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Cedar Rapids Gazette (Newspaper) - August 30, 1974, Cedar Rapids, Iowa 2 The Cedar Rapids Gazette: Fri Ang. 58. 1974 Effects of High Interest Rates Begin To Multiply By John Cunntff AP Business Analyst NKW YORK (AP) Everyone sunn- bunkers and regulatory officials deplore high interest rates, but so far nobody in power is doing much about them. Meanwhile: Americans are being forced to borrow heavily on their life insurance policies, which still carry an interest rate of only 5 or 6 percent, versus double that for any other personal loan. This low rate is made possi- ble by the fact that the borrowers really own the money, it being the cash value built up in their whole life policies. Still, if it isn't paid back it reduces the value of the insurance. At (he end of June, the Insti- tute of Life Insurance reports, loans totaled billion, up 14 percent from billion a year ago, and the figure is still rising. Policy loans now account for more than 8.3 percent of life insurer assets, the highest percentage since the tail end of the great depression of the 1930s. In 1940 the rale was 10 percent, but between 1945 and 1965 it never topped 5 percent. Since policyholders have first call on insurance com- pany assets, the ability of in- surers to invest in other areas is reduced by the rise in policy loans. And those other areas John Cunniff usually provide double (he re- turn. There is another cause for concern by the insurers. Past history, (hey say, establishes as fact (hat those who borrow on their policies are more likely than nonhorrowers to let (heir policies lapse. Small businesses are being put on the rack by high interest rates. I'nable to pass on their added expenses as easily as can hig business, proprietors and others are forced to absorb the sharp increases in money costs. Short-term, nuninstallment business 'oans of to rose in July to 11.47 percent from 11.06 percent a month earlier, according to the Federal Reserve Board. Addi- tional charges also might be involved. New business incorpora- tions, as measured by Dun Bradstreet, have fallen almost steadily since last September, one reason being the high cost or unavailability of financing. In June the number ini-or- peralions fell 7.6 percent le 25.S77, the loves! let el so far in 1971 Much the same situation exists in the equity market, where new issues of stock by beginning companies have been reduced to a trickle from a roar in just three or four years. The equity markets can't support new issues because so much capital has been siphoned off into debt securi- ties by the high interest rates available. Often oierlookfil is the fact that the prime interest rale isn't fixed rigidly at the an- nounced figure. It varies so much that corporation treasurers and other execu- tives can't make reliable projections about future ex- penses. If, for example, a prime cor- porate borrower obtained an 11 percent rate several months ago he most likely is paying at least 12 now. The prime floats; if the rate rises, then all out- standing loans are adjusted upward. Moreover, the company most likely must keep on account with the bank a compensating balance of probably 10 to 20 percent. Its rate, is therefore, increased by that much and more. As one corporate treasurer explained, "It's impossible to HEATHCLIFF HAVE ONLY ONE SPOILER'' maintain (he precise compen- sating balance, and therefore, rather than fall below the Ifl or 20 percent, you're inclined, to leave an excess on deposit." Pension managers are get- ting perturbed. Pension funds traditionally were big inves- tors in blue chip stocks, which now sell at anemic prices since investment money has been attracted elsewhere. This produces questions about the viability of some private pensions, should the stock market remain depressed for many months or years ahead. For Better Health Knowing Heart Attack Signs Could Save a Person's By Dr. S.L. Andelmaa Knowing the signs of a heart attack could one day save your life or give you a chance to save someone else's. The symptoms vary, out these are the usual warnings of a heart attack: Prolonged oppressive pain or unusual discomfort in the center of chest behind the breastbone. Pain may radiate to shoulder, arm. neck or jaw. The pain or discomfort is often accompanied by sweat- ing. Nausea, vomiting and shortness of breath may also occur. These symptoms may subside and then return. Call Doctor If you or someone around you suffers these symptoms, call a doctor and carefully describe WIN AT BRIDGE The Investor's Guide By Sam Shulsky Q I am interested in buy- ing some bonds, but two bro- kers tell me they do not have bonds selling at par only at a discount. I read in your column that one should not buy bonds at a premium or bonds selling at 95 or even 75, even though the bonds are rat- ed AAA. I also got the impres- sion that it is okay to buy bonds around par. I don't understand sinking fund. A I agree that there are quite a few technical factors involved in a bond investment. To' answer your questions in order: broker may not be able to get you a good buy on every bond on any given day. But to say he doesn't have any bonds selling at par is, iji a way, a form of brushoff. There are hundreds of bond issues trad- ed daily on the listed market and thousands over the count- er which are priced at a frac- tion either side of par. have cautioned the unsophisticated investor about buying bonds at a high prem- ium because: a) such a bond would be more likely re- deemed in the case of a drop in interest rates, and the re- demption price may be below the one you paid for the and b) your bond might be chosen (by lot) for sinking fund redemption at a price below what you paid. Both these dangers of loss are avoided when you buy a bond at par or at a discount from par. said nothing about not Sam Shulsky buying a bond at 95 or 75. What is important is that you stick to high ratings. sinking fund is a fund set aside by a corporation to retire at the rate, let's say, of one percent of. the issue an- nually. This is a requirement included in the indenture of many bond issues. The choice between buying a bond selling at a discount from par and one selling at par must be made on the ba- sis of what you want your investment to do. If you want maximum current income, you should consider buying recently is- sued high grade bonds at or near par because they will pay you and more a year for every invested. Most of these new issues will mature 20, 25 and 30 years off which means that if you con- tinue to hold a triple A or dou- ble A issue you are fairly well assured that you will get that for so long as you remain an investor. Of course, if interest rates climb to 10 or 11 percent for top quality issues, you'll con- tinue to get only 9 percent. If money rates should fall drasti- cally or, at least, by a point or more, you may expect that the corporation will pay you off at par, or slightly better, and issue a new- mortgage at a lower rate. If you don't care about maximum current income, but would like to have your money back for whatever purpose in two, three, five or six years (without worrying about market price) you then buy bonds due in that number of years. These were, most likely, issued 15 to 20 years ago and therefore carry lower interest coupons. If you wanted your money back in 1977, you could con- sider, for example, the Commonwealth Edison 3s of 1977, recently selling at around It's true, your current income would be only for every S862.50 invested' which works out to a cur- rent yield of only 3.4 percent. BUT you could count on a capital gain by maturi- ty in 1977 which; by the simplest computation, gives you a capital gain of about a year and adds another 5 percent plus reward on your investment. And that gain at maturity is taxed only as a long-term capital gain. The bond market can offer different rewards to different investors. It's up to you to make your choice. But, I re- peat, make your choice from among high quality bonds. Yields from these are so gen- erous these days that it makes little sense to risk your money for an extra 1 percent. Hear ye! Hear ye! The highest bank savings rates allowable by lawl Passbook savings 5% with No Minimim MATURITY 3-month year 4-year FDIC regulations require substantial penalty withdrawal prier to maturity. WIN. AMOUNT 500 500 500 1000 GUARANTY BANK TRUST CO. 3rd St. 3rd Downtown 1819 42nd St. NE Dr. 362-2115 Q Over the years' I've taken some of your advice and with patience have benefitted from it that is, I've at least conserved capital over the long term. A If you've been success- ful in conserving capital over the last half dozen years, I'd say you've done a good job. Years ago. Charles Merrill of Merrill Lynch who knew a few things about investing told me that he was prouder of the money he had saved his customers than of the money he made for them. Now after about eight years of a going-nowhere-but-down market, I know exactly what he meant. PAPER PROFIT: An un- realized profit on a security you still hold. This becomes a realized or actual profit only when the security is sold. Until such time it is very much like counting chickens before the eggs are hatched. Mr. Shulsky welcomes written Ques- tions, but he will be able to provide answers only through the column For information on annuities, Dleose include a sell-addressed, stamoed envelope. Address vour requests to Sam Siiulsfcv. care of The Gazette. By Oswald James Jacoby The unlucky expert had cor- nered us again. This time he fresh from a rubber bridge game. "Look what South just did to he commanded. "I had picked up my usual bust and even, though my partner had opened the bidding I was delighted when my opponents settled for a mere "So they won the we remarked. "Everyone loses rubbers." "No they he retort- ed. "My partner took his ace of diamonds and led back the queen. South wasted no time putting up his king. I ruffed and eventually South had to lose two club tricks." "What's wrong with we asked. "He could have made sure of his contract by letting the queen hold; ruffing the next diamond in dummy; drawing trumps and even- NORTII K9873 t AJ8 WEST EAST ID) 4 64 45 V 10 76-13 2 t K Q 9 10 SOUTH AQ.I10 2 V 5 K 8 5 3 Both vulnerable West North East South Pass Pass 2 Pass Pass Pass Pass Opening 10 Dr. Andelman the patient's condition. If a doctor is not immediately available, ge' to a hospital emergency room at once. Don't leave the decision to get help up to the patient it's also the responsibility of the wife, hus- band, relative, friend or whoever is with him when the symptoms occur. In some attacks, the victim will describe the first uncom- fortable feeling not so much as pain but as great pressure. If this comes with all the other heart attack symptoms, treat- ment should be given for a coronary. Paleness, weakness, sweating, shortness of breath all appear quickly, too. If the patient's doctor asks that the victim be taken to a hospital emergency room, get him there as quickly and com- fortably as possible with another person along, if possible, to help the patient during the trip. Until the doctor is available, the heart attack victim: Should not be lifted or carried anywhere except as in- structed by the doctor. Should not be given anything to drink. Comfort Should be made as com- fortable as possible, either in a sitting or lying position. Should have clothing loosened so that no tightfitting garments restrict easy cir- culation anywhere in the body. Should be kept warm enough to prevent or minimize chilling but not so hot as to cause sweating. Remember: Most heart at- tack virtims come through a heart attack alive and able- bodied. Statistics vary, but most researchers say that 81) percent to 90 percent survive their first attack. Some victims have just one heart attack, then go on to live a full life, perhaps several more decades. tually discarding a club on the king of diamonds that he had saved. Instead he had made a careless play and let you keep the rubber alive." "I know he replied. "That's what I'm complaining about. They say that cards never forgive, but these cards forgave him. He picked up a grand slam on the next hand." The bidding lias been: 30 West North East South Pass Pass 2T Pass Pass 6i Pass You, South, bold: What do you do now? you have faith in your partner bid seven spades. If you lack faith or courage, just bid six spades. TODAY'S QUESTION Instead of opening one club your partner has opened one notrump. What do you do now'-' Answer Tomorrow To Report Drug Violation Telephone Michael Dooiey 377-8081 Automatic Typewriters Course on MT-ST, Executive Mag-Card, Mag-ll and Memory Automatic typewriters. Enables you to learn a new and unique skill. The course offers the opportunity to become an efficient and skilled operator. Individual instruction by experienced personnel to insure complete un- derstanding. Must type at least 40 WPM. Also instruction on Lanier cassette dictation equip- ment. Information ant) Registration Sept. at p.m. HN8 Main Bank Lobby. 3rd St. Entrance Tuition: J50 Five week class to be held Saturday mornings from beginning Sept. 7. 1974. For mote information, call: Kirkwood Community College 398-5495 ON THIS DATE in 30 B.C., Cleopatra committed suicide by letting asp bite her. The Cactus Think of it as a Wallbanger OCO. Take a tall glass full of ice. Add an ounce and a half of Tortilla Tequila. An ounce of Nea- politan Italian Style Liqueur. Fill to the top with Squirt and plop in a hunk of fresh lime. What have you got? A genuine Cactus Banger a spunky. citrusy. South-of-the-Border hind of drink that Harvey Wall- banger fans have just got io love. Because it s a sort of a Wallbanger gone loco. And once you try one Tortilla Tequila, 80 Proof. Imported and boltlort by Kingston and Company, Limited, Chicago. Illinois 60623. Nc.ipollliin Liqueur, 60 Prool. Ptoducud and bottled in Ihn U S A. by lnlorn.llion.il liqueurs. Chicago Illinois 60623. VISIT OUR NEW GREETING CARD DEPARTMENT IRIS Corner Tree Plantings K. S. Dyal Mansfield Avf.S.E. Cedar Rapids, Igwa TOROSHREDDER Frank 0. Koutny Fly. Iowa BULBS AWARD WINNING IRIS 1.65 ea. 3 for 4.50 HYBRID DWARF IRIS 1.25 ea. 3 for 3.50 Both types potted CLOSED LABOR DAY MADONNA LILIES Quality SINCE 1869 803 Third Ave. SE HOURS: Hon., Thun., 9 AM to 9 PM Tues., Wed., Fri., 9to5 Sun. 12 Noon Io 5
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