issues raised in the ‘Report to the Board of Directors of Freddie Mac’?” The answer turned out to be—astonishingly—“Yes.”

In November 2001, the track of the median CPI hung suggestively over that of the headline, unmassaged CPI. “Historically speaking,” we then quoted a knowledgeable economist, “when you have a divergence of this magnitude, when the CPI is going in one direction and the median is going in the other, it’s usually the headline that changes its course to conform with the median.” Instead, the median CPI. . . .

The latest reported monthly United States trade deficit is the third-highest on record; the German chancellor has complained about the newfound strength of the euro; and, at year-end 2002, the U.S. was a net debtor to the rest of the world in the impressive sum of $2.6 trillion. Furthermore, the real, or inflation-adjusted, federal funds rate has swung to negative from positive; the federal budget deficit has flipped from a small surplus to a very large deficit; and the estimated monthly cost of the U.S. occupation of Iraq is now put at $3.9 billion (not $4 billion, but exactly $100 million less than $4 billion), up from $2 billion in April. . . .

New survey results show that the bond bears, though they may have right on their side, can’t claim contrary opinion. Professional investors are more bearish on bonds than at any time since 1994, at least (as measured by their portfolio duration relative to their benchmark, according to International Strategy & Investment Group). . . .

The temperature of Franco-American relations warmed almost to the freezing mark on Tuesday when Treasury Secretary John Snow (who presides over a budget deficit equivalent to 4.6% of GDP) commended French President Jacques Chirac (who presides over a budget deficit equivalent to 3.6% of GDP) on the wisdom of his call for a temporary suspension of rules that cap allowable budget deficits in the European Union at 3%. The Chirac initiative did not please every European finance minister—“The storming of the Bastille was a better idea,” the Dutch finance minister, Gerrit Zalm, declared—but it charmed the American. . . .

The FOMC stands prepared to maintain a highly accommodative stance of policy for as long as needed to promote satisfactory economic performance,” Alan Greenspan told the House Banking Committee on Tuesday.

It’s one thing for members of the Federal Reserve Board to advocate radical policies to firm up a hypothetical sag in the United States price level. It’s quite another for the global monetary establishment to second them.

“Bethesda, Md.—June 26—A survey conducted by Harris Interactive on behalf of ProFund Advisors LLC finds that, although most U.S. investors (57%) believe interest rates will rise in the next two years, nearly two-thirds (65%) are unaware that rising rates generally have a negative impact on the value of bond investments.” For the bond bear who does understand the inverse correlation between yield and price, Grant’s presents a pair of ideas. . .

When Wall Street sneezes, California catches cold, the 3,000 miles of intervening land mass notwithstanding. The stock-market bubble inflated the state’s income, and the state inflated its spending. The bear market deflated the income but not the spending. Enterprise staggered under the double blows of overregulation and overinvestment. And there’s one more bearish twist to the plot. . . .

Which investment phenomena will cause posterity to wonder if sentient beings walked the Earth in 2003? What are the top financial delusions of our time? We have two to put into nomination.

Which investment phenomena will cause posterity to wonder if sentient beings walked the Earth in 2003? What are the top financial delusions of our time? We have two to put into nomination.

The headline over Monday’s Wall Street Journal bond story begs the question of when the course of interest rates is ever certain. In Japan, government bond yields have virtually doubled in the past three weeks, to 86.5 basis points from 44.8 basis points at the June 12 low.

As of June 11, the close of the latest banking week, foreign central banks had accumulated $746.6 billion of Treasurys and $188.9 billion of federal agency obligations, e.g., Fannie Maes, Freddie Macs and the Federal Home Loan Banks. The grand total of U.S. government and quasi-U.S. government securities owned by official monetary institutions not named “Federal Reserve” was, therefore, $935.5 billion. For perspective, the Fed itself held just $652 billion of Treasurys and only trace amounts of agency paper. One of these days—by mid-October, at current booming rates of growth—the reported dollar-denominated assets of foreign central banks and other international financial institutions will top $1 trillion. There ought to be a party.

We are all—each of us—witnesses to history. Like the best-selling former first lady, we are living it. May 31 marked a high-yield watershed. On that day, junk bonds were more overvalued than at any time since September 1986, according to Martin Fridson, the former Merrill Lynch analyst who has graduated to entrepreneurship and his own excellent weekly publication, Leverage World. Experienced investors will stare, as the 17 years in question encompass some of the greatest yield riots of all time. . .

“Until last week,” The New York Times speculated Tuesday, “most Americans familiar with Freddie Mac or Fannie Mae probably had a vague image of benevolent government agencies helping young couples get their first mortgages.” The Times should speak for itself. Most investors we know have an image of Freddie or Fannie as a towering pile of mortgage assets hedged with thickets of derivatives.

There is no living to be earned by handling your editor’s gold-stock orders, though (to declare an interest) Fred D. Kalkstein, a broker at Janney Montgomery Scott, does just that. What he also does—and this is relevant to interest rates—is manage guardianships for 125 dependent people, “wards” as they are legally known. . . .

Many are bearish on the dollar and some are preparing to fly from it. But where will they fly to? Nothing better illustrates the dearth of attractive monetary destinations than the once-welcoming Swiss franc. . . .

Alan Greenspan may speak in tongues, but the Federal Reserve System is an open book. It publishes a weekly balance sheet, discloses a targeted funds rate and publicizes the collected prose of its senior officers and ranking staff. The single message of these several media is that the dollar will appreciate in domestic purchasing power over the dead bodies of the Federal Open Market Committee. To see the matter another way. . .

Depending on your cultural perspective, Bangkok is a long way from New York or New York is half a world away from Bangkok. In either case, someone winds up making an inconveniently timed phone call. It was late on a Sunday evening when colleague Peter Walmsley dialed [a] chief financial officer of [a property development company], in the capital city of Thailand. The time was 10:30 p.m. on May 13 for Walmsley and 9:30 a.m. on May 14 for the CFO. This chronology will serve to introduce a threshold issue in the following bullish reprise of a very distant and very cheap Thai real estate development and home building enterprise. . .

[A] radiation-oncologist-turned-payments-entrepreneur, does not dispute that the U.S. dollar is the current brand leader in the global monetary marketplace. However, on behalf of his creation, " a kind of digitized bullion," he can enter one impressive claim: Payments denominated in it are doubling every six to eight months. Is this the "Base Money of an Emerging Global Currency?". . .

Americans take well-deserved pride in their indestructible banking system. State and federally chartered commercial and savings banks and government-sponsored enterprises stand side by side as monuments to financial diversity. And if, as in 1990-91, some of these monuments happen to topple, the taxpayers are only too happy to reach into their pockets to build bigger, better and taller ones. To an American trying to keep up with events in the German banking system and the German economy, there is a powerful sense of déjà vu. . . .

Tuesday's auction of 10-year Japanese government bonds, the 0.5s of 2013, was hammered down at [#] to yield [#]% (note the zero to the left of the decimal point). Bid-to-cover was ... a disappointment. The prior 10-year JGBs had elicited bids equivalent to [#] times the volume of securities offered. . . .

The page-one headline in Monday's Sports Final edition of the New York Daily News reduced the city's financial crisis to 11 scary words and a set of ellipsis points. They were: "Fares, Taxes, Tolls Up, Putting New Yorkers in . . . The Big Squeeze." So deep is the city's fiscal hole, so contentious are the plans for filling it up and so guarded is the local economic prognosis that the New York City 5.6s of Aug. 1, 2007, are today quoted at. . .

Even hardened sinners blushed for Wall Street following news that five financial institutions had paid others to publish research reports on stocks of companies that the five had underwritten during the great bull market. According to Gretchen Morgenson, writing in the Sunday New York Times, Morgan Stanley was the most openhanded of the five, passing around $(#) million in "research guarantees" to some two dozen "competing" firms. . . .

AES Corp., the worldwide power-generation company, has four "shared values," not one of which speaks directly to moneymaking. "Fairness, Integrity, Social Responsibility, Fun" were the corporate watchwords before last year's near-death experience, and so they remain today. However, to judge by the rising prices of the company's securities and its new annual report, management has shifted its focus to homelier virtues, e.g., Solvency, Liquidity, Profitability and Not Sending the Debtholders to the Threshold of Cardiac Arrest Only Months After the Business Cycle Has Peaked.

At the Berkshire Hathaway press conference in Omaha on Sunday morning, Jondavid Klipp, representing Grant's, put a question to the host. . . .

"Price change begets price change," Paul Singer, of Elliott Associates, told the Grant's conference last week. "Momentum and performance-chasing means that price changes, not information, cause more price changes." T. Boone Pickens, possibly the most successful 74-year-old gas speculator on the face of the earth, gave the boldest price prediction of the day. . . .

At last week's Grant's conference, Michael Farrell, CEO of Annaly Mortgage Management, displayed a picture that was just as clarifying to the mind as it was confusing to the eye. If you stared, you could see four lines jostling for attention. Portrayed were the funds rate and a trio of economic variables that, so Farrell said, make the Fed do what it does, when it does. The conclusion of Farrell's interest rate analysis (and, for that matter, of ours) was that the funds rate is likely to. . . .

In Japan, continental Europe and the United States, central bankers are saying that too little inflation is even worse than too much. On Tuesday, the Federal Open Market Committee said that, over the next several quarters, "the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level." . . .

At prevailing yields and spreads, investment-grade corporate bonds are an investment for victims. Aa-rated industrial bonds fetch a mere (#)%, Moody's reports, the lowest since 19xx. A-rated and Baa-rated industrials fetch (#)% and (#)%, respectively, the lowest since 19xx. Observing that not only are absolute yields low (in recent historical terms) but also they are closely spread to government yields (by post-19xx standards), Moody's speculates that. . . .

On April 9, the Federal Energy Regulatory Commission (FERC) approved three new LNG projects. So doing, the commission smiled on every holder of Chicago Bridge & Iron, a leading designer and builder of the tanks, terminals, peak-shaving plants and cryogenic orbs in which natural gas is transformed into liquified natural gas. . . .

On April 15, A. Alfred Broaddus Jr., president of the Federal Reserve Bank of Richmond, described a fate worse than inflation. He repeated the Fed's determination not to let the price level sag but to print enough dollars to make it rise. As chairman Alan Greenspan and governor Ben S. Bernanke had pledged before him, Broaddus vowed that a zero percent federal funds rate would create no insuperable barrier to an effective anti-deflation campaign. . . .

Maybe the Chinese government lied about SARS out of habit. It has lied about the "Hidden Epidemic of Sexually Transmitted Diseases in China" (to quote the title of an article in the March 12 Journal of the American Medical Association). And it has lied, as expedient, about Chinese economic growth (Grant's, January 17)....

"Where's the Bounce?" asks Women's Wear Daily on its Tuesday front page. "Retail Still Sluggish Despite Iraq Success.". . . .

Federal Reserve officials insist that the risk of deflation is "remote," but it's the only low-probability event they seem to talk about. . . .

The economic-cum-geopolitical situation could be bullish, bearish or neutral, The New York Times reports. . .

In New York this reluctant spring, the government is more visible than the forsythia. . . . "Is Big Government Back?". . .

A reader calls attention to the overly narrow focus of the debate over corporate stock options. Disputants are preoccupied with the costs of the programs, and with who bears them. Few see the full scope for reform. Which is why our reader . . .has come forward. . . .

Last week, Annaly Mortgage Management raised (#) million of equity capital, with which it is acquiring (#) billion of new mortgage assets. It was the first such equity infusion in more than a year for a company about which Grant's writes both frequently and nonobjectively. . . .

"More now than at any other time in the history of capital markets," intones the 2002 New York Stock Exchange annual report, "restoring the trust and confidence of America's investing public is of paramount importance." If platitudes will do the trick . . . .

Leon Levy, who died on Sunday, was a great investor who turned out to be a superb memoirist. . . .

Like the common cold and severe acute respiratory syndrome, deflation has no known cure . . . .

By "volatility," the talking heads really mean "going down," something that stock prices and bond yields have done a lot of. The current issue of Grant's is dedicated to answering the question, "How far is enough?" and to helping investor-plaintiffs and their public-spirited attorneys identify the most promising sources of redress. . . .

Asked about one of his Eastern European investments, [a] portfolio manager. . .changes the subject to Thailand. "We have as much money as we can over there," he says. . . .

The clairvoyance era of U.S. monetary policy ended on March 18 with a long-overdue admission by the Federal Open Market Committee that it really doesn't know what the future holds. Pending clarification of "geopolitical uncertainties," the FOMC said, it would venture no economic forecast but would diligently keep up with current events. Omitted from the FOMC's end-of-meeting press release for only the second time in three years was . . . .

By the numbers, Philip Morris CR, the Czech Republic's No. 1 cigarette maker, could hardly be improved upon. . . .

On March 12, an institutional bond salesman, e-mailed a prize-winning interest rate forecast. . . .

Benjamin Graham, the man at whose feet Warren Buffett sat, once laid out seven criteria for conservative stock selection. A deserving company should have (1) "adequate" size, (2) a good balance sheet, (3) 10 consecutive years of net profits, (4) 20 years of uninterrupted dividend payments, (5) a modicum, at least, of earnings growth, (6) a P/E ratio no higher than 15 and (7) a ratio of price to book value no higher than 1.5:1. These criteria he commended to the "defensive" investor, i.e., "one interested chiefly in safety plus freedom from bother." They pertained to industrial companies, not to utilities or banks. Now unfolding is the application of Graham's seven criteria to the present-day stock market and to the bear markets, panics and corrections of yesteryear,

A four-line ad for an administrative assistant in the March 2 New York Times said the following: "Expanding company seeks smart, self-motivated person. Must have excellent computer skills, be good with details and have patient, friendly phone manner. Growth opportunity. Fax resume. . . ." The ad . . .has interrupted [the prospective employer's] sleeping patterns, because the corporate fax machine is situated in his bedroom. . . The first fax came in early Saturday evening, as the Sunday paper hit the streets. . . "And it basically did not stop through Wednesday, and it slowed down somewhat on Thursday and Friday." He says the faxes are still coming in. . . .

Last week, the finance minister of the world's second-largest economy made a monetary policy suggestion. He urged the Bank of Japan to boost its monthly purchase of long-dated Japanese government bonds by two-thirds. . . The subject under discussion is post-bubble monetary policy. . . .

A little wonderful advice on real estate investing from the credit union of the University of Southern California. . . .

Central banks continue to crank the presses. . . Our central bank of the fortnight, the Bank of Japan, has shown little growth over the past 12 months

The Bush administration may or may not succeed in abolishing the double taxation of dividends. Right now, Mr. Market is making available tax-exempt bonds backed by pots of Treasury securities. . . . We are now entering an obscure province of a strange country. The province is "escrowed to maturity," or ETM, and the country is Muniland....

At the October lows, Ford had a $6.90 stock price and a 9.40% bond yield. Now it has an $8.08 stock price and a 6.6% bond yield. At the panicky highs, a credit insurance policy on Ford obligations cost 670 basis points. Now it's back to 395 basis points.

According to [a] report on T. Boone Pickens in the January 31 Grant's, the BP Capital Energy Fund was up (#)% in the first 16 days of January. We now have an update. . . Only recently has the gas bull market begun to interest the stock market. To judge by the rig count, it has not yet seriously begun. . . Following is an exploration of alternative ideas. . . .

Something went haywire with American capitalism in the 1990s, and we think we know what it was. There weren’t enough Henry E. Singletons to go around. In truth, there was only one Singleton, and he died in 1999. He could read a book a day and play chess blindfolded. He made pioneering contributions to the development of inertial navigation systems. He habitually bought low and sold high. The study of such a protean thinker and doer is always worthwhile. Especially is it valuable today, a time when the phrase “great capitalist” has almost become an oxymoron. . . .

Federal Reserve officials, moving to assuage fears of deflation, have vowed that they will not put up with no inflation. On November 21, the newest Fed governor, Ben S. Bernanke, advocated. . .

According to Jeremy Grantham, chairman of Grantham, Mayo, Van Otterloo, fair value on the S&P 500 is (#). So it's (#)% down just to reach the point at which bear markets famously don't end. Membership in U.S. investment clubs turned up even before the Beardstown Ladies got famous. . . .

We correct two gaffs from recent issues: In the prior issue, Imperial Chemical Industries was butchered to read "International" Chemical Industries. And in the article on China in the January 17 issue, tabular data were presented [which has since been updated with a source we believe] is more authoritative. . . .

Foreign central banks, including, perhaps, some under French or German influence, are buying up U.S. government and agency securities. At last report, such holdings totaled. . . .

The London stock market didn't go as high as the S&P 500 in the post-1995 bubble (# vs. #), but it's fallen as low in the bust (# vs. #). Although not statistically undervalued, neither is it any longer overvalued. According to Andrew Smithers, London-based financial economist, it's probably at fair value. What does "fair value" look like? Americans wouldn't know. . . .

On February 4, Annaly Mortgage Management reported fourth-quarter earnings of (#) cents a share, (#) cents lighter than the Wall Street consensus. Disappointed, investors marked down the stock price by (#), to (#). For ourselves, we were surprised that there was even an earnings consensus to disappoint. Now unfolding is an update of our favorite yield machine. . . .

"Today, the 10-year Treasury yield is approximately 4%," said Federal Reserve governor Ben S. Bernanke on February 3, "suggesting substantial confidence on the part of financial market practitioners that inflation will remain low for the next decade."

Thomas G. Rawski is the China scholar at the University of Pittsburgh whose [views] of the statistical inflation of Chinese growth we quoted in the January 17 issue. Now he says. . . .

Wending its way through the Securities and Exchange Commission is a proposal to transform the gold investment business. . . .

Freezing Canada has a hot inflation rate, up in December and possibly heading higher in the first calendar quarter, depending on where the oil price goes. Do you believe these facts and that prediction? Holders of Canada's inflation-indexed securities seem doubtful. ...Subtract the indexed yield from the nominal one: This is what aficionados call the break-even inflation rate. At an inflation rate above this break-even rate, you are better off in indexed securities. The Canadian break-even inflation rate is meaningfully lower than the existing Canadian inflation rate (never mind the possibly higher looming one). Price inflation is the subject under discussion, and a contentious subject it is. . . .

Frederick E. "Shad" Rowe writes from Dallas: "Two years ago, we reported on the very good year that Boone Pickens's BP Capital Energy Fund had in 2000. Pickens began the year [well] and finished the year [even better]. ....During 2001, he added office space and hired more people. Pickens is a natural plunger and a congenital bull on natural gas. "When I went to see him later in the year. . . .

The longest bear market in capitalism may be the drought in property and casualty underwriting profitability. By necessity, the insurers have had to make their money on Wall Street, buying low and selling high and clipping coupons. Thus begins our guardedly bullish foray into the P&C business. . . .

On Sunday, the editor of Grant's delivered the 2003 Henry Whitney Bellows Lecture at the Unitarian Church of All Souls in New York. It was entitled, "George F. Baker: The Heart and Soul of a Banker." Many will wonder about the title I have chosen for this morning. They will say that I might as well have picked the "honor and brevity of a politician" as the "heart and soul of a banker." Bankers are known to be heartless and soulless. Either they refuse to lend or, what is more likely nowadays, they lend until you say "uncle." . . .

All eyes, please, on the monetary data [listed in our centerfold]. Note the surge in Federal Reserve credit creation, the boom in commodity prices and the lift in the Future Inflation Gauge, a leading indicator of the U.S. inflation cycle. If life were simpler, there would be nothing else to talk about. . . .

In the late 1970s and early 1980s, an entire class of investment asset was blighted. "Certificates of confiscation!" cried the Wall Street hanging judges, turning their backs on bonds for all time. Compared to the mob's contempt for these unwanted financial claims (which, by then, had come to represent a once-in-a-lifetime investment opportunity), the Salem witch trials were a reasoned verdict of justice. But wait. The indictment must be qualified. Bonds are an inherently inferior investment asset, but they can be a cyclically superior investment asset. They can excel at a time, at a price, under a particular set of economic conditions and in comparison to a specific set of alternatives.. . . .

OM Group is a New York Stock Exchange-listed specialty chemical and metals company, about which a hedge-fund investor knew little except for the apparently bullish fact that. . .

Unanimously clairvoyant, 11 brokerage houses and investment banks last year predicted that China's GDP would grow by 8% in 2002. And on December 30, in Beijing, China's National Bureau of Statistics disclosed that the Chinese GDP grew by . . . .

The new governor of the Bank of Japan assumes office in March. We will know his name in a matter of weeks.. . . .