Why 1980 has fund managers dizzy

They read the Wall Street Journal for clues. Every day, in a thousand offices, men and women whose jobs depend on being right look at the figures again and wonder how things ever got to be this crazy.

They are bond and money-market portfolio managers, professionals paid to predict the future of financial markets. Over the last year this has been, to say the least, a difficult job. So these financiers tug anxiously at their suit coats, attempt to decipher some pattern from each day's financial news, and watch with awe as the market changes.

In April the prime rate rate was 20 percent. In July it was 11; now it is 20 again. Money-market certificate yields have ridden up and down on the interest-rate roller coaster. Bonds have fluctuated wildly.

"It's a portfolio manager's nightime," says Patricia A. zlotin, president of Massachusetts Cash Management Trust. "There really aren't words in the English language to describe that kind of price move."

Perhaps the bond market has been pummeled the most. The very concept of a bond reflects a belief in stability: trust that sums invested now will be returned in 20 or 30 years, plus interest. But when investors can't see beyond the crest of the next economic hill, they begin to lose their faith in long-term investment. What if there's a valley in the distance? Worse still, what if there's a Grand Canyon?

"Investors are becoming very reluctant to commit for 20 years," says David Jones, principal economist of bond specialists Aubrey Lanston & Co. "It's a very tough time for the market. I think all kinds of fixed-contract debts are going to be forever altered." years to mature; right now the average payback period on money-fund investment is 29 days.

"We have been fairly cautious with our investments," says Emery Erickson, a portfolio manager at Investor Diversified Services.

But if a fund manager could predict when interest rates are going to peak and "go long" (put money into securities with longer maturity dates) at the right time, they could conceivably lock up their yields at a high level while therest ow the market dropped away.

Should they play it conservatively, or go for broke?

"Are we nervous?" Mr. Parrish asks. "Yes."

Many observers are suggesting interest rates will start down sometime early next year.

"Basically, the pattern suggests we're close to a peak right now," says H. Erich Heinemann, an economist for Morgan Stanley. "The demand for short-term credit is fading away quickly. The Fed, in my judgment, is going to hang in there."

Other experts are not convinced the Fed won't turn and run when the fighting starts. "Interest rates will peak only when the money supply begins to convincingly decline to its targets," Peter Crawford, a vice-president of Citibank, says.

For all involved, uncertainty is a watchword. No one is quite sure what the economic terrain ahead looks like. A steady eye and quick feet can keep them going forward, but long-term travel plans have become very hard to make.

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