Word: bonding
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...billion fiscal 1982 budget. Two weeks ago, he won reluctant approval from state legislators for a temporary income tax increase, from 4.6% to 5.6%. The next day, Michigan's economy was dealt a new blow when Moody's Investors Service dropped the state's bond rating from A to Baa-1, the lowest of any state. That will make it difficult for Michigan to borrow needed funds when the new fiscal year begins in October. So far, ten Democrats and seven Republicans have announced themselves as candidates for Milliken's job. No clear leader has emerged...
While yesterday's high flyers are out of fashion, traditional investments like bonds, stocks and even bank accounts are back in favor. Many financial advisers suggest that their clients look at bonds. Says James Sinclair, a onetime gold bug: "The next big play out there is not gold, but Treasury bills and bonds." By buying an AAA-rated corporate bond issued by a blue-chip company like American Telephone & Telegraph or International Business Machines, an investor can count on making 14% on his money for ten years or more. If inflation stays at about 5%, that represents a good...
...fear-of-inflation hypothesis is a good explanation for why long-term bond and mortgage rates are high. It does not fully explain, however, why banks are charging 16½% on short-term loans, at a time when no one is predicting that inflation is about to reignite. Many analysts, ranging from Liberal Economist Charles Schultze of the Brookings Institution to Conservative Congressman Jack Kemp, argue that short-term rates are high in large part because the Federal Reserve is not providing enough money to the banks. Over the past month the money supply has been growing at an annual...
...remain high, some of the largest and most successful American corporations are experiencing problems. Last week RCA Corp. was negotiating to sell its Hertz auto-rental subsidiary for about $700 million to Firestone Tire & Rubber Co. so that it could reduce its nearly $3 billion debt. Boeing saw its bond rating reduced by Standard & Poor's from AA-to A because it will have to borrow heavily in order to finance the construction of new 767 and 757 airliners. Phelps Dodge, which announced earlier this month that it is temporarily closing all of its copper mines, laid off about...
Even worse, many firms have been gambling that interest rates will soon decline by shifting their borrowing to short-term loans. Instead of paying 14% or 15% interest to borrow money for 30 years through a bond issue, they have been spending the same amount to get funds for only 90 days, and then renewing those loans every three months. Corporations have adopted such strategies because they do not want to lock themselves into paying the current interest rates for the next 30 years...