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Nor are we convinced that the profit potential of the LIBOR
notes, measured over the 5-year terms of the notes, supports the
proposition that the CINS transactions were imbued with economic
substance. Smith, petitioner's expert, opined that the LIBOR
notes had the potential to provide returns over their 5-year
terms ranging from $10,800,000 (using a market-based forecast for
3-month LIBOR) to a high of $80,683,000 (based on the "equal
probability" theory of interest rate behavior). Respondent
presented evidence that the LIBOR notes were not likely to
generate profits for the partnerships given the "consensus" view
of a broad group of market prognosticators that interest rates
would decline between 1990 and 1991.
Contrary to Smith's projections, interest rates fell
dramatically between February 1990 and September 1992.
Specifically, 3-month LIBOR rates declined from 8.375 percent in
February 1990 to 3.125 percent in September 1992. If the
partnerships had held the LIBOR notes for their full 5-year
terms, the partnerships would have lost $19,716,000.
Smith candidly concedes in his report that "it is impossible
to predict the actual path that interest rates will follow over a
given period of time." Weighing the evidence that we have on the
point, we are not convinced that Smith's market-based forecast
for 3-month LIBOR provides a reasonable basis for measuring the
potential profitability of the LIBOR notes. Smith's forecast
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