The Year in Money

The Year of Debt

Nineteen eighty-five was the year of debt. In other words, it was very much like 1984, 1983--how much time have you got?

The Federal deficit was dealt with forcefully (when it came to Amtrak), but a lot of little programs, such as Social Security and defense, kept growing with inflation. America went deeper than ever into hock.

We became, in 1985, a net debtor nation for the first time since World War One, owing foreigners more than they owed us. A record number of banks folded; hundreds more seemed poised to follow. It was not a good year to be a farmer. Or a farmer's banker.

Where once we had had visions of financial enslavement to the Saudis, it grew increasingly apparent that our benevolent masters would instead have names like Takahashi Uwukfomena. The Japanese may have lost the battle, Teddy White pointed out on the cover of The New York Times Magazine, but, 40 years later, they seemed to be winning the war. It began to look as though our strategy of an economy built on a vast base of legal talent just might not outcompete theirs, shy on lawyers but dripping with engineers.

But there was lots of good news, too: low inflation, relatively low interest rates, a decline, finally, in the strength of the dollar (which could eventually help right the trade imbalance), an all-time high for the Dow Jones industrials and a bonanza for the limited partners in a crazy-ass tax shelter that couldn't possibly work but did: Treasure Salvors, Inc.

It was also a boom year for specialty plastic fabrication:

• Visa and MasterCard began sending out cards with holographic images to foil counterfeiters. All across America, cardholders were tilting their new cards this way and that, like opals, trying to get the image into focus.

• Sears, the well-known stock- (Dean Witter) and realestate (Coldwell Banker) broker, launched its Discover Card, bought a bank and was expected to solicit IRA deposits.

• American Express began offering free baggage insurance, at a cost to itself of around a dime per cardholder, and upped its basic annual fee by ten bucks. The baggage policy included carry-on items. But not all carry-on items. Among the carry-on items it did not include were coats, hats, cash, tickets, silverware, linens, plants, art objects, "cars, boats or other conveyances" (and you wonder why those baggage racks are always full!) and artificial limbs. Hop off the plane without your artificial leg and you hop alone.

• Citicorp Diners Club began its push to take over the world, offering a card for $55 that happened to be the same color as Amex' $250 platinum card--silver--and that offered free gifts. The more you charged, the more you'd get, analogous to the frequent-flier mileage-accumulation games.

These reached such magnificent proportions in 1985 that while Pan Am was on strike, in March, it gave away bonus miles for flying its competitors. A single low-fare New York-Miami round trip--flown on Eastern--earned one traveler 6791 Pan Am miles (and 4388 on Eastern).

Later in the year, TWA credited hijackees full mileage for the four trips flight 847 made between Algeria and Lebanon. (One hijackee, incidentally, was put in the bizarre position of having to fill up the plane's 6000-gallon fuel tank, twice, with her Shell credit card.)

The frequent-flier concept spread from the airlines and car-rental companies to the hotel chains (every seven nights in an Intercontinental Hotel won you a trip to Europe--a utility-rate lawyer holed up at the Mark Hopkins earned three of them in less than a month) and to the phone company (reach out and touch enough people and AT&T gave you a discount on a blender).

How I Invested My 1985 IRA $2000

First thing, I made my $2000 1985 IRA contribution on January second, to get it working from the start. But to get a jump on things and scoop up some tax-selling bargains, I actually called my broker December 21, 1984, and told him to buy 4000 shares of Compucorp at 50 cents each. Compucorp's chief virtue was that, down from eight dollars, at least in part on heavy year-end tax selling, it was still in business. I could buy it December 21, because stock purchases settle five business days later: January 2, 1985.

By mid-January, released from tax-selling pressure, poor little Compucorp (Lord knows what they do, but it couldn't be much) bobbed back up to 1-5/8, where I sold the 4000 shares--$6000.

The six Gs I reinvested in a little number called OEA, on the Amex, at $17. They're in electronics and military systems, and the stock ran to 24 by the end of the month.

For February, I moved my $8500 into National Semiconductor puts. With puts, you hope a stock will go down, and National Semi did, beautifully, from 14 to 10 and a fraction by March.

I took my $42,000--you get a lot of leverage with puts--and went for a company, Informatics, that sounds like it's made out of toothpicks but that actually trades on the New York Stock Exchange. It had a nice smell to it, at 17, and an even nicer smell at 24 the second week of April. (The trick with technology stocks, I find, is to catch that 17-to-24 updraft.)

So now we were talking $59,000, which includes commissions, because my broker had stopped charging me any. When I bought anything, he'd just buy a little for himself first.

Usually, I just bought one thing at a time, but in mid-April I was torn between buying Ames Department Stores at 35 and shorting Apple Computer at 23, so I did some of each. (You can't short a stock in an IRA account, so I bought the puts.) I kicked out the Ames in mid-June at 50 and the Apple puts, also in mid-June, with the stock at 14-1/2.

July and August are traditionally slow months for me and my money, so I parked my whole wad, $212,000, in Pan Am 15 percents of 1998. Those are the convertible bonds secured by a bunch of aircraft. I figured I'd make a couple of months' interest, and if the tip I'd gotten from the one-legged man at the cigar store proved out, Resorts International might make a run at the airline, just as it had at TWA. Sure enough--remind me to send that guy another whip--my bonds and interest came to $259,000.

At this point, I decided to get serious. Any time a dollar amount can be comfortably expressed as a fraction of a million, I feel it should be treated with respect. Rather than just slap in into some other hunch, I called a couple of CIA guys I'd been stationed with in Zagreb. They told me they knew a little electronics company whose stock price they'd decided quietly to quadruple. It was a vehicle for paying off certain persons it would be awkward to pay off directly--they'd just be told what stock to buy--and, while I was obviously not one of those persons (whom had I ever assassinated?), they figured it couldn't hurt if I put my 1985 IRA money into it. (The Company knows everything, so I felt no need to mention that by "my 1985 IRA money" I was talking $259,000, not $2000.)

For weeks and weeks, nothing happened, which made me nervous as hell--a whole year's retirement funds in some all-but-moribund electronics outfit no one had ever heard of. Then, shortly after this issue of Playboy went to press, an item buried in The Wall Street Journal announced the award to this all-but-moribund electronics company of a $46,800,000 satellite-surveillance-development contract, and the stock bolted from 2-1/8 to 10. I sold into strength.

On December 31, I retired.

Corporate Takes

ABC went to Capital Cities, CBS went a billion dollars into debt to turn Ted Turner to MGM, RCA watched subsidiary NBC emerge in the ratings and sold subsidiary Hertz to UAL (parent of United Airlines and major competitor to AMR, no relation to AMF). GAF went after Carbide, everybody went after TWA, and suddenly it dawned on the corporate logoteers that there could be in total, at most, no matter what, just 17,576 different corporations with three-letter names. Then what would they do?

James L. Dutt, chairman of Beatrice, who had initiated the albatrossian acquisition of Esmark, fired or lost 43 of 48 Beatrice vice-presidents--"We're Beatrice"--and watched Beatrice's bond rating sink from triple-A to single-A, was canned.

G.M. decided that the best place in America to build a quality car was heartland Tennessee. And that the best way to sell cars in the meantime was with 7.7 percent financing.

IBM announced it was ceasing production of the PCjr--and then was surprised that no one would buy the remaining inventory.

Mobil's Montgomery Ward subsidiary (one of the stupidest acquisitions in history) announced it was ceasing publication, after 113 years, of the Montgomery Ward catalog.

McDonald's served its 55 billionth hamburger.

A record amount of home-exercise equipment was purchased, used twice and stored guiltily in the back of the closet.

The Prudential was "bigger than life," the Metropolitan launched Snoopy as its spokescanine and the Northwestern Mutual continued to advertise itself aggressively as "the quiet company."

Smith Barney continued to do things the old-fashioned way--with pneumatic tubes. Bear Stearns announced it would go public and revealed that over the prior five years, it had made more money than all its clients combined.

Coke brought out new Coke, presaging yet four more potential supermarket facings--new Coke with caffeine, new Coke without caffeine, diet new Coke with caffeine and diet new Coke without caffeine. A marketing coup. For the long run, it suggested a possible lack of focus. "Coke's a joke" was more or less the gist. Opined an elderly Coke lover cajoled by Newsweek into taking her first trepidatious sips at the newbrew debut: "It sucks."

Taxes

• The week of October 17, an unmarried, self-employed plumber in New York City earned an extra $1000. It was his 37th. If he reported it to the Government, as all plumbers do, he would pay $118 of it in Social Security tax, $100 of it in New York State income tax, $43 of it in New York City income tax, $40 of it in New York City unincorporated-business tax and, after allowing for the local tax deductions, $310 of it in Federal income tax. This would leave him $389, enough to garage his car for 16 nights in Manhattan (including the 14 percent New York City parking tax but no tips, wash or wax).

• Throughout the year, there was talk of tax reform. Part of the idea was simplification. So in 1985, to simplify things, 1,000,000-odd Keogh-plan participants were, for the first time ever, required to file a special form. Failure to file the five-page form by July 31 incurred a $25-a-day penalty, except that since no one had a clue how to fill it in, the deadline was extended to September 30. And still no one had a clue. (One bank that is custodian for 30,000 such plans offered to fill out the forms for $225 a year--and then sent out impenetrable three-page questionnaires to be submitted along with the $225.) Particularly, no one had a clue what good any of this could possibly do anyone. One undoubtedly well-intentioned idiot somewhere in Washington had made 1,000,000 self-employed people miserable and dumped several million manhours into the sewer.

• In 1985, Treasury I was supplanted by Treasury II. In 1986, it may not be shinnying too far out on a limb to predict, Treasury II will be supplanted by Treasury III.

New Meanings!

• The Bank of Boston gave new meaning to the term transfer agent when it developed, in 1985, that for years it had been greeting greasy little men with bundles of small bills and shipping them (the bills, not the men), no questions asked, to numbered Swiss accounts.

• E. F. Hutton gave new meaning to the term cash management, under which one attempts to have close to zero cash sitting idly at any moment. "Close to zero?" a lowly Hutton regional nobody asked himself one night. "Why stop with zero? Why not subzero?" He thereupon launched a system of thousands of cash transfers, which you or I might call kited checks, that over time netted Hutton a couple of hundred million dollars. And the marvelous thing is that he did it all himself. No one at the top knew anything about it. He was just a lone, overzealous Cuban exile who, with a few of his pals, had taped open the doors of the Democratic National Committee headquarters and--Oops. Wrong cover-up.

Bond Issue of the Year

Ron Perelman, one of the tycoons in those Consolidated Cigar ads (well, he owns Consolidated Cigar), floated a halfbillion-dollar bond issue, with little visible collateral and no specified purpose, through Pantry Pride, the supermarket chain he controls. Pantry Pride then made a one-and-a-half-billiondollar bid for roughly 30-times-as-profitable Revlon.

Sneered take-over attorney Martin Lipton sometime earlier (as quoted, again, in Fortune): "We have entered the era of the two-tier, front-end-loaded, bootstrap, bust-up, junk-bond take-over."

Could he have had in mind Ted Turner's plan to buy CBS for nothing down?

Best (-Selling) Business Book of the Year

lacocca, "which would seem to prove," wrote L. J. Davis in Harper's, "that if one wants to write a best seller, one should leave the writing to someone else. lacocca isn't even a real ghosted autobiography; it is a series of occasionally entertaining, selectively sanitized anecdotes and after-dinner speeches in which, with astonishing vigor, the chairman of Chrysler does not run for President of the U.S."

Enlightened Corporate Quote of the Year

"I had one lady in mind, but she died."--Fred Hartley, 68, chairman of Unocal, explaining his company's all-male board, as quoted in Fortune.

Best Business Yarn

Funny Money, by Mark Singer--the outlandish story of Penn Square Bank, led by president "Beep" Jennings and star salesman "Monkeybrains" Patterson, a team that sank the bank and with it, it could be argued, Continental Illinois.

Funniest Money Book

Sex & Money, by Boston stockbroker and author John D. Spooner. Very little sex, lots of fun and savvy. "Jimmy is one of the most honest people I know," Spooner writes of a broker who sits across the room. "After he blows his whistle every morning, he yells out, 'Do I know anything? If I knew anything, I wouldn't be in this business.' ... Stockbrokers themselves generally own very little stock."