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Cedar Rapids Gazette (Newspaper) - August 30, 1974, Cedar Rapids, Iowa The Cedar Rapids Gazette: Frl , Aug. SO, 1974 Effects of High Interest Rates Begin To Multiply By John Cunniff AP Business Analyst NEW YORK (AP) -Everyone but some bankers 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 possible 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 the end of June, the Institute of Life Insurance reports, loans totaled $21.32 billion, up It percent from $18.71 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 rate was IO percent, but between 1945 and 1965 it never topped 5 percent. Since policyholders have first call on insurance company assets, the ability of insurers to invest in other areas is reduced by the rise in policy loans. And those other areas John Cunniff usually provide double the return There is another cause for concern by the insurers. Past history, they say, establishes as fact that those who borrow on their policies are more likely than nonborrowers to let their policies lapse. Small businesses are being put on the rack by high interest rates. Unable to pass on their added expenses as easily as can big business, proprietors and others are forced to absorb the sharp increases in money costs. Short-term, noninstallment business loans of $10,001) to $25,000 rose in July to ll 47 percent from 11.06 percent a month earlier, according to the Federal Reserve Board. Additional charges also might be involved New business incorporations. 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 of incorporations fell 7.6 percent to 25.977, the lowest level so far in 1974. 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 securities by the high interest rates available. Often overlooked is the fact that the prime interest rate isn’t fixed rigidly at the announced figure. It varies so much that corporation treasurers and other executives can't make reliable projections about future expenses. If, for example, a prime corporate borrower obtained an ll percent rate several months ago he most likely is paying at least 12 now The prime floats; if the rate rises, then all outstanding loans are adjusted upward Moreover, the company most likely must keep on account with the bank a compensating balance of probably IO to 20 percent. Its effective«interest rate, is therefore, increased by that much — and more. As one corporate treasurer explained. “It’s impossible to HEATHCLIFF <c »•»« Mc Nought , toe ‘HO, WE HAVE ONLY ONE CAXBUTHEfeABIT maintain the precise compensating balance, and therefore, rather than fall below the IO or 20 percent, you're inclined to leave an excess on deposit.” Pension managers are getting perturbed. Pension funds traditionally were big investors 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. The Investor's Guide By Sam Shulsky Q — I am interested in buying some bonds, but two brokers 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 rated AAA. I also got the impression 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: 1—A 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. in a way, a form of brushoff. There are hundreds of bond issues traded daily on the listed market and thousands over the counter which are priced at a fraction either side of par. 2—1 have cautioned the unsophisticated investor about buying bonds at a high premium because: a) such a bond would be more likely redeemed in the case of a drop in interest rates, and the redemption price may be below the one you paid for the bond;* 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. 3—1 said nothing about not Sam Shulsky buying a bond at 95 or 75. What is important is that you stick to high ratings. 4—A sinking fund is a fund set aside by a corporation to retire at the rate, let’s say, of one percent of the issue annually. 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 basis of what you want your investment to do. If you want maximum current income, you should consider buying recently issued high grade bonds at or near par because they will pay you $90 and more a year for every $1,000 in v ested Most of these new issues will mature 20 , 25 and 30 years off — which means that if you continue to hold a triple A or double A issue you are fairly well assured that you will get that $990 for so long as you remain an investor. Of course, if interest rates climb to IO or ll percent for top quality issues, you’ll continue 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. lf 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 would then buy bonds due in that number of years. These were, most likely, issued 15 to 211 years ago and therefore carry lower interest coupons. lf you wanted your money back in 1977. you could consider, for example, the Commonwealth Edison 3s of 1977, recently selling at around    It’s true, your current income would be only $30 for every $862.50 invested — which works out to a current yield of only 3.4 percent. BUT — you could count on a $137.50 capital gain by maturity in 1977 which* by the simplest computation, gives you a capital gain of about $45 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 repeat, make your choice from among high quality bonds. Yields from these are so generous these days that it makes little sense to risk your money for an extra I percent Hear ye! Hear ye! The highest bank savings rates allowable by lawI Passbook savings 5% with No Minimum MATURITY RATE MIN. AMOUNT 3-month 5'/a% $ 500 I -year 6% 500 2 Va- year 6'/i% 500 4-year 7V*% 1000 Member FPIC §B & I CO FDtC regulation* require jwbOantial penalty for eorty withdrawal prier to maturity mimmmmmmwmiwmim GUARANTY BANK & TRUST CO. 3rd St t 3rd Av*. Downtown • UIS 42nd St. NE 191 Jocelyn Dr. NW* 362-2HS Q — (her 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 vouNe been successful 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-doun 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 WA* Mr Squishy welcome* written Que* ♦•on*, bu* Se will be obie to provide answer* only tbrouflS the column For information on annuities, please include a self addressed, stamped envelope Address your requests to Som Squishy, core of The Gazette For Better Health Knowing Heart Attack Signs Could Save a Person s Life hy Dr. S U. Andelman 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 the shoulder, arm. neck or jaw. — The pain or discomfort is often accompanied by sweating. Nausea, vomiting and shortness of breath may also occur. — These symptoms may subside and then return. ( al! Doctor If you or someone around you suffers these symptoms, call a doctor and carefully describe Dr. Andelman WIN AT BRIDGE By Oswald & Janies Jacoby The unlucky expert had cornered us again. This time he was fresh from a rubber bridge game. "Look what South just did to me!” he commanded. ”1 had picked up my usual bust and evp". though my partner had opened the bidding I was delighted when my opponents settled for a mere game.” “So they won thf* rubber,” we remarked. “Everyone loses rubbers.” “No they didn’t,” he retorted. "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 that?” 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- The bidding has been: 30 W est North Fast South 14 Pass 14 Pass 2* Pass 56 Pass 64 Pass You, South, hold 4 A K Q J IO 5 4 V 8 5 ♦ 3 2 4 7 4 What do you do now0 A—If vou have faith in sour partner bid seven spades. If >ou lack faith or courage, just hid six spade* TODAY S QUESTION Instead of opening one club your partner has opened one notrump. What do you do now Answer Tomorrow ON THIS DATE in 30 B C , Cleopatra committed suicide by letting an asp bite her. M. .    _    M . _ ^Coetus wmger Think of it as a Wallbanger gone loco. Take a tall glass full of ice Add an ounce and a half of Tortilla Tequila An ounce of Neapolitan Italian Style Liqueur Fill to the top with Squirt and plop in a hunk of fresh lime. What have you got0 A genuine Cactus Banger ... a spunky, citrusy. South-of-the-Border # kind of dunk that Harvey Wail-    £*3^ banger fans have just got to    MSij love Because usa sort of a J /{Jfjl Wallbanger gone loco And once you try one . . NORTH 30 A K 9 8 7 3 V A J 8 ♦ 72 ♦ A 9 3 WEST FAST (I)) A 64 A 5 9 1076 4 32 9 K Q9 ♦ IO ♦ AQ J964 ♦ QJ86 A K IO 2 SOUTH A AQ J 102 *5 ♦ K 8 5 3 ♦ 754 Both vulnerable West North Fast South 14 14 Pass 24 Pass 24 Pass 44 Pass Pass Pass Opening lead — IO 4 the patient’s condition If a doctor is not immediately available, get 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, husband, relative, friend or whoever is with him when the symptoms occur. In some attacks, the victim will describe the first uncomfortable feeling not so much as pain but as great pressure. If this comes with all the other heart attack symptoms, treatment 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 comfortably as possible with another person going 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 instructed by the doctor — Should not he given anything to drink. Comfort — Should be made as comfortable as possible, either in a sitting or lying position — Should have clothing loosened so that no tightfitting garments restrict easy circulation 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 attack victims corm* through a heart attack alive and ablebodied. Statistics vary, but most researchers say that HO 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 it,” 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." To Report Drug Violation Telephone Michoel Dooley 377-8081 Operation of Automatic Typewriters Course on MT-ST, Executive Mag-Card, Mag-fl and Memory Automatic typewriters. Enables you to learn a new and unique skill. The course offers the opportunity to become on efficient a. J skilled operator. Individual instruction by experienced personnel to insure complete understanding. Must type at least 40 WPM Also instruction on Lanier cassette dictation equipment. Information and Registration Sept 5. 1974 at 5 30 pm MMB Main Bank Lobby. 3rd St Entrance Tuition $50 Five week class to be held Saturday mornings from 8 00 a.rn.-12:00 beginning Sept, 7, 1974. k kink wood For more information call: Kirkwood Community College 398-5495 VISIT OUR NEW GREETING CARD DEPARTMENT , To'Mta Tequila, 80 Proof. Imported and bottled by Kingston and Company Limited. Chicago, Illinois 60623 Neapolitan Liqueur. BO Proof. Produced and bottled in the USA. by International Liqueurs Cf«c‘gc "•mots 60623. WINNERS!! Comer Tree Plantings K. S. Oval I2» WamfiHd A** Vt.. I «t»f fUptds. lo** TORO SHREDDER Frank O. Koutny lh. tow* BULBS AWARD WINNING IRIS 1.65 ca. 3 for 4.50 HYBRID DWARF IRIS 1.25 ca. 3 for 3.50 Both types potted CLOSED LAB OR DAY FREI Delivery SINCE 1869 803 Third Ave. SE 364-4176 SLED 4 Co., Inr. HOURS Mon., Thor*., 9 AM to 9 PM Tues., Wed.. Frl., Sit 9 to 5 Sun. 12 Noon to 5 ;