The Big Guns of August

As always, Kenneth Rolland, 51, arrived at his office on the 58th floor of the RCA Building in New York City's Rockefeller Center just before 8 one recent morning and immediately sat down to his regular staff meeting with two senior portfolio managers and two top traders. As an executive vice president of Chemical Bank, Rolland manages $11 billion in trust funds. One of his staffers told him that there was a rumor around Wall Street that Henry Kaufman, chief economist at the Salomon Brothers brokerage firm, had changed his forecast and was about to predict publicly that interest rates were coming down.

Rolland called a friend at Salomon to confirm the rumor, and then acted fast. By the end of last week, he had moved nearly $1 billion into the stock market. Says Rolland: "Once we made up our minds, we never looked back."

Rolland is one of a few hundred managers of large portfolios who are Wall Street's big guns of August. He and a staff of 56 people have sent out buy orders for more than 1,000 blocks of stock. Each block contained at least 5,000, and sometimes more than 10,000 shares. Rolland estimates that the Chemical Bank portfolio has gained $750 million in value during the past frenetic fortnight.

Although Wall Street still projects an image of shouting brokers and mountains of ticker tape, Rolland and his staff conduct their business with quiet, microchip efficiency in a Chippendale-furnished office. Seconds after the Chemical Bank group decides on a stock to buy, an order is called over a tieline telephone link to a Wall Street broker, who transmits the order to floor traders at the New York Stock Exchange. The transaction is registered quickly in the mammoth computers of the stock exchange, which have the capacity to handle deals for up to 150 million shares a day. A phone call later, Chemical Bank officials receive confirmation of the transaction and enter the information in their computer, which is linked to their Pine Street operational headquarters in Manhattan's financial district. The Chemical machine can spit out extensive historical information on the 75 key stocks in which the bank has heavy investments.

Rolland and his top managers have been buying a broad range of stocks that they expect will profit from dwindling interest rates. First they purchased utility issues, such as Arizona Public Service, Tucson Electric Power and Northern States Power. The borrowing costs of those companies will be declining, and that will help profits. Next they moved to housing-related stocks that would benefit if the lower interest rates encourage a pickup in homebuilding. Their favorites: Weyerhaeuser and Georgia-Pacific. Anticipating that consumer spending would increase, Rolland bought Sears, Roebuck and Co., MCA, Procter & Gamble and two drug companies, Syntex and American Home Products. Smaller, profitable airlines, which would benefit as travel increased in a healthier economy, also looked good, so Chemical bought US Air and PSA. One industry group that he totally avoided was energy stocks. Says Rolland: "I'm still not sure about the future price of oil."

The sharp drop in the Dow Jones industrial average last Tuesday did not shake Rolland's conviction that a fundamental shift in the market was at hand. Nonetheless, he was concerned enough to hold a new strategy session with his top tacticians. Says he: "In this kind of atmosphere you expect down days, because there are too many people in the market who take their profits and run. But right now we think the trend is still up." Rolland's optimistic outlook: if interest rates continue to decline and confidence in the economy grows stronger, the Dow Jones index will rise another 100 points.

As methodical at the end of the day as he is at the beginning, Rolland during the past two weeks left his office each evening promptly at 5:30. Then, after having dinner with his wife, who is a truant officer for a local school in New Jersey, and studying some investment reports, he sat down and read a few pages of Robert Ludlum's bestseller The Parsifal Mosaic. After a day of million-dollar dealings, the world of double agents and Eastern European intrigue is a good escape.

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