Newspaper article St Louis Post-Dispatch (MO)

Wrung out 1994 a Year to Forget for Most Investors

Newspaper article St Louis Post-Dispatch (MO)

Wrung out 1994 a Year to Forget for Most Investors

Article excerpt

Maybe the best thing investors will remember about 1994 is that it ended.

Bond owners are particularly glad to close the door on '94 while frustrated stockholders are consoling themselves with historical patterns favoring 1995.

So much for the good news. A review of the past year provides plenty of bad.

Blood spilled in the bond market, a multitrillion-dollar arena of borrowed money that helps set the economic agenda. That spooked stocks and deeply depressed the dollar's value against the Japanese yen and German mark.

If the U.S. financial markets symbolize U.S. might, then the country clearly lost clout in 1994. Whether you were a tourist in Tokyo, a taxpayer in Orange County, a Midwest mortgage shopper or a Wall Street whiz, odds are you felt the impact.

Rising interest rates wrote the scripts for the markets and incited the worst setback in bonds since before the Great Depression. The yield on the 30-year Treasury bond, a telling indicator of interest-rate trends, hit a high of 8.16 percent in November after starting 1994 below 6.5 percent.

Staggering losses in interest-bearing assets spiraled into huge problems and offered a grim reminder of how interdependent the financial markets have become.

Exotic investments called "derivatives" backfired for corporations and others who relied on the risky arrangements to hedge vulnerability to swings in securities prices or fluctuations in interest charges and currency exchange rates.

Derivatives were partly blamed for a $2 billion investment fund loss for California's affluent Orange County, which filed the biggest municipal bankruptcy in history. Derivative losses burned savvy Wall Street financiers, incited a spate of customer lawsuits and aroused congressional scrutiny.

Even the seemingly invincible Magellan Fund looked in danger of veering off course for awhile. A bookkeeping problem encountered by Fidelity's flagship fund, the country's largest mutual fund, was more a matter of image than substance but it made for several unsettling days on Wall Street. …

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