Dow slips 12.45 points as rates climb a 4th day


September 08, 1994|By JULIUS WESTHEIMER

After interest rates moved up again yesterday -- their fourth consecutive climb -- the Dow Jones industrial average slipped 12.45 points and closed at 3,886.25. Higher rates tend to depress stocks because investors feel they can obtain greater returns in CDs, Treasury bills, high-income funds, etc.

NOTES & QUOTES: Speaking of stocks, Charles Clough, investment strategist, Merrill Lynch, says, "The yield on 10-year Treasury bonds is 2.5 times the yield on the Standard & Poor's 500 stock index. Four out of the last five times that happened, the stock market advance ground to a halt." . . . Reminder: Your third-quarter estimated federal and Maryland income tax payments must be postmarked by midnight Thursday, Sept. 15, one week from today . . . "Many people in their 50s and 60s wish they had started saving and investing 20 years ago; now they find it's too late." (Fortune 1994 Investor Guide) . . . "If you had invested $10,000 in these portfolios one year ago, you would now have: In foreign stocks $11,700; U.S. stocks $10,500; gold $10,500; money market fund $10,200 and Treasury bonds $9,300." (DRI-McGraw Hill) . . . "The No. 1 cause of declining U.S. productivity is marital distress in the home." (CNN News survey)

BALTIMORE BEAT: "It's great to have a best friend who helps you make $1 million by the time you're 23. That's what Doug Becker, 28, and Chris Hoehn-Saric, 32, did for each other. Having met as teens working for the same Baltimore-area ComputerLand store, today they are president and CEO, respectively, of Sylvan Learning Systems, a Maryland tutoring and testing services company . . . They didn't come out of just any high school; both went to Gilman . . . In 1988, while managing a software company, life got very rough for the quickie millionaires. They worked round-the-clock to keep their business afloat . . . For two months, recalls Hoehn-Saric, 'we had people in sleeping bags in the offices.' " (Fortune, Sept. 19.)

BE CAREFUL: "Barry Barbash, the SEC's mutual fund regulator, says that money-market funds should dispose of risky 'derivatives' (see below) which could cause losses and may cause some money market funds to 'break the buck,' or drop below net asset value of $1 a share. He says funds shouldn't own these derivatives: inverse floaters with floating interest rates that can move quickly opposite short-term rates; COMFI floaters linked to West Coast banks' cost of funds; CMT floaters, pegged to the difference between short and long interest rates or dual-index floaters whose returns depend on the changing relationships between two indexes, etc." (USA Today, Sept. 1).

WHAT ARE THEY? What are derivatives? They are complex, speculative, financial instruments whose value is "derived" from such things as rapid changes in interest rates, currency values and stock indexes. They are widely used to offset risks from other investments, but are considered risky themselves. Read your money-market prospectus carefully to see if your fund or the fund you are considering contains any derivatives or other potentially dangerous components. (For an actual example of derivative damage, re-read The Sun's business page, Tuesday, Sept. 6.)

MONEY-SAVERS: "Edgar Dvorsky saves big money by being pushy with his bankers. Here's how: He got the bank where he keeps his savings to give him a no-fee ATM card. At the bank where he has a checking account, he gets a $30 book of travel coupons every year -- usually reserved for new customers. He pays no fees on his four credit cards; in one case, he got a freebie by threatening to cancel the card. To refinance his condo, he used a mortgage broker to find the lowest rate. Because Dvorsky was in a position to refer friends to him, the banker waived his commission." ("How to Save Hundreds By Pushing Bankers Around," in Money, Sept.)

SEPTEMBER SONGS: "Businesses that were started with $1,000 or less include Ben & Jerry's ice cream, PacifiCare Wellness Co. (a $6 million health-services company), Subway (a chain of 9,100 franchise sandwich shops), Deckers, (a $57 million outdoor footwear manufacturer), Snapple Beverage, Damark (a $364 million consumer-products retailer), etc." (Inc., Sept.) . . . "68 percent of U.S. homes have two or more TV sets; 33 percent have three or more." (CNBC News) . . . Tomorrow night, "Wall Street Week With Louis Rukeyser" will present Henry Kaufman, for many years Salomon Bros.' interest rate guru, with panelists Howard "Pete" Colhoun, Mary Farrell and William Waters.

BEST FOR LAST: "In the long haul, investing beats inflation -- easily. From 1802 (no misprint) to 1992, annual total return (gain plus income) for stocks was 6.7 percent, government bonds 3.4 percent, Treasury bills 2.9 percent and consumer inflation 1.3 percent." (Wharton School study via Business Week, Sept. 12) . . . "As long as you're charging up a storm, you should get something in return for using your credit cards -- free airline tickets, hotel discounts, etc. Ask lots of questions." (Wall Street Journal)

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