US dollar is back in run, for the money

Under much of President Carter's four years, the dollar was the proverbial " 97-pound weakling." With President Reagan in office less than a month, the dollar has regained its muscle.

Against the West German mark, the French franc, the Italian lira, and the Japanese yen, the dollar has moved to three-year highs. It also has been strong compared with the Swiss franc and even the British pound.

"I don't think anyone knows why the dollar is strong," says Fred Deming, senior vice-president of Chemical Bank here, adding, "but there are a lot of standard explanations."

Chief among the explanations, the economist says, is the fact that US interest rates look attractive to international investors. However, analysts also cite concern in Europe over a possible Soviet invasion of Poland and the relative strength of the US economy compared with the European economies. Mr. Deming also says, "I suspect there is some hope that the US leadership is stronger."

Another economist, Werner Chilton of Citibank, spies a certain similarity between the dollar and the British pound after Margaret Thatcher became Prime Minister in Britain. He notes that the pound strengthened even though there was no immediate change in the United Kingsom's economic situation.

"There was widespread expectation that things would improve," he says, "and the feeling that policies were shifting in the right direction."

Mr. Chilton also says there are some specific reasons why the dollar has strengthened against the mark. (As of Friday, the dollar was worth 2.1975 marks , its highest level in three years.) For example, the West Germans will have a large current-accounts deficit, which Chilton expects will be more than 20 billion marks this year. This deficit, he says, "is in stark contrast to the surplus of the US." The Germans also have huge budget deficits, like the US, and this has acted to weaken the mark.

Finally, the Citibank economist says, the "economic and political situation, as it appears to the outsider, with no growth or a declining gross national product, makes it more difficult for the mark."

He says one silver lining to the falling mark is the more competitive position of West German industry, since inflation rates there are lower than US rates.

Unfortunately, the US stock market has shrugged off the surging dollar. Larry Wachtel, an analyst at Bache Halsey Stuart Shields, Inc., a brokerage house, comments: "It's this high interest-rate structure that has the dollar strong, and those same rates are killing the financial markets." At a time when the dollar is hitting new highs, he comments sadly, the stock market "is in a miasma."

Henry Kaufman, senior economist at Salomon Brothers, says the high interest rates may be around for a while. In a speech last week he predicted that rates still haven't peaked yet -- and may hit 25 to 30 percent, depending on the size of the US budget deficit.

Despite some recently raised doubts about the future of the synthetic fuels industry, John Muir & Co. had no trouble last week floating a new issue, called American Syn-Fuels Inc., for $1 a unit. Each unit consisted of one share of stock and one warrant entitling the holder to buy a share of stock at $1.25 a share. According to a syndicate manager at John Muir, the units opened trading at 1 1/4 bid, 1 1/2 offered, or a premium of 25 percent. However, in later trading they moved to 1 1/2 bid.

American Syn-Fuels, according to the prospectus, will use the $3,150,000 that it raised from the offering to complete construction of a distillery in Federalsburg, Md., with a capacity to produce annually 2.5 million gallons of denatured ethanol, for sale to producers of gasohol.It seems fitting that the distillery be in Federalsburg, since gasohol wouldn't be price-competitive without a federal tax break.

The Hunt brothers of Texas floated some bonds backed by silver; now, a Rhode Island refiner, Refinement International NV, has issued some bonds indexed to the price of gold. The $51.95 million issue of bonds was underwritten by Drexel burnham Lambert. The bonds pay 3 1/4 percent, are due Feb. 1, 1996, and are indexed to 100,000 troy ounces of gold -- the equivalent to $51.95 million.

The bonds were sold in denominations of 10 ounces per bond, priced at the London afternoon price fixing of $519.50 per troy ounce. Interest and principal for amounts of 100 ounces are payable in gold, at the buyer's option. Otherwise the payment is in US dollars, based upon the average market price for gold for a predetermined period preceding the payment date.

The bonds can be called if the average price of gold over a 60-day period equals or exceeds $2,000 an ounce. As of Feb. 11, investors needn't have been concerned about that possibility: The price of the precious metal had dropped to offered, reflecting the 3.56 percent drop in the price of gold.

Although the Refinement offering was the first of its kind in the US, a Canadian offering for Echo Bay Mines, Ltd., a subsidiary of IU International, was made earlier in the month. The Echo Bay offering was unique in that the gold involved in the preferred stock offering hasn't yet been mined by Echo Bay, which was hoping to use the proceeds from the $77.5 million (Canadian) offering to do so.

Stock prices hit a stone wall last week as investors waited to see the specifics of President Reagan's economic program this week. The Dow Jones industrial average lost 20.73 points, falling to 931.57 in moderate trading.

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