Q. I have enclosed a photocopy of a $25,000 Confederate war bond. Can you advise me whether it could be worth anything?
A. I’m a buff on Confederate bonds, currency and stamps and probably know more about the financial history of the Confederacy than any man needs to know. During the past 25 years, I have collected some interesting specimens that are quite intriguing to look at.
Meanwhile, the most important battle of the War between the States was fought in the bond markets of Europe. Jefferson Davis desperately needed to break the blockade and get supplies to his armies. If he could build warships in Europe, the Union blockade would be too busy defending Union ports or fending off Confederate ironclads to stop the blockade runners. Only one thing stood in the way of the South — money.
John Slidell (Confederate commissioner to France) and Emile Erlanger (a wealthy French banker) concocted a brilliant scheme to sell Confederate cotton at bargain prices. In Paris, Former Secretary of the Treasury, Robert Walker, at Lincoln’s behest issued a statement warning purchasers against buying these bonds. The Confederacy, he declared, would lose the war, and even if it survived, it would repudiate its debts as Davis did with Mississippi’s bonds in the 1840s. Bond prices crashed, and people stopped buying them. Erlanger got rich on the commissions, Slidell’s daughter married Erlanger’s son, and the Confederacy took in only about $8 million for $15 million of bond sales. Erlanger made $7 million in commissions; a heck of a lot more than Wall Street pays today.
This bond is one of the most beautiful I’ve seen. Liberty holds a Confederate flag as she looks out to sea, anxiously awaiting the ships that will save the Confederacy. Full rows of colorful coupons border each side of your bond. I own a bond identical to yours. It cost me $300; it is framed and hangs in my office. And your bond, even though it has a large face value, isn’t worth much more than $300.
Q. When I had lunch with my broker, I asked about buying mutual funds. He called the next day and recommended that I invest $45,000 in three European mutual funds. Could I have your opinion about investing in Europe?
A. Never ask a tire salesman if you need new tires, and never ask a financial planner if you should own a mutual fund.
Europe is heading into a gut-wrenching recession. Interest rates are rising, consumer spending is falling, capital spending is foundering, government budget defaults are at record levels and inflation is beginning to surge. Meanwhile, unemployment in Spain, Italy, France, England, Germany and Denmark is 18 percent, 11 percent, 12 percent, 10 percent, 6 percent and 12 percent respectively. And Europe’s industrial giants — Fiat, SGS Thompson, British Petroleum, Damler Benz and Marsk — can’t wield the cost-cutting ax as effectively as American industries.
Europe’s labor unions (unlike American unions) are dangerously radical and powerful enough to intimidate industry. Therefore, European industry will suffer much greater financial strain than American industry under similar adverse economic conditions. European governments also provide their citizens with cradle-to-grave social programs, which cannot be altered without serious political consequences. The resulting budget deficits could initiate further currency devaluations and serious inflation.
Investing in Europe is a trend, and Americans seem to join a trend at its high-water mark. And after the Crash of ’87, Wall Street aggressively marketed European mutual funds. Between 1987 and 1992, Oppenheimer Global’s assets boomed from $370 million to $1.3 billion, GT Europe roared from $10 million to $1.1 billion, SoGen International exploded sixfold and Templeton Foreign thundered sevenfold to $1.7 billion. I think investors in these funds and others are going to be disappointed. I think you will, too, if you follow your broker’s advice.
— Mal Berko is a stockbroker for Advest Securities in Lauderhill. Write to him c/o Weekly Business, Sun-Sentinel, P.O. Box 26671, Lauderhill, Fla. 33320.
