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Glory Days on Wall Street
For Wall Street, 1995 was the type of banner year that is supposed to occur only with a rock-ribbed Republican in the White House (instead of Democratic President Clinton), no military entanglements abroad (such as US troops in Haiti or Bosnia), and a booming economy (instead of the slowdown that transpired.)
Just about everyone in the financial community, it seemed, prospered. Investment houses posted near-record earnings (an estimated $7 billion), buoyed by a $465 billion binge of mergers involving American companies. Mutual-fund firms had huge infusions of cash. Many investors watched the value of their portfolios soar as lower interest rates and solid corporate profits pushed bond and stock markets to record levels. And those indexes! The Dow Jones industrial average shot up 33.5 percent, the Standard & Poor's 500 index 34.1 percent, and the Nasdaq Composite Index 39.9 percent during the year.
Derivatives were still Wall Street's problem child. These risky contracts sank Britain's Barings Bank as trader Nicholas Leeson bet the wrong way on the future of Japanese stocks.
IPOs, initial public offerings, at around $30.2 billion, were just slightly off 1994's stellar $33 billion pace. Technology issues made the biggest splashes: Pixar Animation Studios debuted after doing computer graphics for the hit film "Toy Story." Pixar's stock price rocketed - and then sagged like an old rag doll. Netscape Communications Corp., which makes access software for the Internet, saw its stock soar and mainly stay aloft.
Despite huge profits, there was no major market correction in 1995. For investors in '96, that may be a slightly scary triumph. Hang on to your hats!
- Guy Halverson
US Economy Hits a Soft Landing
THE Federal Reserve appeared to have achieved a rare feat in 1995 - a soft landing for the economy. A tight monetary policy slowed growth in output to a non-inflationary pace without a recession.
As the year came to an end, a slowdown in retail and auto sales prompted renewed concern about economic growth in 1996. But in 1995, real output rose a respectable 3.3 percent, approximately, or somewhat less when tallied by a new "chain-weighted" measure of gross domestic product. Consumer prices increased only about 2.9 percent, a rate little changed for three years.
It was an up-and-down year. A weak second quarter prompted Fed policymakers to reverse their policy of monetary restraint. On July 6, the Fed cut short-term interest rates for the first time since 1992. The federal funds rate, which banks charge each other for overnight loans, was trimmed to 5.75 percent from 6 percent. After a more vigorous summer quarter, signs of another slowdown prompted the Fed to trim the federal funds rate by another quarter of a point Dec. 19. The next day the nation's commercial banks cut the prime lending rate by the same percentage. It was somewhat of a stocking stuffer for consumers, lowering interest payments on home-equity loans or credit-card bills by perhaps a few dollars.
Despite the good numbers, many consumers were uneasy, troubled by layoffs and near-stagnant wages.
The federal-budget deficit amounted to $164 billion for the fiscal year ending Sept. 30, less than anticipated early in the year. But congressional efforts to wipe out that deficit escalated.
- David R. Francis
Driving Home a US-Japan Auto Deal
WORLD trade saw an outstanding year. Global commerce, which grew 9.5 percent in 1994, grew another 8 percent in 1995. It is expected to grow at a slightly slower rate in 1996, according to the World Trade Organization.
Further, the Uruguay Round of trade negotiations began to take effect at the start of the year. Those talks lowered trade barriers and transformed the General Agreement on Tariffs and Trade into the World Trade Organization.
But trade disputes were far from over. The US and Japan haggled for months over what the US regarded as obstacles to the sale of foreign cars in Japan. On June 28, just hours before $5.9 billion in tariffs on Japanese luxury cars were to take effect, a vaguely worded accord was reached.
In part, it called for Japanese carmakers to voluntarily buy more US auto parts and for Japanese dealers to sell more US cars.
Though skeptics say the deal isn't paying off, there are some positive signs. Since the accord was signed Aug. 23, US carmakers have recruited three new dealers and opened 18 new sales outlets in Japan, according to the American Automobile Manufacturers Association. Also, the number of American cars sold in Japan has risen. While sales are still low, the AAMA says US car and truck sales in Japan are expected to reach 300,000 by decade's end.
- Shelley Donald Coolidge
Peso Crisis Hurts Mexico But Recovery in Sight
MEXICO'S dream of joining the developed world crashed and burned on Dec. 20, 1994, with the devaluation and then the free-floating of the peso on foreign-exchange markets. Since then, the peso has lost more than 50 percent of its value against the US dollar. Inflation in 1995 hit 50 percent, and 2 million Mexicans lost jobs.
Confidence in Mexico's ability to take advantage of the North American Free Trade Agreement and a globalizing economy was shaken, discouraging scalded investors.
What caused the dream to go wrong? Mexico's chronic current-account deficit skyrocketed in 1994, as the Chiapas uprising and political assassinations led to fears of instability. Foreign capital flowed in, but it went largely into short-term portfolio investments that were then easily yanked out.
With Mexico risking a devastating default, President Clinton announced on Jan. 31 a US-sponsored $51 billion financial rescue package.
Newcomer President Ernesto Zedillo Ponce de Leon announced in March a severe austerity program. In the final months of 1995, Mr. Zedillo insisted the worst was over and that 1996 would be a year of "turning adversity into opportunity." Mexico announced a $700 million prepayment to the US just before Zedillo visited Washington in October. Subsequently, a scheduled payment was rolled over. But with the economy expected to have shrunk by 7 percent in 1995, the 2 percent projected growth in 1996 offers just a promise. The recovery could be a long slog.
- Howard LaFranchi
Women-owned businesses now employ 35 percent more people in the US than the Fortune 500 companies employ worldwide, reports the National Foundation for Women Business Owners. The 7.7 million women-owned firms in the US provide 15.5 million jobs.
More Americans in 1995 joined the merry band of telecommuters. Currently, 9.1 million employees work from their homes, an increase of about 15 percent over '94, reports Southwestern Bell.
Who were this year's hot corporate speakers? Former British Prime Minister Margaret Thatcher and General Colin Powell were at the top, followed by former astronaut Jim Lovell, Notre Dame football coach Lou Holtz, authors Harvey Mackay and Philip Howard, and General Electric chairman Jack Welch. Who's nearly impossible to get? Microsoft chairman Bill Gates.
Credit-card companies sent out some 2.7 billion mail solicitations this year, topping last year's record of 2.5 billion, says Bankcard Holders of America.