Induction Speech for Sidney Homer

Inducted December, 1997

Mr. Charles Bishop, Membership Chair, made the following speech on behalf of Mr. Martin Fridson who regrettably was unable to attend the presentation of the second Hall of Fame award of the day. The award was accepted by Richard and Edward Homer Painter on behalf of their late grandfather, Mr. Sidney Homer.

Now that the Fixed Income Analysts Society Hall of Fame is a well-established institution, it is appropriate that we begin to recognize outstanding innovators who are no longer active in the field. No old-timer deserves the honor of induction more richly than the late Sidney Homer. Today’s proceedings testify to his impact on the field, for he was the founder of the great bond research effort of Salomon Brothers, the department that produced today’s other two inductees.

Many talented individuals have analyzed or managed bonds since Sidney Homer began his Wall Street career following graduation from Harvard College in 1923. But only a few genuine Hall of Famers have truly altered the course of the debt markets. Homer met that standard on the grounds of just one of his achievements, which was to codify the techniques of secondary bond trading. Livingston G. Douglas commented as follows in his book, Fixed Income Masterpieces, regarding a speech that Homer delivered in 1961:

He [recommended] an active, dynamic approach to bond management rather than the typical passive, buy-and-hold mentality that prevailed at that time. His insight on bond "switches" (i.e., bond swaps) was truly remarkable. It was not until the 1970s that bond swapping gained some advocates and not until the 1980s that bond swapping (and tracking of yields and so forth) really caught on.

The speech in question was long on practical experience, if a bit short on theoretical support. This was typical of the work produced in the period. The invasion of the rocket scientists, with their sophisticated quantitative techniques, was still a decade away.

Yet the displacement of rule-of-thumb approaches by more rigorous methods did not relegate Sidney Homer to the sidelines. On the contrary, he spearheaded the quantitative revolution. His strategy was simple: He recruited to the Salomon research effort a mathematician who happened to be married to his niece. That young man was Marty Leibowitz, yet another member of the Fixed Income Hall of Fame trained by Homer’s organization. Together, Homer and Leibowitz produced the investment classic, Inside the Yield Book, which remains to this day every novice bond trader’s introduction to managing interest rate sensitivity. Douglas
calls Inside the Yield Book "the demarcation point between the ‘old’ methods of bond management and the ‘new’ methods." Younger practitioners call it "Inside the Yield CURVE," for they have forgotten or never knew what a yield book was.

An author who produces a single classic can count himself in very select company. But the publication of Inside the Yield Book in 1972, when Sidney Homer was 70, followed by nine years his most famous work, A History of Interest Rates: 2000 B.C. to the Present. This four-millennium perspective extended our knowledge of credit back to a time before industry, banking or coinage existed. Homer showed that the regulation of credit marked the beginning of the legal history of several great civilizations. As he told an interviewer in connection with the publication of his book’s second edition:

Under the Code [of Hammurabi], you could hypothecate your wife. But a creditor could seize her for only three years. And he would have to return her in as good condition as she came. That’s all in the code. It’s very serious.

Plainly, Homer was a man of wide intellectual interests. Had he not also been an independent spirit, fixed income investors might never have profited from his insights. The family trade was music. But despite having some talent as a pianist, Sidney chose not to turn professional, as his five sisters did. Instead, he chose to descend--as his parents saw it--to finance.

Sidney Homer, Sr. was a distinguished classical composer, albeit less famous than his cousin, Samuel Barber, or his distant relation, the painter Winslow Homer. Somewhat to the left on the political spectrum, the elder Homer took a dim view of Wall Street. Young Sidney’s mother had a different reason for disapproving of her son’s career choice. Louise Homer was a leading contralto, whose portrait in the role of Orfeo, painted by Leopold Seyffert, hangs in the North Gallery of the Metropolitan Opera House at Lincoln Center. Homer’s mother donated her operatic earnings to worthy causes, which resulted in financial strain when the bank that held the family’s savings failed. The perceived cause was securities speculation. Not only Louise, but her son thereafter remained skeptical about the merits of common stocks, although Sidney reportedly mellowed a bit in later years.

Despite family opposition, Sidney Homer came to Wall Street for an eminently practical reason. While in college, he fell in love with Marion Brooks Symmes, married, and was confronted with the need to earn a livelihood. He therefore completed his studies a year ahead of schedule, graduating magna cum laude with a concentration in Philosophy, then spent two years as a credit investigator with Equitable Trust Company. From there Homer went to Gilbert Elliott & Co., a brokerage house specializing in bank stocks, where he headed the statistical department, then out-of-town sales and finally the overall sales department.

Shortly after the 1929 Crash, Mr. Elliott declared that stocks would be no good for another twenty years and that the company would switch to the bond business. Homer immediately picked up Moody’s Bond Manual and began to learn everything he could. Two years later, Elliot retired, leaving Homer to liquidate a portfolio of railroad bonds that ran fifteen pages. On that foundation, the thirty-year-old analyst launched Homer & Company, nearly at the very bottom of the Depression.

Then as now, practitioners tended to spout off about past interest rate rate levels, usually with an eye toward extolling the relative value of their own offerings. Unwilling to settle for hearsay, and finding that the Moody’s bond averages dated back only to 1918, Homer began the odyssey that ultimately led to his tracing of rates back to 2000 B.C.

When the United States entered World War II, Homer volunteered his services to the Foreign Economic Administration. He put his analytical skills to work charting the black market price of platinum. The object was to prevent any of the strategically important material from reaching Germany. A price surge generally meant that platinum had been placed on a ship in a Spanish diplomatic pouch. Homer would dispatch agents to meet the ship and attempt to seize the courier and the metal. One success came when a certain Mr. Lopez was betrayed as a
platinum smuggler by his disaffected mistress.

Regrettably, Homer’s patriotic service in Washington prevented him from keeping Homer & Company afloat. After the war, therefore, he joined some old friends at Scudder, Stevens and Clark, where he remained until 1961. At 59, his greatest fame still lay ahead. Brought to Salomon Brothers as a partner, Homer recognized that his detailed studies of yield spreads and the firm’s trading and underwriting skills would make a powerful combination. He later wrote:

The firm backed me up with unlimited resources. Never in the ten
years I spent there was any limit even suggested to the costly program
of research and publication that I developed.

This was heaven, indeed, as many in today’s audience can affirm!

Homer was proud, in an era of rigid ethnic and religious segregation on Wall Street, that by accepting a partnership at Salomon Brothers he was a pioneer in what nowadays would be called diversity.

During the next two decades until his death in 1983, Sidney Homer was one of Wall Street’s most sought-after commentators on financial markets. He was featured in Barron’s Roundtable discussions and hailed for "an erudition and scholarship unmatched in Wall Street." In 1980, last evening’s dinner speaker, James Grant, interviewed Homer at his longtime residence in Gramercy Park. He wrote, "Sidney Homer… has a silver mustache and horn-rimmed glasses and more hair than Ronald Reagan." When Forbes ran a story entitled "Wall Street’s New Glamour Boys," the editor chose as a cover photo a shot of the 74-year-old Homer being hoisted in a crane. The grand old man of the bond business, as Forbes called him, pretended to replace the "Wall Street" sign with one labeled "Bond Boulevard."

It was natural for Homer to play along with the gag, for despite his intense dedication to his work, he never took himself or the business more seriously than he ought. Permit me to quote from one final masterpiece of Sidney Homer, entitled One Hundred Ways to Say ‘No’ to a Bond Salesman. I hope all portfolio managers in the audience will take notes, because this is material of immense practical value. Rest assured, I shall not regale you with all 100 excuses, but here are a few of the most effective:

"No low coupons."
"No high coupons."
"We are filled on that issue."
"We are filled on that maturity."
"We are filled on that industry."
"We have no money."
"Kaufman is bearish."
"We turned those bonds down yesterday a point lower."
"Everything else is down a point."
"These bonds are on our sell list. What will you pay for two-hundred-fifty?"
"We will not sell those bonds because our book value is too high."
"We will not sell those bonds because our book value is too low."
"We will not sell those bonds because one of our directors’ fathers founded that company."
"We sold them in 1958."

In summary, I’m sure you will agree that for his innovations, for his scholarship, for the people he recruited to the field of fixed income analysis, for his wit and above all for the character that he displayed in all of these endeavors, Sidney Homer honors our institution by being the recipient of this accolade. It is with great pleasure that I now call upon his grandsons, Richard Painter and Edward Homer Painter, to accept this plaque in recognition of Sidney Homer’s induction to the Fixed Income Analysts Society Hall of Fame.