Wall Street: Bard of the Bonds

The torrent of analytical advice that pours from Wall Street is hardly noted for its literary style, much less its wit. “We send a great deal of literature to our clients—most of it deadly dull,” says Sidney Homer, 65, research partner of Salomon Bros. & Hutzler, one of the Street’s largest bond dealers. Last week, however, Salomon Bros, was mailing its clients something different: a privately published book of Homer’s needling sallies at the very serious world of bond investment.

Homer’s slim volume, titled The Bond Buyer’s Primer, is actually a collection of 21 “lessons” written intermittently since 1961. They cover such topics as “One Hundred Ways to Say ‘No’ to a Bond Salesman,” and “How (Not) to Explain the Bond Market to Your Wife,” and Homer starts off by dividing all bond salesmen into twelve species. They include Legatus Caelestis, or Messenger from Mount Olympus, who “brings you eternal verities from on high (his firm’s research department) “; Garrulus Defatigare, or Sophisticate, who bears “a bored air of nonchalance and yards of bond gossip”; and Hospes Hospitalis, or Jovial Host, who “will be anxious to have you share his innocent amusements. Handle this one with unusual caution.”

Homer finds whimsy everywhere. Wall Street, he notes, is physically only “an inauspicious little alley.” He depicts the typical bond buyer as a “friendly, earnest, knowledgeable-looking man who sits at a big desk staring at a small piece of paper with an expression on his face of agonized apprehension. He is worried because he doesn’t quite know what he should be worried about.”

Aches in the Solar Plexus. Pinpointing a problem that plagues his business, Homer writes: “The president of your bank hates bonds. The mere sound of the word starts up a dull ache in his solar plexus. This makes him fidget. Bonds, he knows, are things the bank has to buy when there is no demand for loans; they are also things the bank has to sell when there is a demand for loans and interest rates are high. Somehow or other this usually involves a loss.” As for coexistence with the stock market, writes Homer, “the bond market provides 95% of the external long-term finance necessary to business, while the stock market provides 5%. Nevertheless, while the bond market is fluctuating more or less rationally as it moves sedately from billion to billion, the stock market is going through an unending series of small-denomination twists, shivers and leaps, much better designed to catch the public eye.”

A professional statistician as well as a bond analyst with a wide following, Pennsylvania-born Homer came to Wall Street after graduating magna cum laude from Harvard (’23) in philosophy. No one, he admits, was more surprised at his choice than his parents: Sidney Homer, a composer of classical songs, and Louise Homer, a famed Metropolitan Opera contralto. But young Homer got into bonds for the very human reason that he needed to make money to get married. Later, while running his own firm, Homer & Co., he developed a thirst for historical figures that led him to write A History of Interest Rates, a scholarly tome that traces the cost of loans from 2000 B.C. to the present. At Salomon Bros., which he joined in 1961, the partners deal in every sort of bond and money market instrument (plus some stocks) to the tune of $120 billion a year. Homer presides over a nine-person think tank that analyzes bond and money market trends and their economic meaning.

Mae West’s Bedsprings. Despite a prolific pen and a busy schedule of public speechmaking, Homer particularly savors devising new techniques for guiding bond investing. “I experiment and attempt to perfect them for the use of our customers,” he explains. One of the simplest is yield spreads—charts showing the historical differences in interest return between bonds of various classifications. Buyers use them to help detect what type of bond may be a bargain. Among Homer’s elaborate creations is a three-dimensional chart of bond yields going back to 1900, with maturities as the third dimension. Wall Streeters have nicknamed it “Mae West’s Bedsprings.”

Though Homer prefers his role as a historian to that of prophet, his job involves frequent forecasts. Right now, for example, he predicts that if the Federal Reserve System eases credit much further, it can undo most of the anti-inflationary benefits of the surtax. “If so,” he says, “businessmen here and abroad will conclude that inflation will be here forever, and we will have more financial crises.” On the other hand, he figures that continued credit restraint now will let interest rates fall a bit more by January. Then, after a spell of slower growth, the U.S. economy could safely speed up again.