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December 17, 2004, Vol. 22, No. 24

Cash ’n’ credit: a New Year’s message

When an oft-repeated forecast doesn't pan out, a forecaster owes his readers either a new prediction or a defensible reaffirmation of the old one. With respect to the bond market, we choose to repeat ourselves...

Steel yourselves

AK Steel Holding Corp.--that's "A" for Armco and "K" for Kawasaki--is back in the land of the living. From near-bankruptcy in the fall of 2003...

Portable euros

Treasury Secretary John Snow, brand manager of the U.S dollar, has a problem on his hands. Large-denomination euro notes are making inroads on the trusty $100 bill...

Redemption at last

The long-suffering original holders of J.P. Morgan Chase & Co. adjustable-rate cumulative preferred stock, series A, deserve an extra splash of cheer this New Year's Eve. The shares they have held for 21 years are redeemable on December 31 at a price at which they have only briefly traded...

Unreservedly bullish (on Derman)

Sadly, there's not much to buy in the stock or bond market this holiday season, but John Wiley & Sons has published the perfect gift. "My Life as a Quant," by Emanuel Derman (292 pages, $29.95) is, indeed, a perfect memoir...

December 3, 2004, Vol. 22, No. 23

Time line of tightening

Alan Greenspan, alias Dr. Babysteps, is a gradualist's gradualist. When tighten he must, he tightens deliberately. Unless, that is, he tightens with a vengeance, as in 1994, when he turned the screws by 50 basis points or 75 basis points at a pop. What led the Maestro to step out of character a decade ago--and what might lead him to take uncharacteristic action today--are the subjects under discussion....

Spread pinchers

Mr. Market, who had to have his shoelaces and belt taken away when he went on suicide watch in the summer of 2002, is back on is his meds...

Junk ratings disappoint

“The 54 credit rating downgrades of U.S. high-yield companies for the fourth quarter to date already top the 50 in the third quarter and the 48 in the second quarter. . . .”

China buys South America

Hu Jintao was an early arrival in the Western Hemisphere for last month’s annual summit of the Asia-Pacific Economic Cooperation forum in Santiago, Chile. Sojourning in Argentina and Brazil, the Chinese president vowed...

Bon voyage, SO 2!

Trading starts next Friday in Sulfur Financial Instrument Futures on the Chicago Climate Futures Exchange. If any asset class can be positively warranted not to slavishly track the stock and bond markets, sulfur emissions allowances may be the one. . . .

15% of replacement’

“Earlier this fall, Oak Tree Capital Management, a New York City money manager that runs approximately $30 billion for pensions and high-net-worth individuals, acquired, on behalf of its clients, 1616 Woodall Rogers, an office building complex in Dallas...”

‘Almost no limits’

The Financial Times has published an appeal to the European Central Bank: It should single-handedly intervene to stop the dollar’s fall or (to say the same thing) the euro’s ascent. . . .

November 19, 2004, Vol. 22, No. 22

No more Plaza

The unlikely availability of New York’s Plaza Hotel, site of the 1985 Plaza Accord, is only the first impediment to the a new global monetary agreement to control the decline of the dollar exchange rate. . .

Portfolio pain relief

Dan Declue, value-seeking biotechnology investor, was seated in the audience at the Grant’s conference when a speaker said how nice it was to get free options. At the post-conference cocktail party, DeClue concurred...in fact, he said, such gifts are now available in his corner of the stock market...

Comes the real McCoy

Up until just about this week the calculating American gold speculator was in a quandary. Gold itself was hard to buy and costly to store. Gold-mining companies defied analysis as ordinary operating business. But now comes . . . .

India’s tortoise, China’s hare

To Jim Ayer, a many-cycle veteran of Asian equity investing (he is a general partner of Tiedemann/Ayer Asian Growth L.P.), India is the land of opportunity. China has the bigger and faster-growing economy, he readily conceded at the Grant’s event, but India has...

Close your eyes: It’s 1998

In the Q&A following Seth Klarman’s talk, a Grant’s conference attendee asked if there weren’t something cheerful to say. Klarman replied that, by paying today’s absurd prices, careless investors were creating tomorrow’s opportunities. . . .

November 5, 2004, Vol. 22, No. 21

Wheezing bellows

Russia's foreign-currency reserves last week topped $100 billion, a feat that tells as much about the world's monetary system as it does about the value of Russian oil exports. We say "system" as if there were actually a. . .

The invisible hand...

For one CEO and owner, the prospect of inexorably rising natural gas prices would seem to be a business nightmare....

Rocks in his head

May marked the 20th anniversary of the 1984 bond liquidation, the last truly great fixed-income fire sale of the 20th century. This month brings the 50th anniversary of the return of the Dow Jones Industrial Average to 381.17, the eminence from which it had slipped in 1929. . . .

WaMu’s the one

Two weeks ago, Grant's speculated that the days are numbered for the long bull market in financial stocks. . . we entered into evidence the fact that the financial-sector share of total after-tax corporate profits has climbed to 38% from a low of 4% in 1982. For a full investment generation, interest rates, inflation and regulatory policy had lifted up the money changers. Now, those same forces are pressing them down. . . .

Election night confidential

Now that the election is over (writing late Tuesday evening, we are guessing about this), terms of discussion about the U.S. economy will change to analysis from ad hominem attack (we are guessing about that, too). Obviously, the current....

October 22, 2004, Vol. 22, No. 20

Goodbye to all that

When Armando Falcon and Eliot Spitzer begin to outshine the chief executives of the companies they regulate, one may surmise that the end is near. But the end of what? Now unfolding is an exploration . . .

Bladex promises

On October 8, an Argentine borrower discharged in full its multi-million dollar debt to Bladex, polysyllabically known as Banco Latinoamericano de Exportaciones S.A. . . . News of the reversal of the loan-loss reserve caused the bank's share price to leap....

Dollars per barrel

David Goodstein, vice provost and a chaired professor at the California Institute of Technology, believes that the world is running out of oil. He says so in his new book, "Out of Gas: The End of the Age of Oil." Peter R. Odell, professor emeritus of International Energy Studies at Erasmus University, Rotterdam, believes that the world is not even close to running out of oil. He says so in his new book, "Why Carbon Fuels Will Dominate the 21st Century's Global Energy Economy." Bridging the two opinions is....

India rethinks

India has a $118 billion foreign-exchange portfolio. With its dollars, it buys U.S. Treasurys. The securities yield little. India needs much. Why not use the dollars to build bridges, ports, roads, etc.? As a matter of fact, the government may do just that....

Case closed

Andrew Smithers, eponymous chief of Smithers & Co., London, and his colleague Stephen Wright have worked up an answer to the question posed in the prior issue of Grant's ("Tumult for the long run"). Is stock-market volatility mean-reverting?

They would

From the October 13 Hedge Fund Alert: UFJ Bank of Tokyo wants to plow $2 billion to $3 billion of its own capital into hedge funds over the next year. The troubled bank is hoping to put the money to work before it sells out to Mitsubishi Tokyo Financial....

Yield pigs sup

"True to form," reports the October 14 edition of Leverage World, "high yield issuers are capitalizing on the current red-hot conditions to float the types of issues that investors resist buying in anything but a sellers' market."

Stocks said, bonds said

What is the rate of inflation? The Bureau of Labor Statistics' findings can be endlessly deconstructed. In the 12 months ended September. . .

October 8, 2004, Vol. 22, No. 19

It’s the Fed, stupid!

Last week, Gables Residential, a Boca Raton (Fla.)-based apartment real estate investment trust, wowed the world with news of the sale of a 1.5-acre tract for . . .

Free speech at Morgan

J.P. Morgan Chase & Co., demonstrating Wall Street's growing attraction to the lucrative hedge-fund business, has agreed to buy a majority stake . . .

Tata does Wall Street

Readers who said "Amen" to the bullish analysis of Tata Motors Ltd. in the July 2 issue of Grant's can now actually....

Imbalances: a panorama

"It can't go on forever and at some point the imbalances will resolve themselves," declared David Dodge, governor of the Bank of Canada, at the just-concluded worldwide economic summit in Washington. Yes, oh sagacious central banker, but when?....

Value investing—evolved

"It is hard to believe," said William J. Ruane . . .referring to the risks presented by the colossal notional volume of derivatives outstanding.....

Tumult for the long run

By one measure, the stock market is making a 50-year low in volatility; by another, a 10-year low. If share-price volatility is mean-reverting, someone, somewhere, is going to make money by buying it. But who, how and when?...

Commodities—onward and upward

In 1998, smart people--sophisticates--were, to a man and woman, buying tech stocks, whereas James B. Rogers Jr. was developing an investable commodity index....

September 24, 2004, Vol. 22, No. 18

Creative Destruction

The only interest rate the Fed has succeeded in raising is its own. Every note and bond rate on the Treasury yield curve is lower today than it was on June 30, the day the tightening cycle began....

Risk times six

Here's the value proposition: Low yields, near-record-high prices, limited call protection and--in consequence--the mathematical impossibility of meaningful price appreciation. Irresistible? The syndicated loan market goes from strength to strength....

Houses, cars, debts

Soaring growth. High return on equity. Entrenched competitive position. Low price-earnings ratio. Name that company. . . .

Slash those fees!

"…State Street is proving that bigger is better in the trust, custody, and processing businesses. Loans are now less than 6% of assets, and the balance sheet is very liquid. But will double-digit fee income growth offset continued higher expenses?". . .

Fearless forecast: 24 hours in advance

This issue of Grant's goes to press on Monday rather than Tuesday. The Federal Open Market Committee meets on Tuesday. It falls to us, therefore, to predict the FOMC's rate decision a day ahead of time. We predict that the committee will lift the funds rate to....

September 10, 2004, Vol. 22, No. 17

Inflation at the center of the plate

Bill Etter, manager of a pair of suburban Milwaukee restaurants, was supporting the cause of price stability when last we heard from him (Grant's, May 21). Though his food costs were rising, he was holding the line on menu prices. Milwaukee is a competitive, price-sensitive town, the restaurateur told Grant's. Rather than raise prices, he was doing the things the Federal Reserve would clap him on the back for doing--"renegotiate a cleaning contract, renegotiate the linen contract, renegotiate my credit-card contracts." But he could only renegotiate so much. A few weeks ago, Etter produced a new, four-color menu with new prices, up by an average of....

Hey, you—you’ll do!

The August 27 American Banker chronicles the progress of the credit cycle: To maintain production now that the refinancing boom is over, many lenders are lending to higher-risk borrowers and with less documentation--relying, for instance, on the borrower's statement of income....

The coming fee famine

On the Tuesday before the Thursday before the long Labor Day weekend, Fidelity Investments laid an ax to the fees it charges on five of its equity index funds. So doing, the Boston behemoth opened a new phase in the commoditization of investing. Following is a speculation on the meaning of this development for the sprawling, highly capitalized, fabulously remunerative money-management business....

Exit, Mr. Goldcorp

Rob McEwen, 54, CEO of Goldcorp, owner of the rich Red Lake mine, last week disclosed plans to quit the job he has held for 18 years as soon as the board can find a successor with "different skills." Good luck to the board. McEwen's trading skills--in securities, currencies and gold--have significantly contributed to Goldcorp's net income over the past decade....

Marking to expectations

On August 11, Bloomberg described the surprisingly simple method by which a convertible-bond portfolio investor managed to turn losses into profits....

Bonds: the China connection

Inflation got a hero's welcome on its return to Hong Kong last month, following an absence of five years, eight months....

August 13, 2004, Vol. 22, No. 16

Bullish on Kepco (prepare to sit)

From the August 6 Financial Times: "South Korea's consumer sentiment in July weakened to its lowest level in nearly four years, reflecting the deepening sense of gloom surrounding Asia's fourth-largest economy." These are lyrics to a composition entitled "Value," by Benjamin Graham and David Dodd. It is a sad song, but one evoking opportunity. Cheerful lyrics are the words to sell by. We now return to Korea Electric Power Corp., better known as Kepco...

Deflation: your friend

A new study of the nexus between deflation and depression concludes that there is none: Falling prices constitute no threat to output growth. There is--or, at least, has been in the past--nothing to fear from them....

Too rich, too cheap

William C. McGarry is president and CEO of a mutual savings bank in Queens, New York. It has a half-billion dollars of capital on which it earns a lowly 5.9%. Comparable thrifts earn 10% on equity, according to the Federal Deposit Insurance Corp. The name of McGarry's bank is....

Tomorrow's shocks today

Things have come to this: yield-famished buyers of tradable, speculative-grade bank debt are gazing longingly toward Europe for 37 basis points of extra yield. That would be Libor plus 294 basis points on a two-year bank loan to a speculative-grade borrower in Europe vs. Libor plus 258 basis points on a two-year bank loan to a speculative-grade borrower in the United States, according to Standard & Poor's LCD News. The three-month London interbank offered rate stands at a princely....

Crude takes the rap

"It's gotten to the point where very few of the people who prepare financial statements--and almost none of the people who read them--really understand what the numbers represent anymore." The speaker is...

July 30, 2004, Vol. 22, No. 15

Bullish on turmoil

In a peaceful and well-ordered world, stock prices would fluctuate only a little--and then in anticipation of cold facts. In such a world, many familiar institutions of American finance would dry up and blow away, New York Stock Exchange specialist firms among them. Without imbalances, volatility and upset, the specialists would have no reason for being. Indeed, the steep decline in the share prices of LaBranche & Co. (LAB) and Van der Moolen Holding N.V. (VDM), the two listed pure-play specialist firms, suggests that the specialists' days are numbered, even in a world so unpeaceful and unpredictable as our own. Now commencing is an exploration of stock-price volatility in general and the specialist firms in particular....

Age will be served

"T. Boone Pickens is 76 years old. By almost any reckoning, he is the hottest money manager in the world. I first brought Pickens to the attention of Grant's readers in the March 30, 2001, issue after 2000 proved to be a tremendous comeback year for the Texas natural gas speculator. His B.P. Capital Partners began the year with $4.4 million in equity, returned $210 million to partners at year-end and retained $34 million. I reported again on January 31, 2003, as Pickens's hot streak continued....

Follow that story!

Herewith an earnings-season update on Corio Inc., Man Group plc and Annaly Mortgage Management, companies that recently appeared in the pages of Grant's....

Leveraged loans: crazier

The $165 billion market in leveraged loans, overvalued two weeks ago (Grant's, July 16), may or may not be more overvalued today. But it is certainly more manic....

Gas lines of the millennium

The accompanying picture plots the forward oil-price curve on the New York Mercantile Exchange. Shad Rowe, the Grant's Dallas correspondent, has elicited from T. Boone Pickens the view that the Nymex speculators should have their heads examined...

July 16, 2004, Vol. 22, No. 14

Asset mispricing alert

"It is a mark of respect for the achievements of the Federal Reserve," boasts the president of the Federal Reserve Bank of New York, Timothy F. Geithner, in the New York Fed's brand-new 2003 annual report, "that we are viewed institutionally as a guardian of overall financial stability and not just of the banks and bank holding companies that we supervise directly." The Guardian of Overall Financial Stability may soon have its work cut out for it....

'Barbell' yourself

"Don't buy prime-rate funds" is, we believe, sound and profitable advice, but it is unlikely to satisfy a saver in search of a living wage. Interest rates are low and rising, the worst of all worlds for the creditor class. What to do?...

Thrift on the couch

Tucked into the seat pockets of a rich man's bus is a magazine to peruse on the ride from Manhattan to the fabulous East End of Long Island. Passengers on the Hampton Jitney this summer have opened the August issue of Real Simple--the journal of "simplifying your life"--to discover the story of. . . a 34-year-old financial outcast.

Going Poste

Peter Walmsley writes: "U.S. papers have largely missed a dispute unfolding in Europe involving two derivatives counter-parties. . . The disagreement is over, naturally, lost money....

High-yield central bank

Under the starvation interest-rate policy of the Federal Open Market Committee, interest income is hard to come by--except for member banks of the Federal Reserve System....

Gas lines of the millennium

Two weeks ago in this space, a diagram plotted Federal Reserve tightening measures against the running rise in indebtedness in the U.S. economy. . .A thoughtful reader might have formed the conclusion that....

July 2, 2004, Vol. 22, No. 13

Report from Planet Hedge Fund

BusinessWeek has a question: "Is Wall Street providing the hedge-fund industry with too much easy money?" the May 31 issue demands. "Some 25% of hedge funds are borrowing more money to make trades than they were a year ago, according to a survey released May 20. . . . Another 20% of funds say brokerages, eager to do business with hedge funds, also lowered collateral requirements on some trades." But there is another way to read the survey results....

Story told at bar

"I had a drink with an old colleague, still active as an institutional salesman in the municipal bond market," a reader reports....

Bullish on Tata

The U.S. Interstate Highway System, under construction since 1956 and still not finished (works in progress include the I-95 interchange with the Pennsylvania Turnpike outside of Philadelphia), was a boon to the automobile and to the autocentric U.S. economy. The Indian economy is not now, and may never become, autocentric, but a massive highway project is planned or under construction to connect the major metropolitan centers of Delhi, Bombay, Calcutta and Madras. In scale and economic significance, India's "Golden Quadrilateral" project (slated for completion in 2007) is fully a match to the one put in motion by President Dwight D. Eisenhower....

'Prescribed fires'

The Bank for International Settlements, the central bankers' central bank, is necessarily circumspect about its most powerful members' policy-making decisions. So when a BIS annual report contains a hint....

Japanese CPI: a miss

Tokyo core consumer prices for June fell by 0.1% rather than exhibiting no change, as the Bloomberg-compiled consensus had forecast. Bond bulls did a little dance. But wait....

Now he tells us

James Montier, global equity strategist for Dresdner Kleinwort Wasserstein, has published a research piece about happiness, specifically about how to be happy. His first prescription: "Don't equate happiness with money."

The Fed's dilemma--illustrated

The "real," or inflation-adjusted, funds rate is negative; the Fed must tighten the screws. The national debt burden is punishing; the Fed must go slow, if not stand still. The accompanying picture and table map the two conflicting monetary-policy impulses....

June 18, 2004, Vol. 22, No. 12

Words not deeds

The 1% federal funds rate is an emergency rate without an evident emergency, and it has to go up--at a "measured" pace if possible, faster if necessary. Such is the new word from the Federal Reserve Board. Will the Fed be as successful in damping the anticipated inflation of 2004 as it was in forestalling the imagined deflation of 2003? . . .

Pretend to be blasé

Big offshore banks are offering 3:1 leverage on the purchase of "approved" funds of hedge funds, a knowledgeable friend advises....

Yes, we have no prices

The latest nonappearance of the Producer Price Index (release of the May installment was scrubbed last week on account of errant "computer processes") raises new questions about the integrity of government statistics and new confusion about the underlying trend of prices in the U.S. economy. Those questions, and that confusion, are the subjects at hand....

Car talk

Used-car prices climbed again in May, up 0.3% from April and 5.3% from May 2003. . .What's newsworthy about this speck of microeconomic observation? . . .

Try, try again

You are David Oros, CEO of Aether Systems Inc. Your company is in the wireless services business, but you are at the threshold of a new adventure. You are about to diversify into the leveraged mortgage investment space....

More commas, more zeroes

On Friday, the Office of the Comptroller of the Currency is expected to release its first-quarter Derivatives Report. Extrapolating current rates of growth, we project that the total notional value of derivatives held by the nationally chartered banks will reach....

Yields surge fourfold!

Markets discount the future but investors remember the past. At the close of generational cycles, the past is more than a memory. It is a beacon and guide, and a source of stupendous loss....

June 4, 2004, Vol. 22, No. 11

Bonds: the next generation

Cycles in the bond market are monumental, literally epochal. In the United States, yields fell in the last 40 years of the 19th century. They rose in the first 20 years of the 20th. They fell between 1920 and 1946, and rose between 1946 and 1981. They fell between 1981 and 2003. Now, we believe, they are going back up again. If past is prologue, they might go up for a very long time. Following is a sneak preview of the unfolding generational bond bear market, which, if our cyclical clock is keeping the correct time, began on....

Peace play

When a publication devoted to interest rates takes a shine to a cellular telephone company with special access to a market in one of the member states of the Axis of Evil, the readers deserve a word of explanation...

Private enterprise data

By the official reckoning, the United States economy is operating well below peak capacity and generating a low, if gently rising, rate of inflation. Such is the verdict of government statisticians. However, it so happens that the private sector has brought forth its own statistics on capacity utilization and the inflation rate....

Barbarians buy bonds

"Foreign investment in Japanese bonds hit a record. . .

Marvels and prodigies

The parallel rise in prices and interest rates works like a full moon on Wall Street....

May 21, 2004, Vol. 22, No. 10

Bill Etter, practical economist

As restaurant prices go, so goes the overall Consumer Price Index--sometimes. Historically, notes Stephen G. Cecchetti, former senior Fed economist and longtime student of inflation, "Food Away from Home" has been the median component of the CPI roughly one-tenth of the time--"that's twice the rate we would ordinarily expect." So when restaurant prices go up. . .

‘Quite right’

Sales of Hefty consumer products rose 6% year-over-year, "reflecting improved pricing and volume gains," said parent company Pactiv....

Up with India

Approximately six weeks ago, the rise of the Indian economy was held up as one of the greatest facts, and greatest investment opportunities, of the age.

Mr. I.O.-P.O.’ prepares

A financial services executive in Alpharetta, Ga., has secured a car loan that requires no interest payments and a mortgage that requires no principal payments. This master of the ropes of American consumer finance was featured on page one of the December 19 issue of Grant's. "Mr. Interest Only-Principal Only," we called him (the name on his driver's license he prefers to withhold)....

Good news for metals

A bill to reduce the capital gains rate on profits earned from investments in precious metals passed the Senate on May 11 in a vote of 92-5. It next moves to the House. If signed into law, the tax rate on gold and silver and platinum and the rest would...

Your home is your debt

Last month's purchase by the Indian steel magnate, Lakshmi Mittal, of a 12-bedroom house with a 20-car garage in Kensington Palace Gardens, London, for the round sum of $126 million called attention to one of the world's great bull markets. Now comes a report from Smithers & Co., the Cartesian consultant, that quantifies....

Political economy

Ex-Fed governor Laurence Meyer, speaking out on the occasion of Alan Greenspan's nomination for a fifth term as chairman of the Federal Reserve Board, praised the Maestro's "very good relationship with the president." It was a titanic understatement....

May 7, 2004, Vol. 22, No. 09

The case of the deflation-proof used cars

At the unprecedentedly spectacular Grant’s Spring Conference, deflation-minded speakers outnumbered the lone inflationist by three to one. Peter Thiel, hedge-fund manager and ex-CEO of PayPal; Michael Lewitt, president of Harch Capital Management; and A. Gary Shilling, the economist who began to predict an end to inflation more than 20 years ago, all agreed that…

Omaha confidential

“Prices do amazing things in securities markets,” Warren Buffett affirmed at the weekend’s gathering of some 19,500 Berkshire Hathaway shareholders…

LNG: It’s here

If Alan Greenspan had dialed into the first-quarter conference call of Chicago Bridge & Iron, he would have been alternately borne up and cast down. The chairman, a vocal bull on natural gas…

Man for both seasons

As between inflation and deflation, Robert McEwen, CEO of Goldcorp Inc., professed to be…

What you can’t see

The once transparent American capital markets have gone translucent, Michael Lewitt told the Grant’s conference. The legacy of Rule 144A, by which public bond deals can be hustled to market with a minimum of regulatory scrutiny, is that…

Ten-year ideas’

Emerging markets, Arjun Divecha advised the Grant’s audience, are neither rich nor cheap, but a speck overvalued. However, he quickly added, that does not mean there’s nothing to invest in…

Lowest rates in a lifetime

Record-high real interest rates were the hallmark of the early 1980s, Michael C. Aronstein, chief investment strategist for Preservation Group, reminded the Grant’s audience…

Bullish on serenity

To the habitually disgruntled Grant’s audience, Douglas Greenig, managing director and head of mortgage agency trading for RBS Greenwich Capital, made a startling argument. The world is OK the way it is, he said…

Betting on betting on poker

World Poker Tour is going public…

Giddap inflation

April 23, 2004, Vol. 22, No. 08

Where we came in

Every loyal Republican is enjoined from comparing the wars in Vietnam and Iraq, because, it is said, there is nothing to compare. However, the arbiters of Republican thought reckon without finance. In 1965, as in 2004, interest rates were low, the dollar exchange rate was under pressure and fiscal policy was stimulative. And then, as now, signs of inflation went mainly unheeded by a nation long accustomed to stable consumer prices. After Vietnam came the Great Inflation of the 1970s and the towering interest rates of the early 1980s. Now unfolding is an apolitical exploration of the potential financial and economic consequences of the struggle in Iraq. . . .

Indices on demand

The Misery Index, devised by Arthur Okun, has the virtue of simplicity: It combines the inflation rate with the unemployment rate, period. The Middle Class Misery Index, lately dreamed up by Team Kerry, has the virtue (as its creators see it) of partisanship: Its seven components, among which are gasoline prices and college tuitions, are going to make George Bush look bad, period. The Grant's Rentiers' Index, which we now dust off and reposition in the election-year index marketplace, is simple and bipartisan. . . .

Inflation in many time zones

Inflation in China is almost as urgent a concern for American investors as inflation in the United States. . . .

April 9, 2004, Vol. 22, No. 07

Fees and fees and fees on funds of funds of funds

Now unfolding is Part II, a follow-up to the bearish analysis published here on January 30. We're still bearish, but the story will engage even readers without a rooting interest in the share price. The analysis comes in three parts, each reducible to a leading question. Thus: What are the barriers to entry in the hedge-fund business, in which a 26-year-old can raise $50 million? Can investors in hedge funds expect to succeed over a complete investment cycle, given high fees and the fast-growing population of magna cum laudes picking over the same opportunities? And: When has an investment fad not ended badly?

Outsourcing the Fed

United States monetary policy is formulated at home, but it is increasingly being implemented abroad. In the old days, the Federal Reserve would buy or sell the necessary volume of securities to enforce a targeted federal funds rate. Nowadays, it's the Bank of Japan and the People's Bank of China that do most of the work that holds the rate where the Fed wants it. . . .

Mortgage mining

The April 2 employment report pulled the rug out from under the stocks of the companies that extract interest income from mortgage-backed securities. As MBS have proliferated, so have MBS investors, especially the leveraged kind. Where to turn for income now?

Change at the top

At the top of two great American financial institutions sit a pair of headstrong 78-year-olds.

Highly confident

As late as the fall of 2002, fixed-income investors were prepared to bet on nothing, including the proposition that prices and yields move inversely. In the spring of 2004, they seem to be prepared to bet on anything.

March 26, 2004, Vol. 22, No. 06

On the meaning of 1%

Viewed over the sweep of years, today’s 4.68% long-dated Treasury yield is on the low side of normal. Since the first administration of George Washington, long-term interest rates have averaged 6.07%; since World War II, 5.97%. But prevailing money-market rates are ones for the record book. . .

1% in Minnesota

For every bank, the 1% funds rate is both a bane and a blessing. For (#) Corp., in 2003, it was a net bane. Though the cost of its liabilities fell, the yield on its assets fell further and faster. The result was a drop in its net interest margin and a concomitant disappointment in year-end earnings per share. . . .

When senior is junior

For those who still doubt that, at current prices and yields, junk bonds hold more risk than reward, we now serve up a forecast. . . .

Hear Mr. Market

The smoke of renminbi revaluation has hung over the currency markets all year long. . . .

‘Betting the ranch’

Three recent enforcement actions by the NASD help to frame this moment in finance. In each case, the offending broker urged a client. . . .

Yield famine haunts restaurants

The excellent Restaurant Finance Monitor, John M. Hamburger, president, reports that the quest for income is putting restaurant real estate prices into orbit. . . .

March 12, 2004, Vol. 22, No. 05

Down with reform

If car owners can be "upside down," why can't homeowners? If Congress can confer virtual triple-A status on Fannie Mae and Freddie Mac with a wink and a nudge, why can't it stop winking and nudging? If stock prices can retrace a decade's worth of gains, why can't house prices?. . .

Inside Isaac’s head

"We had a genuine debacle in the portfolio, which cost us 200 basis points last month." In such a confessional vein begins the year-end report to investors of [Company], a $45 million hedge fund. . . The discussion of the two percentage points of calamity occupies more than 25% of a letter that stretches to 21 pages. Yet, news of the 2003 return to investors fills just one paragraph. "Obviously," writes [the investor] of the year's investment performance, "these returns bear no resemblance whatever to the likely long-term returns of [our fund] and should be taken as random good fortune, if not an indication of the risk of future sub-normal returns." For the year, the partnership was ahead by 133%. . . .

Value speculation

[Picture] a company situated at the crossroads of outsourcing and downsizing. In the [company's] context, outsourcing means turning over to outside vendors the work of maintaining and fine-tuning business software systems. Downsizing means the shrinkage of Wall Street analytical coverage. In the case at hand, the number of sell-side analysts assigned is approximately zero, the right number to promote opportunity, other things being the same. . . .

Less than zero

The question before the house is what will be the next great investment. Probably, we think, the Big Idea is the one hiding in plain sight. . . [Perhaps] it's possible to infer what the next Big Idea won't be. . . .

The chairman, seasonally adjusted

"Current account," "Intellectual property rights," "Understanding household debt obligations," "The critical role of education in the nation's economy," "Economic flexibility," "Globalization," "Risk and uncertainty in monetary policy"--Alan Greenspan has spoken on each of these topics in 2004. On a seasonally adjusted basis, the chairman, who just turned 78, is setting personal records in volubility. . . .

February 27, 2004, Vol. 22, No. 04

TIPS consumer alert (continued)

Embedded in the unexpectedly strong January CPI report was an unbelievably weak real-estate report. According to government statisticians. . . .

Chairman Hedge Fund

From the February 19 Financial Times: William Donaldson, chairman of the Securities and Exchange Commission, is facing a growing backlash over plans to regulate the $800 billion hedge fund industry. . . .

Back to book

Bladex disappointed Wall Street last week by disclosing a pile of Tier 1 capital equivalent to 35.4% of year-end assets. The market, turning thumbs down on this display of irresponsible and profit-sapping caution. . . .

Your car owns you

Thanks to ultra-low interest rates and lengthening auto-loan maturities, Americans in rising numbers owe more on their cars than their cars are worth. . . .

Up on a bar stool

Credit, so stated a page-one headline in Grant's last autumn, was "up on a diving board." The headline over this essay moves the story forward thematically. To update the details, we return to. . .

High-yield refinancings

Further evidence, possibly redundant, that the 2004 credit markets are for daredevils is contained in the (accompanying) picture that plots the volume of bank debt used to pay dividends to LBO promoters. . . .

Cycle-ending worst

If bull markets end in absurdity, the bull market in corporate debt is on borrowed time. . . .

Advice from the ‘Minister of National Speculation’

Alan Greenspan, master of muffled speech, issued a clarion call Tuesday to the nation's homeowners. "Float," he advised them, in so many words. . . .

February 13, 2004, Vol. 22, No. 03

Turn of the credit cycle

Credit spreads are starting to widen again. On form, they won't stop widening until they get too wide. . . Though revered by philosophers, the ideal of the golden mean isn't what pays the bills on Wall Street. What every trading desk needs is volatility. . . .

Enter, Barclays

Until this week, the race to bring a gold exchange-traded fund to the United States had been run at a slow walk. . .

When words fail

aThe money paragraph in the press release from last week's meeting of the G-7 finance ministers and central bank governors declared that exchange rates should "reflect economic fundamentals," and that "excess volatility and disorderly movements" are undesirable. . . .

Make a top, stat!

From the February 4 Hedge Fund Alert: The pension plan for New York State Nurses Association will likely start investing in hedge funds by the end of the year, but it has not yet started its search for investment advisors. . . .

Inflation: measured and not

The central banker behind the gas pump

"After declining by $97 billion over 19 weeks," reports International Strategy & Investment, "M3 has bounced $116 billion over the past four weeks. This bounce may be in part due to the bounce in bank loans (up $56 billion over the past three weeks)." ISI is not the only interested party to notice the proliferation of dollars. . . .

January 30, 2004, Vol. 22, No. 02

Attention, TIPS buyers!

The Consumer Price Index is what it is, except when it's revamped, revised or reconfigured. Investors in the Treasury's inflation-protected securities (TIPS) should know that a major reconfiguration of the CPI is under consideration. . . .

Weep, Mr. Bogle

"Investors poured a record net $60 billion into hedge funds worldwide in 2003," Tuesday's Financial Times reports, "lifting the industry's assets to between $725 billion and $750 billion as the funds continued to produce strong returns and institutional investors lifted exposure to them." . .

Abroad at home

For most American savers, the menu of available currency options consists of one familiar entrée. They may choose the U.S. dollar--with or without the pretty new holograms. . .

A note on income

Growth in the money supply is feeble or negative, but monetary policy works in circuitous ways. Ultra-low money-market interest rates drive restive savers out of money funds and into bonds and stocks. On Wall Street, they discover yields much higher than the 1% posted by banks. The other day, for example, a triple-C-rated borrower. . . .

January 16, 2004, Vol. 22, No. 01

Results from the worldwide monetary caucus

With every global precinct reporting, the votes are in and counted. The winner is inflation. The world has elected red ink, ultra-low interest rates, Ben S. Bernanke, the Peoples Bank of China, the Bush administration and the biggest intercontinental vendor-financing scheme in history. It may not get what it wants--life and finance aren't always accommodating. However, there can be no mistaking the people's choice. . . .

Stocks to the max

In the wild waning years of the 1990s, Thomas S. Gayner, chief investment officer of Markel Corp., the Richmond-based specialty property-casualty insurer, frequently scratched his head. . . .

‘For a considerable period’

The 1% funds rate has changed the borrowing patterns of American home buyers. Certainly, it has transformed the borrowing patterns of the clientele of the Northeast region. . . .

Never before seen

In 1958, there occurred a prodigy. For the first time in donkey's years, stock dividend yields traded through bond yields. Sages protested against the patent overvaluation of the stock market. Dividend yields must command a premium to bond yields, they insisted, because the former are less secure than the latter. Forty-six years later, the heresy has still gone uncorrected. An accompanying graph points up a more recent interruption of a long-observed relationship. . . .

Case of the unborrowed billions

Prices are rising--from silver to soybeans to Cisco common--but money supply is falling. We don't have the answer to this conundrum, but we do have some facts and one complaint. . . .

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