Factiva 20180607 1025

Business/Financial Desk; D
Dow Sets Another Record On Rate-Cut Expectations

By ANTHONY RAMIREZ
873 words
23 June 1995
The New York Times
NYTF
Late Edition - Final
6
English
Copyright 1995 The New York Times Company. All Rights Reserved.
After two days of treading water, the stock market rose sharply yesterday to record levels, mainly on the strength
of an accelerating rally in a bond market convinced that the Federal Reserve is about to cut short-term interest
rates.
The Dow Jones industrial average surged 42.54 points, to 4,589.64, posting its 40th record advance this year.
Goaded by fresh evidence that the economy was slowing -- this time, by a large jump in unemployment claims --
bond traders sent corporate borrowing costs plummeting, helping to lift prices in the leading stock indexes.
Indeed, interest rates fell so far that at one brief point in the session long-term interest rates were less than
short-term interest rates, a reversal of the usual notion of risk.
Trading in stocks was unusually heavy as a result, with 422 million shares changing hands on the New York
Stock Exchange, a level normally seen only on days when stock-related options expire and traders are forced to
buy and sell shares.
Meanwhile, the value of the dollar, which would be hurt by an interest-rate cut, rose. Some analysts said the rise,
in a thinly traded currency market, resulted in part from some traders moving to the sidelines in advance of the
Fed's July 5 policy meeting at which Fed governors will debate a cut in rates.
The broader Standard & Poor's 500-stockindex headed even higher on a percentage basis, 1.3 percent,
compared with 0.94 percent for the Dow. The S.& P. rose 7.09 points, to a record 551.07. Meanwhile, the
Nasdaq composite index gained 10.90 points, to 940.09, also a new high.
The stock market rally has dazzled analysts. So far this year, the Dow and the S.& P. 500 have each risen
nearly 20 percent and the Nasdaq index more than 25 percent. The American Stock Exchange computer
technology index, an index of 26 of the high-tech stocks that have largely led the market, has risen nearly 45
percent.
The initial spark for the bond rally and, an hour later, the stock rally was the Labor Department's report that
weekly jobless claims hit a 17-month high last week. While these numbers are often volatile, they give clues to
the more important monthly job-creation data, which is next scheduled for release on July 7. Many bond traders
are betting that the job-creation data will be so weak that the Fed will authorize an interest-rate cut either before
or shortly after the report.
Bond yields fell. The yield on the benchmark 30-year Treasury bond dropped to 6.47 percent from 6.54 percent.
Briefly, the 10-year Treasury bond's yield fell to 5.995 percent, or less than 6 percent, the Federal funds rate for
overnight loans between banks. It ended the day at 6.03 percent.
"Is the bond market overinterpreting the weekly jobless claims? Of course," said Neal M. Soss, co-founder of
Soss & Cotton, an economic consulting firm. "But it's the only new information they have."
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Moreover, how much the Fed cuts may prove to be as tricky as whether it should cut at all, some analysts say.
David De Rosa, a director of foreign exchange trading for the Swiss Bank Corporation, said he doubted that the
Fed would cut rates soon.
But if the Fed cuts a relatively small one-quarter of a percentage point, or 25 basis points, it may send the wrong
signal to the financial markets. "The currency market will sell off and it'll be very bad," Mr. De Rosa said.
"Twenty-five basis points will look like a political concession and that they really didn't want to do it. Twenty-five
has the ugly connotation that the Fed may have compromised itself."
A cut of half a point, or 50 basis points, would look like a policy decision, he said, and may have the paradoxical
outcome of prompting only a minor drop in the value of the dollar.
The dollar rose to 84.54 Japanese yen from 84.04 and to 1.3981 German marks from 1.3844 marks.
The New York Stock Exchange composite index rose 3.32 points, to 294.93, with advancing stocks outnumbering
declining issues by 1,536 to 745. The American Stock Exchange composite index climbed 1.90 points, to 495.97.
Among advancing stocks was UAL, parent of United Airlines, which jumped 5 5/8, to 141 1/8, after securities
analysts said they expected earnings to be higher than previously estimated. International Paper rose 3 3/8, to 82
3/4, on speculation that the Fed would cut interest rates, thus lowering borrowing costs for the capital-intensive
paper business.
Among declining stocks was Digi International, a telecommunications equipment company, which fell 4, to 21 3/4.
After the market closed, Digi's management released a statement about its "unusual market activity" and said it
was comfortable with meeting analysts' estimates for quarterly and full-year earnings.
Table: "The Favorite Stocks" shows performance of the 15 issues with the most shareholders.
Document NYTF000020050403dr6n00qya

Markets Divided in Reaction to Greenspan Remarks on Rates
By ANTHONY RAMIREZ
807 words
22 June 1995
The New York Times
NYTF
8
English
The financial markets, reflecting the studied ambiguity of remarks made in a speech on Tuesday night by Alan
Greenspan, chairman of the Federal Reserve, seemed to be split yesterday over where Mr. Greenspan stands on
interest rates.
Mr. Greenspan told an audience in New York that he was reluctant to cut short-term interest rates, but bond
traders yesterday bid up fixed-income prices slightly on the theory that Mr. Greenspan meant to imply that he
would support a rate cut. Stock traders, however, bid down equity prices slightly on the theory that he would
oppose such a cut.
Despite the small price movements in stocks, trading volume was unusually heavy on the New York Stock
Exchange, totaling 398.2 million shares. The volume was not far from the 400 million-plus shares traded on
"double witching" days, when stock options expire and traders are forced to buy and sell large numbers of shares.
In the currency markets, where a Fed rate cut might have its largest impact, the dollar dropped moderately, but
mainly because of new data showing a widening trade deficit and pessimism about trade talks between the
United States and Japan.
After falling nearly 9 points, the Dow Jones industrial average fell 3.46 points, to 4,547.10. The broader
Standard & Poor's index of 500 stocks fell 1 point, to 543.98.
The Nasdaq composite index, rich in the technology stocks that have led the stock market for months, dropped
for the first time in eight sessions. The index fell 0.64 point, to 929.19.
Bond traders continued to factor in what they expect will be an aggressive cut in interest rates by the Fed, with
the major fixed-income instruments of five years and less yielding below the Federal funds rate of 6 percent. Even
the 10-year Treasury bond yesterday yielded only 0.11 percent above the Federal funds rate, the rate for
interbank loans essentially set by the Fed.
The yield on the benchmark 30-year Treasury bond dropped to 6.54 percent from 6.58 percent.
The dollar, meanwhile, dropped to 84.04 Japanese yen from 84.45 yen and to 1.3844 German marks from 1.3907
marks.
Currency traders seemed to pay little attention to Mr. Greenspan's speech, which was delivered around the time
Asian markets began trading. But traders bid down the dollar when the Commerce Department reported an
unexpectedly large surge of 16.2 percent in the April trade deficit. And the continuing intractability of talks
between the United States and Japan on automobile trade sent the dollar down further, as the June 28 deadline
for trade sanctions looms.
The real puzzle was Mr. Greenspan's speech. Bond traders paid attention to his remark that inflation was "very
clearly easing." But stock analysts noted a new emphasis on international concerns -- in other words, currency
traders abandoning the dollar -- as a factor in determining Fed interest-rate policy. Fed officials have typically said
the domestic economy is the paramount concern of the central bank.

"Emerging as the No. 1 issue is the protection of the dollar," said Tracy Herrick, chief investment strategist for
Jefferies & Company. He noted that big banks in New York, which have some influence with the Fed, wanted a
stronger dollar.
And inflation, while tame for now, has not gone away, said Edward G. Riley, chief investment strategist for the
Bank of Boston, which manages $14 billion in stocks and bonds. He estimated that inflation would reach 3.5
percent by September, compared with 2.6 percent last year.
"The bond market has overreacted to economic data" and has not taken into account that the Fed will keep rates
the same because of rising inflation, Mr. Riley said. He is therefore recommending to clients that they sell a small
portion of their stock holdings and show some caution about buying more because stocks cannot stay at these
lofty price levels.
"Trees don't grow to the sky," he said.
The New York Stock Exchange composite index fell 0.15 point, to 291.61, with advancing stocks outnumbering
decliners, 1,175 to 1,064. The American Stock Exchange composite index rose fell 1.01 points, to 494.07.
The most active stock, at 16.2 million shares, was XCL, an oil and gas exploration company based in Louisiana,
which rose 5/16 , to 1. The company has a history of volatility and traded as high as 47/16 in December 1989.
Yesterday, Dan Dorfman on the cable channel CNBC quoted Alan Gaines of Gaines Berland Inc. as saying XCL's
China operations could yield 500 million barrels of reserves.
Document NYTF000020050403dr6m00qur

Stocks Rally on Expectations of Interest Rate Cut by the Fed
By ANTHONY RAMIREZ
692 words
14 June 1995
The New York Times
NYTF
10
English
A crop of conflicting economic data hit the financial markets yesterday, but stocks and especially bonds rallied,
as traders interpreted the reports to mean the Federal Reserve would cut interest rates, perhaps as early as next
month.
The stock market has now recovered nearly all of last week's losses. The Dow Jones industrial average rose
38.05 points yesterday, to 4,484.51, not far from the 4,485.20 record set on June 6. The broader Standard &
Poor's 500-stockindex gained 5.17 points, to a record 536.05, and the Nasdaq composite index advanced 6.25
points to 894.23, also a record.
The real challenge, analysts said, would be the rest of the week when the release of more economic data, like
industrial production, and the "triple witching" quarterly expiration of stock options on Friday are sure to add to
trading volatility.
The bond market rallied even more than stocks yesterday, helping to fuel the stock rally as corporate borrowing
costs fell lower. Bond prices rose sharply and the yield on the benchmark 30-year Treasury bond tumbled to
6.54 percent from 6.70 percent.
But the reports that prompted the stock and bond rallies were far from unambiguous. As many Wall Street
economists expected, the Consumer Price Index rose three-tenths of 1 percent in May, indicating that inflation
was tame. Moreover, retail sales increased just two-tenths of 1 percent in May, even weaker than expected. Both
reports supported the argument that the Fed may cut interest rates later this year to spur a flagging economy.
The Federal Reserve Bank of Atlanta, though, said its May national production index, a measure of manufacturing
activity, rose for the first time since January. And on Monday, the Semiconductor Industry Association said its
book-to-bill ratio, a measure of demand, hit a level not seen in nearly a decade. Both reports, by signaling growth,
undermined the argument for an imminent rate cut by the Fed.
Whatever the case, some analysts said that bond traders appeared to be betting on too large a Fed cut. All
Treasury bills with a maturity of 12 months or less are trading for less than the 6 percent Federal funds rates -- as
little as 5.55 percent for 12-month bills. That implies a rate cut by the Fed of half a percentage point or more.
"If the Fed eases as much as the bond market is betting, the dollar would go to hell in a handbasket," said Dirk
van Dijk, equity strategist for C. H. Dean & Associates, which manages $4 billion in stocks and bonds. "Traders
would flee and you'd see the dollar at 55 yen." The yen closed yesterday in New York at 84.60 yen, up from 84.04
yen.
The New York Stock Exchange composite index rose 2.62 points, to 288.18, with advancing stocks outnumbering
declining issues 1,611 to 753. Big Board volume totaled 340.2 million shares, slightly more than this year's daily
average of 332 million shares. The American Stock Exchange composite index rose 2.09 points, to 491.41.
Among advancing stocks, shares of First Financial Management, a credit-card processor, rose 7 1/4, to 84, after
First Data announced a $6.6 billion acquisition bid for the company. First Data's shares fell 1/4, to 56 5/8.
Shares of ITT jumped 5 5/8, to 114 7/8, after the conglomerate announced a plan to split itself into three publicly
traded companies.

Among declining stocks, shares of Turbochef, an oven manufacturer, fell 3 3/4, to 12 3/4. Fruit of the Loom
dropped 3 1/2, to 23 5/8, after the company's management said second-quarter earnings would not meet Wall
Street estimates.
The most active stock, at 6.7 million shares, was Intel, which fell 9/16 , to 111, after rising for much of the year.
Document NYTF000020050403dr6e00nyp

Market Place; Why are dividend yields low? A study discounts one theory.
By Floyd Norris
806 words
23 June 1995
The New York Times
NYTF
6
English
AS the dividend yield for stocks fell to record lows this year -- setting off a traditional warning that the stock
market was overvalued -- bullish analysts dismissed the warning by saying the figures underestimated the
payout because they did not include billions of dollars worth of stock repurchases by companies.
Maybe it is time for another argument.
Salomon Brothers, among the lonely bearish voices on Wall Street, went out and checked the 500 companies in
the Standard & Poor's 500 stockindex to see just how much repurchasing of shares they did in 1994.
The answer? On a net basis, none. Those companies sold a lot more shares -- $4.7 billion worth -- to the public
than they bought back.
"We find no support for the notion that share repurchases have caused the S.& P. 500 dividend yield to be
understated," wrote Mark S. Usem, a Salomon strategist, in a report.
In an interview, Mr. Usem said the reaction among institutional investors had been one of shock. "A lot of people
are saying: 'Wait a minute. Is that what happened here?' " he said.
The dividend yield on the S.& P. 500 has traditionally been one of the most watched indicators of the stock
market's generosity, or lack of it, in valuing stocks. When the yield has gone below 2.7 percent, it has been a
warning of dangerous territory. The first time it got to that area was in January 1973 when the yield fell to 2.65
percent. That was just before the most severe bear market of the last 50 years.
Not until August 1987 was that yield matched. Then the figure hit a low of 2.64 percent. A couple of months later
came the 1987 crash.
Then in February 1994 the rate fell to 2.66 percent. The stock market soon fell, but not drastically, and it
recovered by this spring before rising to new heights.
Now, S.& P. reports, the indicated annual rate of dividends on the S.& P. 500 is $13.75. That is, if you bought
fractional shares of all the stocks in the index, paying $551.07, the current level of the index, you would get
$13.75 in dividends over the next 12 months. That assumes no companies raise or lower their payouts over the
period. That would produce a yield of 2.495 percent.
Share repurchases are attractive to companies because they provide capital gains, rather than dividend income,
to shareholders, and because they can be scaled back if need be with much less shareholder anger than is
produced by a dividend reduction. But it is unclear whether the volume of actual share buybacks has risen.
The argument that share repurchases really add 40 to 50 basis points -- hundredths of a percentage point -- to
the yield has been widespread, and has been based largely on the volume of share repurchases announced by
companies. Unfortunately, most companies that announce plans to buy back shares never issue announcements
of whether they have actually made the repurchases. To find the number of shares actually bought back, one
must go through financial statements carefully. That is a tedious process, and evidently no one had done it before
for the entire list of companies in the S.& P. 500.

Mr. Usem found that for the S.& P. 500 as a whole, about 40 to 50 percent of the announced buybacks actually
took place. That does not mean the companies lied; plans can change, because market prices rise or fall, and
some buybacks may have taken place this year.
The buyback amounts were not small, about $18 billion to $24 billion in value, Mr. Usem concluded. But those
numbers were offset by new issuances of shares by those and other companies. All told, he said, there was a net
issuance of $4.7 billion.
That figure excluded shares issued in acquisitions because they do not change the amount of stock available in
the market, Mr. Usem said.
There has been one other argument regarding why the low dividend payout now is not a danger sign. With profits
up sharply for corporate America, the current payout ratio is just 42 percent of profits for the 500 companies over
the last 12 months, and 37 percent of S.& P.'s estimate of this year's operating profits. So the payout ratio is
much lower than it has been at some times in the past -- a few years ago it topped 75 percent -- and there is
presumably room for dividend increases.
Mr. Usem concedes that argument, but he notes that the payout ratio at cyclical peaks of earnings has been
about 41 percent, not far from the current figure.
Document NYTF000020050403dr6n00r26

Stocks Mixed in Moderate Trading as Dow Retreats 23.17
By ANTHONY RAMIREZ
842 words
8 June 1995
The New York Times
NYTF
10
English
The stock market closed mixed yesterday in moderate trading, as investors continued to be perplexed about the
course of the economy and what the Federal Reserve planned to do about it.
Only a month ago, traders and market analysts were saying vaguely that the Fed would cut interest rates later
this year. Then more and more traders started pointing to August as the likely time for the rate cut. Then, last
week, traders started talking about a rate move in July, at the very next meeting of the Fed's policy-making group.
But that sentiment changed about 2 P.M. yesterday, after Alan Greenspan, the chairman of the Fed, was quoted
as saying that he was not too concerned about a growing number of economic reports showing a weak economy.
Traders saw the rate cut becoming less and less likely. Bonds prices slipped and the stock market, already
down, fell further.
The Dow Jones industrial average was down nearly 36 points by 2:45 P.M., then recovered slightly to close at
4,462.03, down 23.17. The broader Standard & Poor's 500 index fell 2.42 points, to 533.13. But the Nasdaq
composite index went the opposite direction, rising 2.18 points, to 881.58.
Nasdaq stocks continued to get a lift from the $3.3 billion hostile bid by I.B.M. for Lotus Development. Tim
Grazioso, manager for Nasdaq trading at Cantor Fitzgerald, said traders were buying stocks that might be targets
for takeover bids. For example, Broderbund Software, developer of the best-selling Myst and Carmen Sandiego
software games, rose 5 3/8, to 53 1/4.
Bond prices dropped slightly and long-term interest rates rose. The yield on the benchmark 30-year Treasury
bond rose to 6.55 percent, from 6.50 percent.
"A lot of what happened today is stocks following bonds, traders disappointed with earnings of companies and
just pure takeover speculation," Mr. Grazioso said.
Thomas Gallagher, head of equity and fixed-income trading at Oppenheimer & Company, said something more
fundamental was occurring. "My belief is that the market has run out of steam," he said, in part because stock
prices have risen too far too fast.
Moreover, he doubted that the Fed would act to cut rates, if at all, until October at the earliest, when the summer
economic figures are in.
Traders will scrutinize tomorrow's Producer Price Index for clues to the Fed's course. "If you get a bad P.P.I.
number, one that's high, then people will start thinking you're getting stagflation," an economic slowdown with
high inflation, Mr. Gallagher said.
The Dow Jones transportation average, seen as an economic barometer because goods have to be carried by
truck, train or plane, continued to rise, closing at 1,653.91, up 11.18 points.
But two major trucking companies announced on Tuesday that their second-quarter earnings would be down
because of a fall in demand. Roadway Services yesterday dropped 1/4, to 43 1/4, and TNT Freightways fell 7/8,
to 18 3/4.

The real cause for concern, however, was the I'm-not-concerned sentiment from Mr. Greenspan as well as his
afternoon speech at an international monetary conference in Seattle, where he described the current economic
slowdown as "pronounced" and "desirable."
The New York Stock Exchange composite index fell 1.27 points, to 286.96, with advancing stocks lagging behind
declining stocks by 898 to 1,347. Big Board volume totaled 327.8 million shares, about 1 percent less than this
year's daily average of 332 million. The American Stock Exchange composite index rose 0.69 point, to 488.57.
Among the advancing stocks was Arcsys Inc., a developer of software useful in designing integrated circuits,
which rose 13 1/2, to 26 1/2, in its first day of trading. Delta Air Lines rose 1 3/4, to 68 1/4, after its chief financial
officer predicted that its earnings in the fourth quarter ending June 30 would beat Wall Street expectations. The
prediction also helped lift UAL, the parent of United Airlines; its stock rose 4 1/8, to 120 1/4.
Among declining stocks was Cia. de Telefonos de Chile, the American depository receipts for the Chilean
telephone company, which fell 4 3/4, to 87 1/4. The company said that its share of the domestic and international
call market in Chile had fallen. And Government Technology Services, a leading provider of computer software
and hardware to the Federal Government, said the Justice Department was seeking information about certain
company sales between 1988 and the present. The company's stock dropped 2, to 4 3/4.
The most active stock, at 7.3 million shares, was Intel, which rose 3/4, to 113 1/8, after a decline on Tuesday.
Document NYTF000020050403dr6800m90

Business/Financial Desk; 1
Dow Tumbles 34.58 Points As Hopes Dim for Rate Cut
By ANTHONY RAMIREZ
757 words
10 June 1995
The New York Times
NYTF
37
English
The stock market turned sour yesterday, with the Dow Jones industrial average dropping 34.58 points, to
4,423.99, as traders saw increasing evidence of an economic slowdown but without the prospects of a cut in
interest rates that would help lift sagging corporate earnings.
Traders were so troubled by the outlook that they ignored surprisingly good news on the inflation front. The
Government reported no change in producer prices for May, thus making a mild inflation report for consumer
prices likely next Tuesday.
But analysts said it was too early to say whether the stock market was headed for what Wall Street calls a
sustained "correction," meaning weeks of falling prices.
Both the 50-day and 200-day moving averages for the Dow, important measures of long-term trends, continued to
rise strongly. Indeed, the Chicago Board Options Exchange's volatility index, a measure of how wildly traders
think the market will swerve over the next 30 days, actually declined yesterday.
"We've had a bad week, and today was disappointing, but it was in no sense a bad day that portends some major
change," said Philip Roth, chief technical market analyst at Dean Witter Reynolds.
"We're trying to take some tension out of the market," said David Holt, vice president for research and strategy at
Wedbush Morgan Securities. "I don't want to say 'overbought' because that scares too many people, but this is a
normal retracement."
The Dow fell as much as 51.53 points shortly before 2 P.M., triggering the New York Stock Exchange's "circuit
breaker" rules intended to slow high-speed, computer-guided trading and to calm volatile trading.
For the week, the Dow fell 20.40 points.
Gold, the fever chart for market anxiety, rose past $390 for the first time in five weeks; gold for August delivery
gained $2.20, to $391.70 an ounce.
Other stock indexes also fell. The broader Standard & Poor's 500-stockindex dropped 4.41 points, to 527.94,
and the Nasdaq composite index declined 1.75 points, to 884.38. The Russell 2,000, an index of small
companies, fell for the first time in eight sessions. It dropped 0.52 point, to 275.21.
As if to underscore the point, three companies, all of them citing in part the slowing economy, announced
yesterday that they expected their quarterly earnings to disappoint Wall Street, and their share prices skidded.
Rubbermaid, the household products company, dropped 3 3/4, to 26 7/8; Banyan Systems, a computer
networking company, fell 511/16 , to 12 1/2, and Antec, a maker of equipment for the cable television and
telecommunications industries, fell 8, to 15 1/2.
The outlook for corporate earnings and interest rates are two of three major factors that move markets. Alan
Greenspan's all-but-explicit suggestion Wednesday that the Federal Reserve would not cut interest rates soon
sent bond prices falling for the third consecutive day yesterday.

As prices fell, the yield on the benchmark 30-year Treasury rose sharply to 6.72 percent, from 6.61 on Thursday
and 6.53 percent at the beginning of the week.
Bond traders had assumed for at least the last two weeks that the Fed would cut rates. The two-year bond, which
had yielded less than the 6 percent Federal funds rate, rose to 6.02 percent from 5.85 percent.
The third market-moving factor, the outlook on inflation, was stable, and traders ignored it. The Labor Department
reported that the May Producer Price Index was unchanged, a far better report than the three-tenths of 1 percent
increase that Wall Street economists had expected.
The New York Stock Exchange composite index fell 2.40 points, to 284.05, with only 638 stocks advancing,
compared with 1,600 declining issues. Big Board volume totaled 327.6 million shares, slightly below normal. The
American Stock Exchange composite index fell 1.03 points, to 488.59.
Among advancing stocks was American Radio Systems, a radio and television broadcaster, which rose 3 3/4, to
20 1/4, on its first day of trading. King World Productions, distributor of such television programs as "Wheel of
Fortune," rose 3 1/8, to 42 3/4, after a report that Turner Broadcasting was considering a bid for King World.
Document NYTF000020050403dr6a00m4w

Option Trades Push Stocks To New Levels
By ANTHONY RAMIREZ
987 words
17 June 1995
The New York Times
NYTF
33
English
The stock market, lifted by technical factors and the Senate's approval of an overhaul of the telecommunications
business, hit record levels yesterday, despite a third day of declining bond prices.
The Dow Jones industrial average closed at more than 4,500 points for the first time, up 14.52 points at
4,510.79, to set the 38th record so far this year.
It is a measure of how vigorous this year's rally has been that the Dow has taken just slightly more than three
months to move from 4,000 points to more than 4,500. By contrast, it took nearly 23 months for the blue-chip
index to move from 3,500 points to 4,000.
The broader Standard & Poor's index of 500 stocks rose 2.71 points, to a record 539.83, and the Nasdaq
composite index rose 5.97 points, to 908.65, also a record.
Leading the market were the seven regional Bell telephone companies, which stand to benefit from the Senate
bill, passed on Thursday, that would encourage wider competition in a wide variety of phone, television and
computer services.
For example, shares of the Bell Atlantic Corporation rose 1 1/2, to 57; those of the BellSouth Corporation rose 1
1/8, to 63 7/8, and those of SBC Communications Inc., the former Southwestern Bell, rose 1, to 46 5/8. Local
phone stocks, and the long-distance carriers like the AT&T Corporation, are some of the country's most widely
held stocks and so have a disproportionate effect on the popular stock indexes.
Still, it may have taken the extra turbulence and unusually high trading volume of the quarterly expiration of three
kinds of options -- known as "triple witching" -- to carry the Dow and the other indexes to record levels. Trading
volume on the New York Stock Exchange hit 448.3 million, or about 35 percent more than this year's average
daily trading volume.
When stock-index futures, index options, and options on individual stocks simultaneously expire, traders feel
pressure to use them or lose them. One trader at Jefferies & Company said that as much as 50 percent of
yesterday's volume was related to triple witching. Beyond the options-related trading, "there was not much to sink
your teeth into today," he said.
That was because buying and selling pressures tended to offset each other, leading to relatively mild advances.
Indeed, advancing stocks on the Big Board barely outnumbered those declining, 1,094 to 1,090.
Such indecisiveness is probably a result of bond traders' uncertainty over the interest rate policy of the Federal
Reserve, whose policy-making group meets in two weeks, on July 5.
Most recent economic data have pointed toward substantial weakness in the economy, so many bond traders
have bid down bond yields in anticipation of a cut in short-term interest rates by the Fed. But Fed officials -- most
recently, its vice chairman, Alan S. Blinder -- have sent conflicting signals as to whether the central bank will cut
rates.
Stocks have largely followed trends in bonds. As interest rates have fallen, share prices have vaulted, since a
large part of corporate overhead -- borrowing costs -- has dropped. The S.& P. 500 has risen more than 17.5
percent this year, and many portfolio managers have been scrambling to get double-digit percentage gains.
Managers thus have every incentive to buy stocks to match the S.& P. 500 but the uncertainty over the Fed tends
to curb that rise.
Some technical indexes detect a persistent bullishness among traders. One such index, known as the ARMS
index, closed for the fifth consecutive session at less than 1.0, which is said to indicate that market prices will rise.
The index measures the trading volume of advancing and declining stocks.
But such bullishness seems in conflict with trends in the bond market, where prices fell for the third consecutive
session on interest-rare concerns. The yield, which moves in the opposite direction of the price, on the
benchmark 30-year Treasury bond rose to 6.62 percent from 6.61 percent.
"It's been a choppy, churning kind of market," said David Holt, vice president of research and strategy at
Wedbush Morgan Securities.
The New York Stock Exchange composite index rose 1.20 points, to 289.96, and the American Stock Exchange
composite index rose 0.68 point, to 495.40.
Among advancing shares were the American depository receipts for Nokia A.B., the Finnish maker of
telecommunications equipment. They rose 6, to 54 1/2, on better-than-expected earnings the company reported
for the first four months. Each Nokia A.D.R. represents one share. And shares of the Eagle Point Software
Corporation, which makes specialized software for engineers and others, rose 4 1/4, to 17 1/4, on their first day of
trading.
Among decliners, Lakehead Pipe Line Partners, an American company that operates part of a 3,200-mile
Canadian and American oil pipeline that burst yesterday, saw its shares fall 5 1/4, to 25. Huntco Inc., a processor
of carbon steel, dropped 2 3/8, to 15 3/8, after the company said gross profit margins "could slip" in the first
quarter from the level in the fourth quarter.
The most active stock, at 11.3 million shares, was that of the Medaphis Corporation, a leading manager of
hospital business operations. The coompany's shares fell 8 1/4, to 23 3/4, after it said that the Justice Department
was investigating some of its California operations.
In Japan, stocks closed lower yesterday. The Nikkei index of 225 issues fell 164.09 points, or 1.10 percent, to
14,703.17.
Document NYTF000020050403dr6h00pau

Stocks Keep Setting Highs; Nasdaq Jumps
By ANTHONY RAMIREZ
998 words
20 June 1995
The New York Times
NYTF
1
English
Led by technology companies and bank issues, the stock market rose to record levels yesterday as the Nasdaq
composite index posted its biggest one-day leap in 14 months. Sharply rising bond prices gave equities an
additional lift.
The Dow Jones industrial average hit a record 4,553.68 yesterday, up 42.89 points. The broader Standard &
Poor's index of 500 stocks rose 5.39 points, to 545.22, also a record. But the top performer for the day was the
Nasdaq composite, rich with technology stocks, which rose 13.44 points, to a record level of 922.09.
So far this year, the Dow and the Standard & Poor's 500 have each risen nearly 19 percent and the Nasdaq
almost 23 percent. These are bigger gains than these indexes posted in all of 1993 and 1994 combined.
Meanwhile, the dollar held steady in advance of a speech tonight by Alan Greenspan, chairman of the Federal
Reserve, as well as the release, scheduled for tomorrow, of the Fed's so-called beige book report on the
economy.
The financial markets have received mixed signals from the Fed and Mr. Greenspan as to whether the central
bank will cut interest rates, which could help stocks and bonds, but send the dollar plunging as foreign investors
shift to currencies paying higher interest rates.
After rising for three sessions, the yield on the 30-year Treasury bond fell to 6.57 percent yesterday from 6.62
percent.
The bond market is factoring in a large cut in interest rates to 5 percent from 6 percent over the next six months,
said William Gross, managing director of the Pacific Investment Management Company, one of the nation's
biggest bond buyers.
"It bothers me a little bit," Mr. Gross said about the bond market's assumptions, but he continues to buy bonds.
He avoids shorter-term bonds, like the two-year and three-year, but is still confident about 30-year bonds.
Still, stocks in New York yesterday continued to rise even when bond prices retreated in the last hour of trading,
indicating that stock traders were particularly optimistic despite uncertainty about Fed policy.
One reason for this buoyancy wasthe $5.4 billion bid by the First Union Corporation for First Fidelity Bancorp,
prompting takeover speculation in other bank stocks. Another was that several high-technology companies
reported earnings or gave presentations to securities analysts and others in New York.
Of the top 10 movers in the top Nasdaq 100 stocks, nine were technology issues. The Intel Corporation, the big
semiconductor manufacturer, led the index, rising 3 5/8 a share, to 61 3/4, on continuing indications of strong
demand for computers during the normally slow summer months. Intel, a favorite among institutional investors,
was also the most active stock at nearly 16 million shares.
The Microsoft Corporation, another institutional favorite, also rose 2153/16 a share, to 8913/16 , and the Oracle
Corporation, a leading software company, rose 1 a share, to 38 5/8.
Part of the reason technology stocks were so prominent on Wall Street yesterday was New York visits by
executives of high-tech businesses. Some of the biggest technology companies are making presentations at a
technology conference sponsored by Bear, Stearns & Company in New York. Other companies are also in town
for an industry trade show called PC Expo.
For example, Micron Technology Inc., after reporting record earnings and 53 percent gross margins last week,
said yesterday at the conference that it might increase its profit margins further in the next several quarters.
Micron shares rose 3, to 53.
"These conferences are just a fabulous lovefest," said Joseph V. Battipaglia, chief investment strategist for
Gruntal & Company.
The other news event that helped lift stocks was First Union's acquisition bid, the biggest of its kind. With interest
rates relatively low, the financial-services industry is posting record profits. Deregulation also provides incentives
for banks and other institutions to merge, so when a big merger is announced, stock traders speculate on other
mergers, lifting bank stocks as a group.
Twenty of the 22 stocks in the S.& P. regional banks group rose, led by First Fidelity, which agreed to merge with
First Union. First Fidelity shares rose 10 1/4, to 59. Shares in First Union fell 1 3/4, to 45 7/8.
The dollar fell to 84.63 Japanese yen from 84.76 yen in New York trading and fell to 1.3970 German marks from
1.4002. The dollar has been stable for nearly three weeks, at more than 84 yen and around 1.4 marks.
The New York Stock Exchange composite index rose 2.22 points, to 292.18, on volume of 323 million shares,
slightly below this year's average daily trading volume of 332 million shares. Advancing stocks outnumbered
decliners, 1,343 to 950. The American Stock Exchange composite index rose 0.81 point, to 496.21.
Among advancers was Lannet Data Communications Ltd., an Israeli maker of computer local area networks,
which agreed to be acquired by Madge N.V., a Dutch company, for $300 million. Lannet shares rose 4 1/8, to 23
1/2. The Milwaukee Insurance Group rose 6 3/4, to 20 1/4, after Unitrin Inc. announced plans to buy the insurer
for $94 million.
Among declining stocks was that of the Sunbeam Corporation, the household products company, which dropped
5, to 13 3/8, after it lowered estimates for second-quarter and full-year results. And Esmor Correction Services
Inc., a manager of jails, fell 2 a share, to 17 1/2, after a riot by illegal aliens broke out in a detention center it
operated in Elizabeth, N.J., for the Immigration and Naturalization Service. Local officials criticized Esmor's
operation.
Document NYTF000020050403dr6k00q45

Stocks Mixed, With Dow Slipping 3.12 and Nasdaq Index Up
By ANTHONY RAMIREZ
790 words
21 June 1995
The New York Times
NYTF
10
English
The financial markets, with the exception of the hard-charging Nasdaq exchange, were on cruise control
yesterday before last night's speech by Alan Greenspan, chairman of the Federal Reserve, that might give clues
to whether the central bank will cut short-term interest rates soon.
Stocks were mixed, bonds were little changed and the dollar was steady in overseas and New York trading.
Unusually heavy trading volume -- some 384.3 million shares changed hands on the New York Stock Exchange --
indicated some confusion among traders, however.
Analysts said that the financial markets might be caught between a rock and a hard place because of Mr.
Greenspan's speech. If he does not imply that the Fed will cut interest rates, traders may bid down stock and
bond prices. If he does imply the Fed will cut rates, traders have already priced stocks and bonds to take much
of the move into account.
Somewhat separate from stocks and bonds is the still weak but relatively stable dollar. A cut in interest rates, or
even talk of it, is sure to stampede many currency traders away from the dollar and toward the Japanese yen and
the German mark. But it is not clear whether a steady interest-rate policy would lead to a steady dollar. The
currency has been hurt by long-term problems like the United States-Japan trade deficit.
After falling nearly 19 points, the Dow Jones industrial average closed yesterday at 4,550.56, down 3.12 points.
The Standard & Poor's 500 fell 0.24 point, to 544.98.
By contrast, the Nasdaq composite index, rich with technology stocks, rose for the seventh session in a row.
The index added 7.74 points to close at 929.83, another record.
Long-term interest rates held steady in the bond market. Bond prices inched downward and the yield on the
benchmark 30-year Treasury bond rose to 6.58 percent from 6.57 percent.
The dollar has been stable for nearly three weeks, above 84 yen and around 1.4 marks. Yesterday, the dollar fell
to 84.45 Japanese yen from 84.63 yen and to 1.3907 marks from 1.3970 marks.
Still, with the major stock indexes posting records almost weekly all year, "we had all the ingredients for a
pullback" in stocks, said Alfred E. Goldman, director of market analysis for A. G. Edwards & Sons. "It's what didn't
happen today that's significant. Typically, you'd see more profit taking, but we got very little downward pressure
today."
Of the top 10 stocks in the Nasdaq index, all were high-technology companies, led by Intel, the semiconductor
maker, which rose 3 1/4, to 65. The most active stock, at 17.6 million shares, was Intel.
At this point, many technology stocks do not need external news events to prompt institutional and individual
investors to buy them. And those portfolio managers who do not own these stocks may buy them for what is
known as end-of-the-quarter "window dressing" to impress clients. Moreover, many Silicon Valley executives are
in New York for the Bear, Stearns technology conference and for PC Expo, a major computer trade show.
Hardware and software companies have been posting impressive gains. The American Stock Exchange
computer technology index of 26 leading computer companies, including Intel and I.B.M., has risen nearly 44

percent so far this year and rose 2.47 percent yesterday. By contrast, the Dow industrials are up 18.68 percent so
far this year and down 0.07 percent yesterday.
The New York Stock Exchange composite index fell 0.42 point, to 291.76, with advancing stocks lagging declining
stocks by 1,063 to 1,230. The American Stock Exchange composite index rose fell 1.13 points, to 495.08.
Among advancing stocks was Bolt Beranek and Newman, a computer networking company, which rose 9 1/8, to
27 5/8, after AT&T picked Bolt Beranek as an Internet access provider for business. Micron Technology, a
semiconductor company, rose 4 3/4, to 57 3/4.
Among declining stocks was Transmedia Network, a provider of discount dining cards, which fell 2 7/8, to 8 1/8,
after management said third-quarter and full-year results would be below Wall Street expectations. Esmor
Correctional Services, which operated the detention center in Elizabeth, N.J., where illegal immigrants rioted over
the weekend, fell sharply for a second straight day. Esmor fell 2 3/4, to 14 3/4.
Document NYTF000020050403dr6l00q8o

CREDIT MARKETS; Weak Economic Data Send Treasury Prices Soaring
By ROBERT HURTADO
756 words
14 June 1995
The New York Times
NYTF
20
English
Prices of Treasury securities surged yesterday as retail sales fell short of expectations and the Consumer Price
Index showed only a slight rise, adding fresh evidence of an economic slowdown and subdued inflation.
The gains caused interest rates to drop back to week-ago levels as a general optimism among traders about the
prospects that the Federal Reserve would ease interest rates added to gains in bond prices throughout the day.
The benchmark 30-year Treasury bond gained 27/32 points to a price of 1144/32 , for a yield of 6.54 percent,
down from 6.70 percent on Monday. CS First Boston said the decline in the yield was the biggest drop since July
29, 1994.
Donald Fine, chief market strategist at Chase Securities, said the bond market's surge was certainly tied to the
release of a Labor Department report showing an unthreatening three-tenths of 1 percent increase in the May
Consumer Price Index and a Commerce Department report that retail sales rose by only two-tenths of 1 percent
in May.
"Consumer spending is still sluggish," Mr. Fine said, "and while this is simply further confirmation of weak
second-quarter growth, there was at the same time scant evidence in the report of any near-term improvement."
He said this would be a cause for concern at the Fed, but still expected the rate-setting Federal Open Market
Committee to hold off any rate cut at its July 5-6 meeting. Mr. Fine said the Fed would probably wait until Aug. 22
before initiating a rate cut, to examine more data before reaching firm conclusions on the economy's course in the
second half of the year.
He continued that while the bond market was back nearly to levels of a week ago, its tone was much more
optimistic. "The surge after the payroll number last week was a euphoric event," he said, "but nevertheless doubts
about weakness began creeping in. The numbers today removed those doubts. But these numbers are in no way
indicative of a recession. Slow economic growth, yes, but declining economic growth, no."
In separate reports on regional activity, the Federal Reserve Banks of Atlanta and Richmond lent further weight to
indications of a cooling of economic activity. The Atlanta Fed said its index of regional manufacturing was little
changed at minus 21.5 in May, compared with minus 22.1 in April. The Richmond Fed said manufacturers
reported lower inflation as business sagged.
Traders said this data erased a lot of doubt in investors' minds about whether the economy was weakening, and
again confirmed that inflation was under control.
Good levels of overseas interest and statements by some Fed officials also lent support to bond prices. The
president of the Federal Reserve Bank of Boston, Cathy E. Minehan, a voting member of the Open Market
Committee, told Dow Jones that she still believed the economy was on a path for a soft landing this year and did
not expect a recession in 1995. Growth should be about 2.5 percent by year-end, she said, helped by lower rates,
income and export growth, and low unemployment.
Matthew F. Alexy, chief market strategist at CS First Boston, said yesterday's retail sales report validated
forecasts of a second-quarter gross domestic product report showing no growth. "Without an increase in demand
from the consumer, inventory levels will become more of a problem," Mr. Alexy said. "This will lead to additional
cuts in orders, production and jobs."
In the corporate bond market yesterday, the Tennessee Valley Authority doubled the size of its global offering to
$2 billion amid strong investor demand even as corporations pumped out new bond issues.
When the 10-year noncallable bonds are priced today, it will be the largest global bond sale by a Government
agency or Government-sponsored agency, said David Smith, T.V.A.'s chief financial officer.
The issue is expected to be priced to yield 30 to 33 basis points more than the 10-year Treasury note with a 6.50
percent coupon due in 2005. By late yesterday, the 10-year Treasury was priced to yield 6.11 percent.
Traders said Chase Manhattan was also active yesterday, pricing for sale $1.365 billion in floating-rate,
asset-backed securities. The asset-backed deal was the bank's largest.
Graph: "Treasury Yield Curve" shows yields of selected Treasury securities, in percent. (Source: Technical Data)
Document NYTF000020050403dr6e00nyn

Market Drifts in Wait of Data and 'Triple Witching' Tomorrow
By ANTHONY RAMIREZ
716 words
15 June 1995
The New York Times
NYTF
12
English
The stock market drifted yesterday, closing mixed but essentially unchanged as stock traders pulled back in
advance of new economic data due today and the turbulence of a "triple witching" tomorrow -- the quarterly
expiration of three kinds of stock options contracts.
Several important economic reports might clarify or further muddy the picture of a seemingly slowing economy but
with surprising sectors of growth, like strong demand for computer chips. The reports include factory use and
industrial production, which will provide important clues to the economy's strength.
Triple witching often leads to huge volume on the New York Stock Exchange -- 20 percent or 25 percent more
than on typical trading days. Traders are forced into "use them or lose them" choices for these options, and the
popular stock indexes often fall on Friday, but rebound on Monday for no reason related to the fundamental
soundness of the stocks.
Despite the seeming placidity of the day, trading was somewhat volatile yesterday. After falling as much as 20
points and rising as much as 8 points, the Dow Jones industrial average closed up 6.57 points at a record
4,491.08. The broader Standard & Poor's 500 rose 0.42 point, to 536.47, also a record. The Nasdaq composite
index rose 1.49 points, to 895.72, an all-time high.
Still, traders called the day surprisingly quiet. "I thought we were going to have a stronger final hour," said Todd
Clark, a managing director at Rodman & Renshaw. Transportation stocks, especially the airlines, held on to most
of their gains, he said, which was unexpected because transportation normally thrives in a growing economy.
It added to the picture of confusion in the financial markets where bond traders appear to be assuming that the
economy will slow sharply, and stock traders appear to be assuming that it will not slow enough to hurt corporate
profits. "Those particular legs of the equation are puzzling me," Mr. Clark said.
Indeed, while bond prices fell somewhat yesterday and yields rose, Wall Street continued to price a hefty
interest-rate cut by the Federal Reserve into bond yields. The current Federal funds rate, the rate for interbank
loans essentially set by the Fed, is 6 percent for loans made overnight.
Yet the interest rates for bills, notes and bonds for anywhere from three months to as long as five years are all
under 6 percent. Those yields imply a rate cut by the Fed of as much as half a percentage point, which some
analysts and traders say would sharply devalue the dollar because foreign investors would flee to higher-paying
currencies. The yield on the benchmark 30-year Treasury bond rose yesterday to 6.57 percent from 6.54
percent.
The New York Stock Exchange composite index rose 0.17 point, to 288.35, with advancing stocks lagging
declining stocks by 1,086 to 1,158. Big Board volume totaled 331 million shares, about equal to this year's daily
average of 332 million shares. The American Stock Exchange composite index rose 1.97 points, to 493.38.
Among advancing stocks was Thermotrex, a maker of breast cancer detection equipment, which rose 3 7/8, 30
5/8, after Oppenheimer & Company rated it "buy" in new coverage. Thermolase, maker of a hair-removal system
using lasers, rose 3 3/4, to 20 3/8, after it won a patent for a new cosmetic laser.
Among declining stocks was Cor Therapeutics, a biopharmaceutical company specializing in heart disease drugs,
which fell 8 1/2, to 10 1/4, after its main product, Integrelin, appeared to fall short in clinical trials. Humana Inc.,
the health insurance company and provider of managed health-care plans, dropped 3 1/4, to 19 5/8, after
management said second-quarter earnings would be below Wall Street expectations.
The most active stock, at 16.98 million shares, was Sybase, a fast-growing software company, which rose 3 1/2,
to 28 1/2, on speculation it may be taken over by a larger company, much as I.B.M. acquired Lotus Development.
Document NYTF000020050403dr6f00o5i

Stock Close Mixed, With Dow Off 3.46
By ANTHONY RAMIREZ
728 words
9 June 1995
The New York Times
NYTF
6
English
The stock market was mixed but little changed yesterday in advance of the release this morning of the Producer
Price Index. The index will be the first major economic indicator since traders began thinking seriously of the
economy as coping with a recession rather than just a slowdown that offers still-robust corporate profits.
The Dow Jones industrial average fell 3.46 points, to 4,458.57. The broader Standard & Poor's index of 500
stocks fell 0.78 point, to 532.35. But the Nasdaq composite index, rich in technology stocks that are continuing
to rally after a recent decline, rose 4.55 points, to a record 886.13.
Nasdaq stocks continue to get a lift from Monday's hostile bid by I.B.M. for the Lotus Development Corporation.
Traders are buying shares in companies that might be targets of other takeover bids. For example, shares in
Adobe Systems Inc., known for its computer illustration software, rose 3, to 56 1/2 yesterday.
Both stock and bond traders have been shaken by news of lower-than- expected job creation and other signs of a
weak economy. Only recently, they had assumed the economy would retain sufficient strength to keep corporate
earnings higher.
For the most part, stocks have largely followed bonds because when bond yields rise, corporate borrowing costs
rise, hurting stocks. Yesterday, bond prices fell and yields rose. The yield on the benchmark 30-year Treasury
bond rose to 6.61 percent from 6.55 percent.
Bond traders have been assuming that the Federal Reserve would soon cut interest rates to head off a recession.
They have therefore priced some fixed-income debt at less than the Federal funds rate of 6 percent. The two-year
note, for example, yields just 5.84 percent.
But in an all but explicit denial of a rate cut, Alan Greenspan, the Fed's chairman, raised the possibility
Wednesday of a brief recession but played down its likelihood. He said the chances of the economy slipping into
recession have "decreased very significantly."
"The bond market is way out of line with the likely behavior of the economy," said Charles Lieberman, director of
financial marketers research at Chemical Securities Inc. "The Fed provided that message -- discreetly."
But if borrowing costs rise because the bond market has made a mistake, then stock prices are likely to drop, too,
Mr. Lieberman said. He sees a 5 percent "correction," or a drop of more than 200 points, in the Dow in the near
future.
The New York Stock Exchange composite index fell 0.51 point, to 286.45, with declining stocks outnumbering
advancers, 1,163 to 1,043. Big Board volume totaled 290.4 million shares.
Among advancing issues was Davidson & Associates, an educational computer software company, that rose 4
3/4 a share, to 31, after an Oppenheimer & Company analyst raised his assessment of the company to "buy" from
"outperform." The Mecklermedia Corporation, a publishing company, rose 5 7/8 a share, to 32 1/2, after it
announced development of a new computer magazine focusing on the Internet.
The Philip Morris Companies, a Dow component stock, dropped 1 1/2, to 71 1/2, after an article in The New York
Times said the company had spent 15 years studying nicotine and questioned its longstanding claims that it did

not manipulate levels of nicotine in cigarettes. In response some Democrats have sought a Justice Department
inquiry. The drop accounted for much of yesterday's decline in the Dow.
Among other declining stocks, PST Vans, a trucking and leasing company, which fell 4 3/4, to 7 1/8, after its
management said 1995 earnings would not meet Wall Street estimates. Similarly, M.S. Carriers, another trucking
company, saw disappointing second-quarter revenue. Its shares fell 2 1/4, to 17.
The most active stock, at 6.2 million shares, was the Iomega Corporation, which rose 1 1/4, to 23 1/4, after a rival
maker of computer disk drives, Syquest Technology, said it would soon sell a similar version of Iomega's Zip
drive. Iomega's stock has been rising because of the popularity of the Zip drive.
Document NYTF000020050402dr690015d

Stocks Recover Some of Last Week's Losses
By ANTHONY RAMIREZ
693 words
13 June 1995
The New York Times
NYTF
10
English
The stock market recovered some of its losses yesterday, with the Nasdaq composite index even establishing
a record.
But trading volume was moderate in advance of a week crammed with major economic reports, like the
Consumer Price Index and industrial production, as well as Friday's turbulence of the quarterly expiration of stock
options known as "triple witching."
After rising more than 41 points, the Dow Jones industrial average ended with a gain of 22.47 points to
4,446.46. The broader Standard & Poor's 500 rose 2.94 points to 530.88. And the Nasdaq composite index, rich
in technology stocks that have led the market, rose 3.60 points to a record 887.98.
But the market has more territory to "retrace," as Wall Streeters put it, having lost a fair amount of ground over the
final three sessions of last week. The Dow lost more than 61 points and the S&P 500 nearly 8 points then.
Alan B. Bond, president of Bond, Procope Capital Management, said the market's recovery yesterday was not
surprising, "but you're going to see some volatility this week," in part because of triple witching but also because
of other factors.
For one thing, Mr. Bond noted, many portfolio managers have been unable to match the sizzling gains of the
Standard & Poor's 500, which professional managers use, instead of the Dow, as a yardstick. The S&P is up 15.6
percent for the year so far and many institutional investors have been managing to get returns only in the low
double digits.
"The S&P has been a formidable foe," he said, so money managers are going to scramble to buy winning stocks.
Moreover, as more economic data accumulate that growth is slowing, the so-called leadership of the market will
recede from high-technology stocks and advance into other sectors, Mr. Bond said. He believes money will flow
into consumer nondurables and health care companies, like Gillette and Johnson & Johnson.
Still, the computer industry provided more evidence that the economy is not contracting uniformly. Computer chip
stocks, like Intel, have been market leaders because a strong Intel order book was thought to mean a strong profit
outlook for corporations in general.
The closely watched book-to-bill ratio, a measure of demand for the semiconductor industry, hit a record level not
seen in nearly a decade. The Semiconductor Industry Association said after the market closed yesterday, that for
every $100 worth of computer chips shipped or billed, the industry received $122 worth of new orders, or
bookings.
But the bond market has assumed the economy is so anemic that the Federal Reserve will cut interest rates
soon, perhaps as early as July, to stave off a recession. For example, bond traders have priced the two-year
Treasury note to yield 5.92 percent, an assumption that the Federal funds rate will drop below the current 6
percent.
Michael Carey, North American economist for Maria Fiorini Ramirez, an investment advisory firm, said bond
traders may be making a wise bet. "They know that if the Fed waits until it sees the economy is on the verge of a
recession, then the Fed has waited too long and the Fed knows it," said Mr. Carey.
The New York Stock Exchange composite index rose 1.51 points to 285.56, with advancing stocks outnumbering
declining stocks by 1,268 to 948. Big Board volume totaled 289.9 million shares, about 13 percent less than this
year's daily average of 332 million shares. The American Stock Exchange composite index rose 0.73 point to
489.32.
Among advancing stocks was Cephalon Inc., a biotechnology company, which rose $7.875, to $18.375, after
Cephalon and the Chiron Corporation reported progress in the development of a drug that fights Lou Gehrig's
disease, a nerve- and muscle-destroying disease. Chiron, Cephalon's partner, rose $6.875, to $61.75.
Document NYTF000020050403dr6d00nsc

May Orders For Durables Jumped 2.5%
By KEITH BRADSHER
654 words
24 June 1995
The New York Times
NYTF
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English
WASHINGTON, June 23 -- Orders and shipments of factory equipment and other costly manufactured goods
surged in May, as business and consumer demand remained strong despite signs in other recent Government
statistics that the economy was slowing.
But most economists concluded that the extra manufacturing activity was not enough by itself to change the
course of the economy or alter the Federal Reserve's policy on interest rates.
"We've seen some temporary bounce-back, which gives you some confidence" that the economy will not slide
into a recession, said Richard B. Berner, the chief economist at Mellon Bank in Pittsburgh. But, he added, "These
data don't convince me that the economy is poised for a rebound yet."
Stock and bond prices dropped at the opening after the Commerce Department's announcement of the statistics
on orders and shipments, as investors initially decided that senior Federal Reserve officials were slightly less
likely to cut short-term interest rates at their next policy meeting on July 5 and 6.
But prices soon recovered as analysts played down the importance of the figures, and the Dow Jones industrial
average closed with a loss of just 3.80 points. [ Page 37. ] Bond prices ended the day slightly lower, with the
yield on the 30-year Treasury bond rising to 6.49 percent from 6.47 percent. [ Page 36. ] Yields and prices move
in opposite directions.
New orders for durable goods -- which range from washing machines to aircraft -- rose 2.5 percent in May after
falling 4.5 percent in April, the Commerce Department said. It was the first increase since January. Shipments
climbed nine-tenths of a percent in May after dropping 2.2 percent in April.
Eric Falkenstein, an economist at Keycorp, a Cleveland-based banking company, said that he doubted that
today's figures would dissuade those Federal Reserve officials who believed that the central bank should be
cutting interest rates soon. "It didn't recoup the fall in the prior month, so if anything, I think this pushed the Fed
further toward an ease," he said.
Mr. Berner said that some of the improvement in orders might reflect a strengthening of demand from abroad
after the dollar's fall in currency markets this spring. To the extent that is true, then business confidence may not
be as strong as today's report suggests, making the domestic economy appear slightly less robust.
Since the statistics on durable goods often show big swings from one month to the next, many experts distrust the
figures for any single month. Today's figures were also an advance estimate, subject to revision.
Orders and shipments of transportation equipment, like cars and planes, are particularly volatile. Those orders
rose 3 percent in May after a fall of 10.2 percent in April, but shipments dropped for the fourth consecutive month.
Economists were more encouraged by the orders for factory equipment and other gear used to produce goods
and services. Orders for nonmilitary capital goods, an indicator of business confidence in future sales, climbed 6.8
percent in May after dropping 5.9 percent in April. Shipments were up just seven-tenths of 1 percent, after being
unchanged in April.
Nonmilitary capital goods include everything from steam turbines and computer equipment to ship components
and furnaces.
Orders rose even more sharply for military capital goods, which range from tanks to missiles. These orders
increased 9.5 percent in May after plunging 27.7 percent in April.
Orders for electronic and other electrical equipment were particularly strong, bouncing back from a dip in April to
register the eighth increase in 10 months.
Backlogs of unfilled orders for all types of durable goods, an important indicator of future economic activity, were
unchanged in May, after falling by half a percent in April.
Graph: "Durable Goods Orders" (Source: Commerce Department)
Document NYTF000020050403dr6o00r3b

Economy
Weak Spending In May Fuels Economic Fears --- Retail Sales Rose Just 0.2%; Price Numbers Worry Fed's
Inflation Fighters
By Christopher Georges
Staff Reporter of The Wall Street Journal
1,066 words
14 June 1995
The Wall Street Journal
J
A2
English
(Copyright (c) 1995, Dow Jones & Co., Inc.)
WASHINGTON -- Weaker-than-expected consumer spending in May underscored worries about the economy's
health and revived speculation that the Federal Reserve Board, despite inflation concerns, might lower interest
rates this summer.
The government said yesterday that retail sales rose only 0.2% last month, an improvement from the previous
month's decline but less than many economists had forecast. Excluding auto sales, retail sales rose an anemic
0.1%.
In a separate report, the government said consumer prices rose 0.3% in May, slower than April's 0.4% rise but
still too rapidly for some of the hard-line inflation foes on the Fed. Despite the weak economy, consumer prices
have risen at a 3.5% rate over the past three months.
While economic growth has slowed in recent months, yesterday's retail sales numbers led many economists to
suggest the economy could be in the doldrums longer than many had anticipated. Still, few predict a recession.
"We will skirt outright recession, but only because the Fed will engage in easing," said Elliott Platt, an economist
at Donaldson, Lufkin & Jenrette.
The latest numbers led to speculation that the Fed will lower short-term interest rates to help boost the economy.
That prospect caused stock and bond prices to rally. The bond market's benchmark security, the 30-year
Treasury bond, rose 2 1/4 points, or about $22.50 for a bond with a $1,000 face amount. The Dow Jones
Industrial Average rose 38.05 points, or 0.86%, to 4484.51, less than one point shy of a record.
The new retail-sales data give more ammunition to those Fed officials who want to cut interest rates at the Fed's
next meeting, scheduled for July 5-6, to lessen the risk of a recession. The inflation picture also strengthens their
argument. For the second time in three months, wholesale prices were unchanged in May, signaling little
inflationary pressure in the pipeline.
But other price trends bolster the contentions of hard-line inflation fighters at the Fed that this isn't the time to
lower interest rates. In the past three months, consumer prices have risen at a 3.5% annual pace, up from 3.2%
in the previous three months and 1.9% in the three months before that.
Some economists speculated that the Fed would take no action on interest rates until its Aug. 22 meeting, waiting
for at least two more months of economic data. "It's still a close call," said Laurence Meyer, who heads the St.
Louis economic consulting firm Laurence H. Meyer & Associates. "If June is a weak month, it will dictate an
easing."
The modest rise in retail sales surprised economists. Many expected a hefty rebound from the 0.3% decrease in
April sales, which until now they had attributed partly to the government's delay in sending out tax refund checks.
"If that were the cause [of the April decrease] we would have seen more of a snap-back in May," Mr. Platt said.
"There is something more serious going on."
Instead, the continuing weak sales numbers may be due to more permanent factors, such as higher levels of
consumer debt and the Fed's string of interest rate increases last year.
A slowdown in retail sales can be especially worrisome, as it can lead firms to end up with larger-than-desired
levels of inventories. An abundance of goods on the shelves is a classic trigger for recession, as it can lead to a
sharp decline in orders for new goods and, ultimately, declines in production.
Sales have followed an up-and-down pattern this year, rising 0.7% in March after dropping the same amount in
February. Sales of durable goods -- including appliances, autos and other goods expected to last more than three
years -- were up 0.2% last month, the Commerce Department reported. Home-furnishing sales climbed 1.4%.
Durable-goods sales grew 6.5% compared with May 1994. Sales of nondurable goods such as food and fuel
posted a third straight advance, up 0.2%.
The rise in the consumer price index slowed to 0.3% from the 0.4% gain in April. The April increase had largely
been caused by a spike in food costs, which rose only 0.1% in May. But energy prices, led by a 2.1% increase for
gasoline, rose 0.5%, matching November's gain. Vegetable prices fell 4% in May after rising 13.6% in April. The
cost of tomatoes plunged 21.4% and lettuce was down 9.9%.
Excluding the often-volatile food and energy components, so-called core inflation was just 0.2%, the smallest
advance since a 0.1% increase in December. If prices continued to rise at the May pace, it would mean a
consumer inflation rate of 3.6% this year. Prices rose 2.7% both in 1993 and 1994.
--- CONSUMER PRICES
Here are the price indexes (1982-1984=100) and percentage change for the components of the Labor
Department's consumer price index for all urban consumers for May. The percentage changes from the previous
month are seasonally adjusted.
% chg. from April May Index 1995 1994
All items ................... 152.2 0.3 3.2 Minus food & energy ........ 160.8 0.2 3.1 Food and beverage ........... 148.7 0.1
3.2 Housing ..................... 147.6 0.1 2.4 Apparel ..................... 133.4 -0.3 -1.6 Transportation .............. 140.3 0.4
5.6 Medical care ................ 219.3 0.3 4.6 Entertainment ............... 153.6 0.5 2.5 Other ....................... 204.3 0.4
4.0
May consumer price indexes (1982-1984 equals 100), unadjusted for seasonal variation, together with the
percentage increases from May 1994 were:
All urban consumers ................. 152.2 3.2 Urban wage earners & clerical ....... 149.6 3.2 Chicago
............................. 153.0 3.7 Los Angeles ......................... 155.1 2.4 New York ............................ 161.8 2.9
Philadelphia ........................ 157.8 3.0 San Francisco ....................... 151.3 2.0 Baltimore ........................... 150.4
3.2 Boston .............................. 157.7 2.7 Cleveland ........................... 147.4 2.6 Miami ............................... 148.6
3.7 St. Louis ........................... 144.6 3.3 Washington, D.C. .................... 154.7 2.2
Document j000000020011025dr6e00daa

Money and Business/Financial Desk; 3
MARKET WATCH; Recession? Markets See Little To Fear
By FLOYD NORRIS
680 words
11 June 1995
The New York Times
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Is this economy entering into a recession? If so, it will be one of the least anticipated in Wall Street history.
Last week, Alan Greenspan used the word recession in acknowledging that the economy was slowing a bit faster
than expected, but he quickly said a recession would not occur. In that sentiment, he was in accord with the
overwhelming Wall Street opinion. Most believe in a soft landing, in which the growth will slow but not stop, and
then gradually accelerate again. Those who disagree tend to think that growth will be surprisingly strong. Any
respectable contrarian is tempted to think a recession is a sure thing.
There has been talk that the bond market's surge this year was a precursor of a recession. The popular image of
a bond trader is of someone who loves to see (other) people thrown out of work and thinks a recession is second
only to a depression in desirability. So the plunge in 30-year Treasury bond yields from 7.62 percent in early
March to 6.5 percent on Tuesday would seem to be an indication of some pleasure.
Then there is the fact that the Federal Funds rate -- the rate the Federal Reserve all but fixes on loans between
banks -- remains at 6 percent while, at last week's lows, rates on all government obligations out to seven years
were lower than that. We are dangerously near to an inverted yield curve, in which long-term rates are lower than
short-term ones. And that is historically a prelude to recession.
But if you delve a bit into the bond market, it is clear that bond traders were no more in a recessionary mood than
were stock traders when they pushed the Dow Jones industrial average almost to 4,500.
A recession is not, of course, terrific news for all bond owners. Those who buy corporates and municipals have to
confront the issue of credit risk, that is the possibility that they won't be paid because the borrower doesn't have
the money. In times of economic worry, bond buyers tend to demand bigger premiums for that risk, but until very
recently, there has been little sign of worry. Consider the TED spread, the difference between Treasury bill and
Eurodollar rates. It collapsed early this year, and has only begun to rise in the last 10 days.
Or look at Woolworth, which sold bonds at the beginning of this month. It is rated at the lowest possible level
better than junk, after a series of reversals. Yet it had to pay just 1.18 percentage points more than was being
paid on comparable Treasuries. "That rate factored in a turnaround that we have yet to see," commended Carol
Levinson, whose Gimme Credit newsletter monitors the corporate bond market.
At the end of 1993, when there was not much reason to fear a recession, 30-year industrial bonds rated triple-B,
the lowest investment grade rating, yielded 7.59 percent, or 1.18 percentage points more than triple-A bonds,
according to figures supplied by Ryan Labs. On Wednesday, those triple-B bonds yielded 7.55 percent, almost
the same, although the yield on triple-A bonds was significantly higher than it had been. The spread was just 0.56
percentage points.
What is really going on here is a desperate search for yield, with little concern about the economy or the risk of
not being paid back. The lessons of 1994, when the bond market tumbled, are rapidly being forgotten, and those
of 1990, when bond defaults zoomed, are ancient history.
It is no fun to agree with everyone, but the bet here is that a recession is not on the horizon. Still, the narrow
credit spreads appear to be overdone, and the chances are that they are slated to widen.

Graph: "No Fear Here" shows spread between rates on September Treasury Bill and Eurodollar futures contracts
from Jan. to June.
Document NYTF000020050403dr6b00nkh

INVESTING IT; This Stock Market Sails a Sea of Calm
By NICK RAVO
619 words
11 June 1995
The New York Times
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THE last few weeks on Wall Street may have seemed pretty turbulent to many investors, with the Dow industrial
average swinging up -- and down -- by 80 points or more in a single day.
By most measures of volatility, however, 1995 has been fairly typical. And the last three years have been
practically placid. This calm makes a future storm more likely, though, and that means investors should think
about how to weather it.
To be sure, some sectors have been more volatile. Semiconductors, casinos, autos, footwear and computers all
had average annual stock price swings of more than 20 percent during at least one of the last three years,
according to a recent report by David L. Babson & Company, an investment counselor in Cambridge, Mass. And
some stocks have swung that much in a single day. When I.B.M. made its $3.3 billion bid for the Lotus
Development Corporation on Monday, for instance, Lotus stock rose nearly 90 percent, to $61.4375.
The broad indexes, however, have not budged nearly as much. During the last 50 years, the average annual
range of the high and low on the Standard & Poor's 500 has been about 18 percent, said H. Bradlee Perry, a
consultant for Babson. In 1995, though, the spread so far has been only 16 percent. And for 1992, 1993 and
1994, the high and low points deviated only 10 percent, 8 percent and 9 percent, respectively -- the lowest
three-year level of volatility in 50 years.
The Dow has been just as quiet. Jeffrey Rubin, an analyst with Birinyi Associates, a research firm in Greenwich,
Conn., noted that the Dow had not closed up or down more than 2 percent on any day this year, and the average
spread between the daily highs and lows had been only 1.68 percent for 1995. Since 1980, the average has been
1.90 percent.
What does all this calm mean for the stock market? "Chances are that it is going to get more volatile," Mr. Perry
said. "If you were worried about volatility in '92, '93 and '94, you haven't seen anything yet. Just the fact that we
have a pretty enthusiastic market right now increases the risk factor of that."
Mr. Perry also said that future volatility could be amplified by the millions of people in mutual funds. These
investors, he said, can instantly move in and out of the market with toll-free telephone calls. Then there is the
market's tendency to react to news, no matter how arcane. For example, last September the Dow surged 58.55
points -- or almost 1.5 percent -- after a low regional inflation report by the Federal Reserve Bank of Philadelphia,
a drop in jobless claims and a rise in business inventories.
Indeed, with 1995 bumpier than the three preceding years, the market may already be leaving the calm behind.
For investors, that signals both opportunities and dangers. Mr. Perry said long-term investors should not try to
jump in and out of stocks but should stay abreast of volatility "so they don't act irrationally when the pattern
changes."
They should also make sure that their stocks are realistically valued. "The most vulnerable stocks in a sharp
market downturn are usually those that are the most popular and are overpriced," Mr. Perry said.
And if the market falls, he added, "Investors should consider stepping in and buying bargains."
Graph showing market volatility as measured by the percentage difference between the S.& P. 500's high and
low for each year from 1945 to 1995.
Document NYTF000020050403dr6b00nl5

How I Would Vote
By Wayne D. Angell
1,567 words
28 June 1995
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A14
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The other day someone asked me how I would vote if I were still a member of the Federal Open Market
Committee at the July 5-6 meeting. I thought for a minute about consumer spending and employment conditions,
then said to myself, wait a minute, my vote would be keyed on price-level targeting. Under price-level targeting,
the first and only question that needs to be asked is whether the current stance on monetary policy is consistent
with a discernible and gradual reduction in the rate of inflation.
The problem is that inflation reached its lowest 12-month rate in April 1994, when the consumer price index was
2.3% higher than it was in April 1993. Since then, inflation has been getting higher, not lower. The CPI in May
1995 was 3.1% higher than in May 1994. For the first five months of 1995, inflation is running at an annual rate of
3.6%.
The current stance of monetary policy can be seen in the price of gold at $390 an ounce, even higher core
commodity prices, a fed funds rate of 6%, a 30-year Treasury bond yielding 6.5%, M2 increasing at a 3% rate in
June over the fourth quarter of 1994, and an inventory of unsold new homes that will take 7.2 months of current
sales to deplete.
However, consumer price sensitivity for durable goods provides encouragement that inflation rates may be
leveling off. U.S. dollars are also faring surprisingly well measured against oil at $17 a barrel, while the dollar has
declined so much against other reserve currencies.
With this evidence, I certainly would not be entertaining any thoughts of moving the fed funds rate up. But would I
vote to lower the fed funds rate to, say, 5.5%? The answer is no. I would wait for some forward-looking indication
that the inflation rate in 1996 and 1997 would be back below 3%. I would expect the price of gold to be moving
back down toward $350 an ounce as a prelude to this kind of reversal in the inflation rate.
The key question is whether inflation rates will be gradually coming down in 1996 and 1997. The follow-up
question is whether inflation rates will be coming down too rapidly in 1996 and 1997. If inflation rates are apt to
come down faster than what would be called "gradual," then the fed funds rate should be lowered. We do not
want an abrupt decline in inflation, since rapid disinflation could depress real asset values, and it would endanger
the current capital goods expansion. Too many people would want to sell real assets in order to acquire six-month
CDs or two-year Treasury notes. Is the current yield of 5.7% on a two-year Treasury note so attractive that people
will not want to hold real assets, such as houses, and will not want to hold equities?
You may have noted that I drew my conclusion without a reference to the growth rate of employment. Does that
mean that employment and unemployment make no difference? Of course it does not. Employment security is an
important factor in determining whether enough Americans are ready to assume house and car payment
obligations. But if employment security is a factor in the slowdown to a 1.5% growth rate in the first half of 1995, it
has already registered in house sales and durable goods sales. In monetary policy, it is important to look forward
rather than backward. That is why the new home sales number for June is more important to me than the June
employment number. I would admit that we cannot ignore backward-looking data -- but we must not let it
mesmerize us.
Price-level targeting would say wait until the price of gold and core commodities reflects a scarcity of dollars and
dollar reserves before altering the fed funds rate. This approach has worked well at previous turning points.
In the first half of 1986, we had warnings concerning the risk that disinflation was moving too rapidly. We lowered
the fed funds rate and avoided a recession. In the second half of 1986 and the first half of 1987, the Fed ignored

price-level indicators that warned of a run-up in inflation and we thereby could not fine-tune a soft landing after
inflation rates rose to 5% percent in 1990. But we did mitigate the 1990-91 recession by heeding the price level
indicators that warned that inflation rates would be moving down too quickly by lowering rates 13 months before
the recession began.
Now the current FOMC is faced with prospects of slow growth in 1995. I agree with Alan Greenspan in not seeing
a recession in these data. What the FOMC will be doing through its July decision is deciding whether to add
maybe one percentage point to the GDP growth rate in the first and second quarters of 1996.
The debate within the FOMC will undoubtedly center on the question, "Will economic growth be faster or slower
than potential growth?" The inflation hawks apparently would prefer to maintain policy so as to keep economic
growth between 1.5% and 2.5%. The employment doves would likely emphasize the risk that the economy will
continue to slow until unemployment rates rise above some magic number, such as 5.8%.
Given our weak ability to forecast, it is very difficult to either pinpoint real economic growth between 1.5% and
2.5% or to pinpoint unemployment at 5.8%. That is why I prefer price-level targeting.
Both the hawks and the doves mainly rely on demand management through interest rate changes. Both groups
tend to think that growth is bad when it's strong and that growth is good when it's weak. The result seems to be
accommodative monetary policy followed by restraining policy. It is difficult to tell whether the business cycle is
driving monetary policy or whether monetary policy is driving the business cycle. Price-level targeting, in contrast,
stabilizes the value of money so that price expectations do not drive residential housing and business capital
spending to unsustainable levels.
Admittedly, price-level targeting requires judgments as to the likely future inflation rate. The one clear advantage
is that it consistently seeks one goal.
The monetary policy doves believe that any utilization of labor and capital below full capacity represents a
permanent degradation of the labor force. I agree with the doves on this. I do not want monetary policy to swing
back and forth between a quest for employment and a quest for price stability.
The best monetary policy gives consistent priority to stability in employment through sound money. Sound money
is the bedrock for private sector planning. Assurance that the value of money is and will remain stable avoids
monetary-induced swings in pent-up demand.
A rising price level induces different rates of increase in real asset prices as compared to finished goods prices.
The trick is to avoid increases and decreases in real asset prices. The good news is that by avoiding real asset
price increases there is much less danger of real asset price decreases. At the July FOMC meeting, it should be
recognized that real asset prices seem well behaved. The Fed deserves credit for this.
In some regions of the country, asset prices seem to be increasing, while in other regions, asset prices are soft.
That the price of gold has stabilized for over two years around $380 an ounce should give some comfort that
we've avoided a continuation of the monetary accommodation associated with the $50 an ounce escalation in
early 1992. That home prices also stabilized meant that the higher mortgage interest rates associated with the
building boom began to shut down the boom as house price expectations cooled. Now will lower interest rates
provide a stabilized residential building pattern without the inducement of trying to get in before house prices
move up? I hope so.
My hunch is that new home sales will respond without help from the Fed. If a rebound in home sales reduces the
home inventory, we can be quite confident that durable goods and automobiles will move out of this slump. The
U.S. retail auto industry is very competitive. Rebates and lower lease rates will keep car sales close to the mark.
If the FOMC embraces price-level targeting, factoring in lower auto prices can alter the inflation forecast and, if
the price decrease continues, could meet the test of quick disinflation. In that case, those following price-level
targeting would want to be the leaders in asking for a lower fed funds rate.
Success in price-level targeting guarantees that the fed funds rate will eventually need to be moved substantially
below 6%. A lowering of the fed funds rate at this time, however, increases the risk that the rate in 1996 and 1997
will be higher than it needs to be. Leaving the fed funds rate unchanged may mean that the transition back to
disinflation is more abrupt than desirable. My recommendation is to be patient. Wait for a forward-looking
price-level signal. It may come, but I do not see it yet.
---

Mr. Angell, a former Fed governor, is chief economist at Bear, Stearns & Co.
Document j000000020011025dr6s00eh0

Market Place; Orange County's woes are boon to municipal bond insurer.
By Leslie Wayne
786 words
20 June 1995
The New York Times
NYTF
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IF bad news can make for good business at some companies, the financial crisis in Orange County, Calif., is a
red-letter event for MBIA Inc., the nation's largest municipal bond insurer. MBIA makes money by selling
insurance protection for municipal bonds that could go bad, and its stock has been climbing since Orange
County's problems began.
The Orange County situation is helping MBIA in two important ways. For one, the bankruptcy of the wealthy
county, once considered one of the nation's sterling credits, is expected to increase investor demand for insured
municipal bonds in general. Moreover, MBIA picked up a big-ticket premium of $10 million, or four times the going
rate, for insuring the $295 million of "recovery" bonds that the county issued last week.
The Orange County deal came after much soul searching within MBIA and after two weeks of on-again, off-again
negotiations with the county. Then, just after the dust settled from that high-profile offering, MBIA announced that
it would insure $329 million in bonds issued by the Denver Airport, whose credit rating hovers around the junk
level. The Denver offering puts an additional $10 million in premiums in MBIA's pocket and represents an
aggressive departure for the company, which does not typically insure credits as troubled as Orange County or
the Denver Airport.
These two moves have put a spotlight on a company whose stock has risen by about 20 percent since the
Orange County bankruptcy filing in December, to close yesterday at $67.75, unchanged for the day on the Big
Board. Despite the steep climb, analysts feel that the stock has even more upward potential and predict MBIA will
trade in the low $80's within a year.
"This is a top-flight company, and the Orange County deal was just opportunistic," said Joan S. Solotar, a
Donaldson, Lufkin & Jenrette analyst. "Investors have seen huge run-ups in the stocks of other financial services
companies and they are only beginning to look at MBIA."
MBIA's fate is tied to the volume of municipal bond offerings. That volume has been falling lately, but analysts
expect offerings to pick up again. MBIA has been able to offset the volume decline by increasing its market share,
largely because it has more capital with which to snare deals than its two biggest rivals: the Ambac Indemnity
Corporation and the Financial Guaranty Insurance Company, part of the GE Capital unit of General Electric.
In the first quarter, the volume of municipal bonds issued fell 45 percent, but MBIA's premium volume declined
only 16 percent. And analysts praise the company's efforts to offset the fluctations in bond volume by diversifying
into such areas as managing municipal assets and insuring asset-backed securities.
"If you look at MBIA over the next five years," said Michael A. Smith, an analyst with Lehman Brothers, "you are
looking at a company with a strong likelihood of earnings that will exceed the broad market. The municipal bond
business won't disappear, and Orange County has only heightened investor concern about municipal bonds and
will increase demand for insured bonds."
In 1994, MBIA earned $6 a share. Most analysts expect that to rise to a range of $6.45 to $6.50 this year and
$7.35 to $7.50 in 1996. Another reason that analysts feel its stock could rise is that the company's price-earnings
multiple is about 10, compared with the estimated market multiple of 14 for the Standard & Poor's
500-stockindex.

The Orange County deal was unusual because MBIA rarely touches bonds from issuers that lack an
investment-grade rating. MBIA typically insures bonds with single-A ratings; once a municipality gets MBIA
insurance, the bonds receive MBIA's credit rating, which is triple-A. This generally lowers the municipality's
borrowing costs, even after paying MBIA's premium.
Carol Manning, an analyst at Prudential Securities, said the Orange County deal presented little risk to MBIA
because the recovery bonds had a strong repayment source -- motor vehicle fees -- in spite of the county's
financial problems. "The risk is more controlled than it would appear on the surface," Ms. Manning said.
Still, Neil Budnick, an MBIA senior vice president, said the decision to back Orange County "was not a slam-dunk;
we spent months of negotiations with the county."
Mr. Budnick, however, said the risks were warranted: "We're not taking a more aggressive stance. The
opportunity presented itself to structure a deal the way we liked, and we took advantage of it."
Document NYTF000020050403dr6k00q05

BUSINESS DIGEST
587 words
14 June 1995
The New York Times
NYTF
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Weak Retail Sales Revive Hope of Rate Cut
Retail sales rose just two-tenths of 1 percent in May and consumer prices climbed three-tenths, meaning that,
excluding inflation, retail sales actually eased slightly, a sign that the economy could stall. That renewed optimism
that the Fed would cut interest rates.
Analysts said consumers were clearly retrenching. In the key automotive sector, sales rose five-tenths of 1
percent, did not rebound from April's 1.4 percent decline as well as expected. [ Page D2. ]
The reports lifted the price of the 30-year Treasury bonds by 27/32 points, to 1144/32 . The yield fell to 6.54
percent, from 6.70 percent on Monday, the largest decline since July 29, 1994. [ D20. ]
Stocks also rose, with the Dow industrials climbing 38.05, to 4,484.51, and the S.& P. 500 index rising 5.17
points to a record 536.05. [ D10. ] First Data to Buy Rival
First Data agreed to a $6.6 billion takeover of its archrival, First Financial Management. The companies, two of
the country's largest independent processors of credit card transactions, expect combined revenue of $4 billion
this year. [ D2. ] Orange County Sells Bonds
In its first debt offering since filing for bankruptcy, Orange County sold $295 million in insured "recovery" bonds,
but had to pay a hefty 25 basis points above similar California debt offerings. Market Place. [ D10. ] Morrison
Knudsen Cites Loan Need
Morrison Knudsen's bankers agreed to extend its loans, but the company said it needed sizable new loans to
avoid bankruptcy. [ D4. ] Sun to Cut 800 Jobs
The Sun Company will slice 800 jobs and cut its dividend in an effort to lower operating expenses by $110 million
a year. [ D8. ] Nominee Chosen For Treasury Post
President Clinton said he would nominate Lawrence H. Summers (pictured), the Under Secretary of the Treasury
for International Affairs who oversaw the bailout of Mexico, to replace Deputy Treasury Secretary Frank N.
Newman, who is resigning. [ D10. ] Republicans to Limit Bank Bill
House Republican leaders tentatively agreed to limit further expansion by federally chartered banks into selling
insurance, thereby addressing insurance agents' objections to repealing the legal separation of the banking and
securities industries. [ D8. ] Bid Deadline Seen for Multimedia
Bidders for Multimedia, including groups led by NBC and Ellis Communications, have reportedly been given a
June 21 deadline to submit offers. Multimedia is expected to bring about $1.5 billion in a sale. [ D9. ] Growth in Ad
Spending
The leading forecaster of advertising spending has revised his projections upward for this year, to $161.9 billion,
up 7.9 percent from 1994. Stuart Elliott: Advertising. [ D9. ] Steakhouses Are Expanding
The Big Three of upscale steak houses, the Palm, Morton's of Chicago and Ruth's Chris Steak Houses, are
expanding. Morton's opened in Costa Mesa, Calif. The Palm opened in Atlanta, and has plans for Boston and
Denver, and Ruth's is coming to Garden City, L.I. Travel. [ D5. ] MCA in Dreamworks Deal
MCA has agreed that its Universal Pictures unit will distribute Dreamworks' films outside the United States,
Canada and Korea. [ D9. ]
Chart: "TODAY" Business Inventories April figures due at 10 A.M. Eastern. Expected: +0.7% Table:
"YESTERDAY" <m03,25,15,10> <d> <q> Dow industrials <y> 4,484.51 <y> +38.05 <q> 30-yr. Treasury yield <y>
6.54% <y> -0.16 <q> The dollar <y> 84.60 yen <y> +0.56 <x>
Document NYTF000020050403dr6e00o1r

CREDIT MARKETS; Prices Decline as Traders See Less Chance of Rate Cut
By ROBERT HURTADO
809 words
16 June 1995
The New York Times
NYTF
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Prices of Treasury securities fell yesterday after comments by the vice chairman of the Federal Reserve, Alan S.
Blinder, that many traders saw as falling short of guaranteeing a cut in interest rates soon.
Mr. Blinder, speaking before the Minnesota Meeting, a group of business and civic leaders, said that retail prices
were increasing too quickly and that the Fed must push annual inflation down to less than 3 percent. "The
inflation-fighting effort of the Federal Reserve cannot be ended at 3 percent," he said.
Mr. Blinder said inflation would accelerate in 1995 from its 2.7 percent annual rate of 1993 and 1994. In the long
run, he added, the Fed should continue to keep inflation under control but refrain from trying to stimulate the
economy. He said this would be self-defeating because too high a growth rate would ignite inflation.
Mr. Blinder's comments seemed to tip the scales yesterday, after a host of economic news earlier in the day gave
mixed signals on whether the economy was slowing enough to subdue inflation, analysts said.
A larger-than-expected drop in the Philadelphia Federal Reserve index of regional manufacturing for June caused
bond prices to jump in early trading, as the index fell to -24.3 from -16.4. Economists had expected numbers
ranging from -13 to -9.
The price components of the index fell in June, as employment edged up and inventories rose. The decline in the
overall index marked the third consecutive monthly drop.
After the initial gain on the news, however, bond prices settled back. The 30-year Treasury bond fell 16/32 of a
percentage point, to 1136/32 ; its yield, which moves in the opposite direction from its price, rose to 6.61 percent
from 6.57 percent on Wednesday. Short-term bill rates rose by an average of 3 basis points. A basis point is
one-hundredth of a percentage point.
Investors scrutinized Mr. Blinder's comments for hints of possible Federal Reserve action at the Federal Open
Market Committee meeting on July 5 and 6. Mr. Blinder also said that the United States was "close to functional
price stability" and that timing was key in monetary policy.
Traders see Mr. Blinder as a dove on monetary policy, and if they were looking for a sign of an easing in interest
rates, they came away disappointed.
Even before Mr. Blinder spoke, traders noted that the market was having a tough time holding at current price
levels without proof that the Fed would be easing rates soon.
Some early weakness came after smaller-than-expected drops in May industrial production and capacity
utilization, suggesting that there was still strength in the economy. Production fell 0.2 percent, less than forecasts
of a 0.4 percent decline; capacity utilization slipped to 83.7 percent, but still higher than expectations of 83.5
percent.
The number of weekly jobless claims fell to 371,000 for the week that ended on June 10, slightly less than
forecasts of 373,000. The total for the previous week was revised to 376,000 from 372,000.

Most market participants had no quarrel with the overall sanguine tone of the Treasury market, only with its
over-eager anticipatory pricing. "It is not hard to visualize a scenario in which the Fed actually eases and the
market subsequently gets crushed," one trader said, speaking on condition of anonymity.
Gary Thayer, a senior economist at A. G. Edwards & Sons in St. Louis, said he thought the industrial production
number was significant in that "it not only tells us where we are, but where we may be headed down the road."
"What we're seeing now is the economy in a sharp inventory correction, which appears due in a large part to cuts
in auto production," he said. "We think the worst of the inventory problem is well behind us and we're telling
people that the economy may get a second wind in the second half of the year."
The key for bondholders, he said, is the course of commodity prices and inflation expectations as the economy
picks up.
"We still think there are inflation risks out there, so we remain a little cautious on bonds," he said. "Today we are
seeing sharp increases in industrial and precious metals prices. We've even seen an uptrend in copper prices
developing for over a month and it's now close to old highs, which suggest that the economy is not falling apart.
There is still good demand in a tight supply situation."
Graph: "Tax-Exempt Yields" shows average weekly yields for 20 general obligation bonds, and 25 revenue
bonds, in percent from March-June, 1995. (Source: The Bond Buyer)
Document NYTF000020050403dr6g00obv

Market Place; Wall St. firms are recovering, but stock analysts are hesitant.
By Stephanie Strom
942 words
22 June 1995
The New York Times
NYTF
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English
IT'S beginning to look like the fortunes of Wall Street's brokerage firms are reversing after a year of abysmal
results.
Lehman Brothers Holdings Inc. yesterday became the latest brokerage house to post solid results, reporting that
net income jumped to $58 million, or 43 cents a share, in its fiscal second quarter from $20 million, or 11 cents a
share, in the quarter a year earlier. Net income in the quarter a year earlier was reduced by a charge; operating
income in that quarter was $32 million.
The per-share earnings of 43 cents in the latest quarter, which ended May 31, exceeded the consensus estimate
of 33 cents compiled by Zacks Investment Research. Earlier this month, Lehman had cautioned analysts not to
expect robust profits for the quarter.
The firm's second-quarter performance indicated that Wall Street firms were gaining momentum; compared with
the fiscal first quarter, Lehman's earnings were up 29 percent. "I think it bodes well for some of the other firms
that Lehman did as well as they did, given the difficulties they've got in equity underwriting in particular," said Guy
Moszkowski, an analyst at Sanford C. Bernstein.
Lehman, which has had a strong franchise in underwriting stock offerings, did very little underwriting in the
quarter. And its earnings would have been at least slightly better had the firm's cost of capital not increased after
Moody's Investors Service downgraded its credit rating earlier this year. Richard S. Fuld Jr., chairman and chief
executive of Lehman, told analysts yesterday that the lower credit rating would probably cost the firm an
additional $15 million in interest expenses annually, or about 4 cents a share -- markedly less than the cost of $50
million to $80 million he foresaw when the downgrading was announced.
Lower interest rates and a flourishing stock market are fueling Wall Street's nascent recovery. A. G. Edwards
Inc. and Goldman, Sachs Group L.P. have also turned in solid second-quarter performances, raising hopes that
securities firms in general will have something to smile about for the first time since early last year.
Still, analysts are hesitant to recommend the stocks of the firms. Shares of securities firms rose 31 percent from
January through May, according to Lipper Analytical Services, compared with a 15 percent rise in the broad
stock market. Prices have been buoyed by expectations that the consolidation sweeping the industry has made
most securities firms takeover candidates.
"They've had a good run this year," said A. Michael Flanagan, an analyst who follows the securities industry for
Lipper. "It's probably time for a pause."
Also, analysts said the second-quarter results would reflect each firm's strengths and weaknesses as much as
they served as a barometer for the industry as a whole. "The second quarter is a complex picture because it will
reflect specific strengths and weaknesses at each firm," Mr. Moszkowski said. "Equity underwriting is very, very
strong, and retail demand for equity is high, which will be positive for those firms that have a good market share in
those businesses."
The strong performances by A. G. Edwards and Goldman, Sachs reflected their strengths. In Edwards's case, net
interest income, or income derived from customer margin balances, contributed more than half of pretax profits,
thanks to the firm's commitment to paying for operations out of internally generated cash flow.

Most other firms, which finance their operations through short-term borrowings, will not have as big a gain in net
interest income. Lehman, for instance, spent almost as much in interest expense in the second quarter as it
realized in interest income.
"Edwards's top-line results are probably a fair predictor of industry revenues over all," Mr. Flanagan said.
"However, Edwards has significantly less interest expense than the industry in general; thus its bottom-line
numbers will probably better than others'."
In Goldman's case, stellar equity underwriting and mergers and acquisitions advisory services pumped up profits
in the second quarter. The firm has done the most business in domestic equity underwriting so far this year,
according to the Securities Data Company, and its investment bankers have had starring roles in many of the
year's biggest mergers, like the $6.5 billion marriage of the First Data Corporation and the First Financial
Management Corporation.
One might expect the bond market rally to smooth out the industry's earnings picture, but many firms have not
shared in the surge. For one thing, the yield curve -- the difference between short-term and long-term rates -- has
flattened considerably. And most firms, still smarting from the corrosive impact that rising interest rates had on
their bond inventories last year, have been careful to hedge their bets.
"Most firms were defensively hedged against the bond market, with both short and long positions, and therefore
have not reaped the kinds of rewards you would expect given the moves in the bond market," said Joan S.
Solotar, an analyst at Donaldson, Lufkin & Jenrette Inc.
In fact, rumor has it that some firms were actually whipsawed by the rally in bonds because they were caught
"short," expecting prices to fall. Instead, they rose -- dramatically. Within one hour after the Government released
unexpectedly high unemployment figures on June 2, the price of the 30-year Treasury bond jumped more than
two points, although it later settled back a bit.
Traders said one reason prices moved so quickly was because Wall Street firms were rushing to cover their short
positions.
Document NYTF000020050403dr6m00qts

CREDIT MARKETS; Prices of Treasuries Tumble On Signs of Economic Heat
By ROBERT HURTADO
717 words
30 June 1995
The New York Times
NYTF
16
English
Treasury prices tumbled yesterday after a report showing unexpected strength in the housing market dashed
many traders' hopes of a cut in short-term interest rates next week.
A string of reports in recent months have portrayed an economy slowing sharply, raising expectations that the
Federal Reserve would be compelled to cut rates to avert a recession, despite some public reservations by its
chairman, Alan Greenspan.
But a report showing a surge in new-home sales in May, and a separate report showing a drop in weekly
unemployment claims, indicated yesterday that the economy might not be as weak as previously thought.
New-home sales figures are seen as forward-looking because of the impact of the housing market on makers of
appliances and other home furnishings. The data are also considered volatile and rarely command great
influence on the finance markets. Yesterday's report, however, received greater attention than usual because it
was the last significant Government report before the Fed's interest-rate policy makers meet on Wednesday.
The price of the 30-year Treasury bond fell 127/32 , to 112 24/32 . Its yield, which moves in the opposite
direction from its price, rose to 6.64 percent, from 6.51 percent on Wednesday. The rise in the yield, a benchmark
for many consumer loans, was the sharpest since an increase of 15 basis points on June 9, to 6.72 percent,
according to CS First Boston. A basis point is one-hundredth of a percentage point.
The selloff on June 9 was prompted by speculation, later discredited, that Japan was urging investors to sell off
their American holdings in retaliation for the threat of United States trade sanctions.
The Commerce Department reported yesterday that sales of new homes rose 19.9 percent in May, the biggest
increase in nearly three and a half years. Sales came to a seasonally adjusted annual rate of 722,000 units, much
higher than economists' estimates of 593,000 units. And the April figure was revised upward to 602,000, from
580,000.
The report was the second piece of evidence this week that lower mortgage rates were causing stronger activity
in the housing sector, which is one of the chief engines of economic growth. On Monday, the National Association
of Realtors, a trade group, said sales of existing homes gained 4.7 percent in May, to a seasonally adjusted
annual rate of 3.55 million.
The Labor Department's weekly report on new applications for jobless benefits also pointed to strength in the
economy. The department said first-time applications fell to 368,000 in the week ended last Saturday from
396,000 in the previous week.
After yesterday's data, the Fed is unlikely to cut rates next week, said Eric Hamilton, a senior fixed-income analyst
at Technical Data in Boston. "They have done an extremely good job controlling inflationary pressures, and
they're not about to let their guard down now," he said.
Still, other analysts said the market had overreacted to the data, ignoring signs of strength in earlier economic
reports.
"The market over the last five trading days was being set up for exactly this kind of short-term disappointment,"
said Thomas F. Carpenter, chief economist and managing director of ASB Capital Management, a Washington
company that manages about $6 billion in bonds. "For example," he said, "durable goods orders were up 2.5
percent for May, and we also find out that machine tool orders in May jumped 5.1 percent. We saw a 4.7 percent
surge in existing-home sales on Monday, which was followed by today's 19.9 percent jump in new-home sales.
And we gleaned from the Fed's beige book several weeks ago that the economy didn't appear to be as soft as
previously believed.
"The bottom line is that prior to the release of these numbers today, the bond market was a nervous bloodhound,
whose wide-stretched and splayed nostrils were heavily laden with the thick scent of recession."
Graph: "Tax-Exempt Yields" shows yields on 20 general obligation bonds and 25 revenue bonds from 3/95 to
6/95 (Source: The Bond Buyer)
Document NYTF000020050403dr6u00tdg

Investors See Trouble; Fed Doesn't
By KEITH BRADSHER
1,186 words
10 June 1995
The New York Times
NYTF
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English
WASHINGTON, June 9 -- With the economy slowing sharply, investors see more trouble ahead. Alan Greenspan,
the Federal Reserve chairman, doesn't.
That stark disagreement -- over whether the economy may be sinking into recession or will right itself -- was
underscored by today's turmoil in the bond market and a 34-point tumble in the Dow Jones industrial average.
In fact, stock and bond prices have fallen for three straight days since Wednesday, when Mr. Greenspan
disappointed investors who were counting on the Fed to give the economy a quick shot in the arm through a rate
cut. He said he was not particularly worried about the long-term health of the economy, although he
acknowledged the possibility of a brief recession.
"The markets are disappointed that Chairman Greenspan at this time did not agree with them," said Allen Sinai,
the chief economist at Lehman Brothers, a New York-based brokerage firm. "The message of the markets is they
think the Fed should ease."
Today, prices of Treasury securities plunged again, fueled as well by speculation that the Japanese might curtail
future purchases of Government bonds -- speculation that was subsequently denied by the Japanese
Government. [ Page 36. ]
Still, the fundamental reason for the turmoil is clear. If Mr. Greenspan is wrong, the economy may have stumbled
into a vicious circle of factory layoffs, further drops in consumer spending and yet more layoffs -- all leading to a
recession.
But if Mr. Greenspan is right, then the economy will resume growing later this year, after companies have sold off
part of the stockpiles of goods that have built up recently. At that point, they should begin ordering more from
factories. In that case, all a cut in short-term interest rates now would do is to add a sharp stimulus to a natural
rebound, possibly feeding inflation.
The markets may batter finance ministers into accepting big changes in currency values, but chairmen of the
Federal Reserve are more insulated, thanks to the power they have over the money supply. The danger of the
disagreement between Mr. Greenspan and the markets is that a flight from stocks and bonds could erode
confidence, stifle consumer spending and turn economic stagnation into a recession. Indeed, Fed optimism is
partly based on the expectations that this year's rising stock market and lower interest rates would help
overcome the effects of the Fed's yearlong escalation of short-term interest rates, which finally stopped on Feb. 1.
Unsold goods are at the nub of the debate. Federal Reserve officials and Wall Street economists agree that the
key to the economy's health for the rest of this year is what happens as companies try to slow the growth of those
stockpiles in response to a slackening of consumer spending.
The economic theory on the phenomenon, called inventory-led recession, has been a staple of business-cycle
analysis for decades.
"Let's say you're cruising along" with steady economic growth, explained Lawrence B. Lindsey, a Federal
Reserve Board governor and former economics professor at Harvard University. "Suddenly sales drop. At first,
while you're absorbing that information and finding out it's the case, your inventories are going to build pretty
dramatically."

"At some point you decide to shed inventories because they have become too costly to hold," Mr. Lindsey
continued. "So you cut production. When you cut production, you lay off workers."
But when workers lose their jobs, they don't just lick their wounds. They also cut back on personal spending. So
do people watching these layoffs, who then start to fear for their own jobs. As all of these consumers demand
fewer goods, more companies tend to lay off workers.
"What you have to do is you have to hope your inventories are drawn down faster than demand declines," Mr.
Lindsey said. Once companies have eliminated their excess inventories, they tend to resume ordering new
goods, and growth returns.
Four of the nine recessions since World War II have started with inventory problems. Mr. Greenspan and his
colleagues attribute the economy's current weakness to inventory adjustments, but play down their severity.
"It strikes me that what we are looking at right now is a reduction in inventory investment, which is still modest but
is going to proceed, as best I can judge, for a while," Mr. Greenspan said. "Fortunately, the levels of inventories
are still rather modest, and as a consequence there isn't in that sense the inventory tinder to create the type of
sharp inventory recessions which we've experienced in the United States in the past."
In interviews over the last week, other Fed governors offered several reasons why they were optimistic that
inventories could be reduced without severely damaging consumer spending. Janet Yellen, a Clinton appointee
and the board's newest member, pointed out that consumer confidence remained fairly strong, while rallies this
spring in the stock and bond markets had made some families wealthier.
Alan S. Blinder, the board's vice chairman, said that he expected the United States to sell more goods to foreign
markets, which would also help reduce inventories here. And Fed officials have noted in recent months that a
sizable chunk of the recent inventory accumulation consists of imported goods. If American companies cut back
on their import orders while they sell the goods they have, that will have little effect on American factory
production and employment.
Census Bureau statistics show that inventories are fairly high now but not unusually so. The ratio of goods held to
sales has not yet reached the levels of 1986, when inventory problems clearly braked the economy. The economy
shrank by eight-tenths of a percentage point in the second quarter that year, and grew by only 1 percent in the
third quarter and 1.4 percent in the fourth quarter.
But the Fed responded in 1986 by cutting overnight interest rates four times, by a total of two percentage points.
Many in the market argue that similar Fed action may be needed now. "I think it's going to need some help from
the Fed," said Paul L. Kasriel, an economist at the Northern Trust Company, a Chicago bank.
Mr. Kasriel and other financial economists point to many signs that the economy's problems may be more serious
than Fed officials care to admit, starting with the American economy's unexpected loss of 101,000 jobs in May.
Without a Fed rate cut, stock prices have deteriorated along with prospects for the economy and corporate profits.
Short-term bond prices have also fallen steeply as the Fed seems likely to hold overnight interest rates steady.
All of which adds to a gloom on Wall Street at odds with the high-flying level of the market. The slowdown in
growth, said John Lipsky, chief economist at Salomon Brothers, "will not be reversed until there is a boost from
policy measures, specifically monetary policy."
Graph: "A Turnaround?" shows the yield on 30-year Treasuries from May 5 to June 2. (Source: Telerate)
Document NYTF000020050403dr6a00m4t

Only a Paper Boon; Consumers Aren't Spending Their Profits From Surging Stocks
By SYLVIA NASAR
1,567 words
9 June 1995
The New York Times
NYTF
1
English
With blue-chip stocks up 16 percent since January, many Americans are a lot richer today than they were on New
Year's Day. This year's bull market, the strongest surge since late 1990, has been powered by lower interest
rates and rising corporate profits. It has already added more than twice as much to the wealth of America's
households as all the money families painstakingly salted away in savings last year.
So now that signs of an economic slowdown are multiplying, the Federal Reserve chairman, Alan Greenspan, is
acknowledging the possibility of a brief downturn this summer, and anxiety is starting to well up, shouldn't all that
freshly minted wealth help make the economy safe from recession?
Maybe, but don't count on it. When it comes to the fortune of someone like William H. Gates, the chairman of
Microsoft, or the outlook for specific companies, the stock market is a powerful force. But when it comes to
determining the course of the overall economy, it is still just a bit player.
"People might feel better if the market's up," said Edward Yardeni, chief economist at C. J. Lawrence, a Wall
Street investment house, "but are they really checking their balance sheets?"
By one estimate, a rise in the stock market of the current magnitude -- if it is sustained for a year or so -- could
mean a boost to spending of about $22 billion. That is worthwhile, but not enough to make a big difference in an
economy that is expected to produce almost $7 trillion in goods and services this year.
Rising prices for assets like stocks, bonds and real estate do deliver a very real impact -- called the wealth effect
by economists -- that shows up in a variety of ways. Higher stock prices increase the financial wealth of
shareholders, who might be able to afford more, whether a Cadillac instead of a Chevrolet or an Ivy League
education for the children versus State U. The most common reaction to a fatter portfolio is to save less from
current income, since the market helps build extra savings without sacrifice.
Higher stock prices also enhance the purchasing power of companies. Corporations whose stock is rising face a
lower cost of capital and thus have extra resources to invest in new technology or expansion. Wall Street firms,
where salaries and bonuses are closely tied to the issuing of new stocks and bonds, turn more open-handed.
Indeed, if the wealth effect is visible anywhere, it is in and around the nation's major financial centers, like New
York, Boston, Los Angeles, San Francisco and Chicago. And those are the same places where there are also
heavy concentrations of affluent families with lots of investments in the market.
New York is typical. While the underlying economy in the metropolitan area remains tepid, there are plenty of
signs of extra spending money among the upper crust in the crowded aisles at Barneys, hefty sales of luxury cars
and expensive four-wheel-drive vehicles at local dealers, and the tighter summer rental market in some trendy
beach communities.
"There are a lot of people looking at the higher end, over $1 million," said Patricia Patrillo, a broker at Sotheby's
International Realty in Southampton, L.I. "The buyers are ready, willing and able."
And Karen Houghton, an interior designer in Nyack, N.Y., a suburb of New York City, said she saw evidence of
the wealth effect in her own business. "Two of my clients who work for I.B.M. have been talking about putting
extensions on their homes for five years," she said. "Now that I.B.M.'s stock is recovering, they're moving
forward."
Trouble is, relative to the national economy, the impact from these kinds of case-by-case decisions is not enough
to be decisive. Compared with other forces at work in the economy, from consumer confidence to changes in
personal income to swings in business inventories, the impact of fatter stock portfolios is relatively modest.
How much does all this add up to? Laurence H. Meyer, president of a forecasting firm in St. Louis that bears his
name, recently sent a note to clients predicting that the higher market -- provided it does not give back too much
of the recent gains -- should inject roughly $22 billion in extra spending power into the economy this year. But
while expressing confidence that the economy will avoid a recession, he nonetheless scaled back his estimates of
future consumer outlays because of the weak job market.
"The economy would be weaker if not for the stock market," Mr. Meyer said. "But the bigger effect comes from
lower interest rates," which are just beginning to work their way through the pipeline.
Economists at the Federal Reserve have developed a similar guideline, estimating that about 4 cents of every
dollar in sustainable extra wealth eventually shows up in spending by consumers and business.
Many economists, starting in the 1950's with Milton Friedman, the winner of the Nobel Memorial Prize in
Economic Science, once thought the wealth effect carried a bigger wallop. But the stock market crash of 1987
changed all that. After a trillion dollars of wealth evaporated overnight, a lot of economists -- particularly those
close to the epicenter on Wall Street -- predicted a sharp slowdown in consumer spending, if not an outright
recession.
Instead, in part because the Federal Reserve moved quickly to counter the effects of the stock market crash by
lowering interest rates, spending kept right on growing, and 1988 turned out to be a banner year in the long
1980's economic expansion.
In response to that event, many forecasters threw their wealth equations out the window or significantly scaled
back their estimates of the impact on consumer spending from changes in the stock market.
"Traditionally, we had wealth variables in our models," said David Kelly, an economist at Lehman Brothers in
Boston. "But the wealth effect was put to a very significant test in 1987 and failed miserably."
Why doesn't all that new-found wealth prompt more spending? Economists now point to three big reasons.
First, while a majority of Americans may hold stock through their pensions and other indirect means, four out of
five households do not own any stock directly. For all the bullishness among investors, consumer confidence
readings have been falling this year because most Americans are more affected by their own expectations about
jobs and incomes than by reports of riches being reaped on Wall Street.
Second, many households that do own stock do not change their behavior much in response to changes in the
value of their portfolios, particularly because they are aware that what goes up can also go down. Most stock is
owned by the relatively affluent -- two-thirds of stock and mutual fund shares are owned by the top one-fifth of
households -- who already tend to be high savers and do not alter their spending patterns simply because their
accountants tell them they are worth more.
Finally, more and more stock is now held in various restricted ways, through individual retirement accounts,
401(k) plans and the like. The added wealth in those accounts cannot usually be tapped until retirement, unless
the owner is prepared to pay a stiff penalty for the privilege.
In contrast to the relatively modest effect from stock market changes, rises and falls in real estate values appear
to have a stronger impact. In the 1980's, real estate values and stock prices rose in tandem; that is much less true
today.
"The effect of changes in equity prices is less than half the effect of a change in house prices," said Roger
Brinner, chief economist at Data Resources/McGraw-Hill in Lexington, Mass. "If your house appreciates, you
know it and you can borrow against it. If your debt goes up, you know it and you tighten your belt."
For all the current anxiety about the economy, however, there are other reasons than the buoyant stock market
to look to for reassurance. After all, unemployment is still relatively low, income growth remains decent if
unexciting, and long-term interest rates have fallen back to levels not seen in more than a year.
"Other things may save us," said Mr. Kelly of Lehman Brothers, "but I'm not sure it will be the wealth effect. Other
forces are more important in reviving consumer spending than the gains you see in the stock market." What
Stocks Are Worth
Total value of all outstanding shares in the 994 public companies that make up the Datastream total market index,
accounting for roughly 90 percent of the market value of all American stocks.
Chart: "Exactly How Much Is $673 Billion?"
If all the paper wealth created by the rise in stock prices so far this year could be turned into cash, it would be
enough to . . .
Feed the entire nation for a year, or . . .
Buy every family in America a top-line Apple Powerbook laptop computer, or . . .
Take every American to the movies every Saturday night for 12 years, or . . .
Finance the Federal budget deficit for about three years, or . . .
Give every American worker a $5,100 bonus, or . . .
Take every American family to Disney World for a week.
Document NYTF000020050402dr6900199

MUTUAL FUNDS: FUNDS WATCH; Growth Is Eluding Women's Fund
By CAROLE GOULD
1,359 words
18 June 1995
The New York Times
NYTF
7
English
THE Women's Equity Fund, begun with much fanfare a year and a half ago, has quietly racked up one of the
worst records in the fund industry.
The fund aims for long-term growth by investing in shares of "women friendly" companies, or those that
encourage the advancement of women in the workplace. But growth of any sort has been elusive so far.
Most growth funds are going gangbusters this year. For the two months ended May 30, growth funds gained 3.7
percent on average, according to Morningstar Inc., a fund research firm based in Chicago. In the same period,
Women's Equity lost money -- 3.3 percent to be exact.
For the entire year, things don't look much better. Growth funds gained 11.4 percent through May, but Women's
Equity barely managed to break even, with a total return of eight-tenths of a percent. Such a measly gain left it
near the bottom of the pack. Among the 642 growth funds tracked by Morningstar, only Centurion and Janus
Enterprise had worse records.
Since it began in October 1993, Women's Equity has gained four-tenths of a percent a year, far behind any
domestic market index and the 6.8 percent average gain by all growth funds.
Not surprisingly, the fund recently changed managers, replacing Thomas Vickers. Cheryl Irene Smith, a vice
president of the United States Trust Company of Boston, took over on May 22.
Faced with a big task, half measures just won't do. So Ms. Smith has completely restructured the portfolio. She
has reduced cash holdings to 5 percent of assets from 70 percent and replaced the fund's big stake in retailers
with large positions in technology (16 percent), producer products (13.5 percent) and health care stocks (12
percent). The biggest industry groups will change over time, she said, but will not be drastically different from the
Standard & Poor's 500.
Still, she will have to produce some solid returns before investors will come running. The fund has a meager $1.6
million in assets. Laura Lallos, an analyst with Morningstar, said, "Its message and mission are understandably
attractive, but growth investors concerned about women's issues have no reason to buy into it yet." Socially
Attuned And Indexed, Too
"Socially responsible" index funds combine two popular investment tactics. They buy the stocks in a prominent
index, like the Standard & Poor's 500, but generally limit themselves to the companies in it with environmentally
sound policies and not in such industries as gambling and weapons production.
The Domini Social Equity fund was the only real choice in the category for several years. But the Citizens Index
Portfolio made its debut on March 2. And the fund picked up about $100 million in assets at the end of May when
shareholders of two sister funds, Citizens Balanced and Citizens Growth, voted to merge with the index fund.
Sophia Collier, president of the funds' parent company, Working Assets Capital Management in Portsmouth, N.H.,
said that the managers of the defunct funds had trouble finding companies on Working Asset's approved list of
600 stocks that matched their investment styles. And a 1994 study by Working Assets concluded that the stocks
on the approved list had significantly outperformed the S.& P. 500, she said. But Citizens Balanced and Citizens
Growth underperformed their groups by 2.4 and 3.7 percent a year since they were started in 1992.

The new index fund owns 300 stocks, and 200 are S.& P. 500 companies that satisfy its managers' social criteria,
like equal opportunity programs, environmentally sound records and conservation efforts. The fund's remaining
assets, at 8 percent, are invested in smaller companies with innovative products and services.
At 1.39 percent of assets, the fund's annual expenses are quite high. Ms. Collier said expenses should fall below
1 percent when Citizens index reaches $250 million in assets. But expenses are especially important in index
funds, which are passively managed and try to meet, instead of beat, the broad market's returns.
The smaller Domini fund, at $47 million in assets, has annual expenses of 0.98 percent of assets. It owns 250 S.&
P. companies that satisfy certain social criteria, 100 other large companies and 50 more with "exceptional social
characteristics." For the three years ended May 30, Domini has gained 10.4 percent, compared with 11 percent
for the Vanguard Index 500, which mimics the S.& P. 500. And for investors less concerned about social policies,
the Vanguard boasts very low expenses, at two-tenths of a percent of assets. Doing as Well As the Wealthy
Many people believe that wealthy investors who hire money managers do better than investors in mutual funds.
Not so, says Michael J. Flynn, manager of the investment advisory division of the Stratford Advisory Group, an
investment consulting firm based in Chicago.
He challenges the conventional wisdom that management fees for separate accounts are lower than the fees on
mutual funds. For investors who use several money managers, fees on mutual funds may actually be lower, he
says. That's because managers of individual accounts often do not disclose custody costs and other charges that
can nibble away at returns. By contrast, a fund's expense ratio is all inclusive, Mr. Flynn said.
Using research by the Mobius Group, Research Triangle Park, N.C., to determine returns on individually
managed accounts, he reached some surprising conclusions.
In terms of performance, the difference between separate accounts and mutual funds is slim after accounting for
fees. Looking at large-capitalization domestic stocks, individually managed accounts gained 6 percent a year, on
average, over the last three years, while mutual funds gained 5.6 percent. Over five years, individual accounts
gained 8.5 percent, while funds gained 8.1 percent.
Moreover, many managers use mutual funds as a showcase, Mr. Flynn said. Management
Stephen E. Canter, formerly chairman and chief executive of Kleinwort Benson Investment Management, was
named chief investment officer of the Dreyfus Corporation, a unit of the Mellon Bank.
Fergus Shiel, the former manager of Fidelity Dividend Growth, was named portfolio manager of Fidelity Trend. He
takes over from Alan Leifer, who was named assistant director of equity research, a new position. Steven Wymer,
who assisted on the Fidelity OTC fund, succeeds Mr. Shiel at Dividend Growth.
William V. Fries, the manager of USAA Mutual Aggressive Growth, has retired and passed the reins to two new
co-managers, John Cabell and Eric Efron.
Kathleen Millard, part of the troika that manages Scudder Growth and Income, AARP Growth and Income, and
AARP Balanced Stock and Bond, was named lead manager of Scudder Capital Growth, replacing Steven
Aronoff, who remains as co-manager. William Gadsden, a former co-manager, becomes lead manager of AARP
Capital Growth. Name Changes
Aim Utilities has changed its name to Aim Global Utilities, reflecting its new international focus. The fund can now
invest up to 80 percent of its assets abroad, up from 20 percent. The fund can also put 25 percent in bonds, up
from 15 percent.
Strong Income is now called Strong Corporate Bond. In Brief
Kemper Financial Services is offering a free brochure to help money market investors select funds. Call (800)
694-1080, extension 501.
Fidelity Investments offers two guides for investors, "Assembling Your Stock Portfolio" and "Managing Risk in
Your Portfolio." Call (800) 544-8888 for a free copy.
The Securities and Exchange Commission needs more fund investors to complete its risk measurement
questionnaire. The comment period closes July 7. Call (800) 732-0330 for a copy.

John Hancock Financial Services has started a program called College Savings Plus to help people build a
savings plan using its funds, insurance policies and annuities. Participants receive annual progress reports, a
newsletter, a computer disk and financial aid search and loan referral services.
Graph: "Poor Record" shows total return on Women's Equity and Growth funds from 1993 to 1995. (Source:
Morningstar Inc.)
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MARKET WATCH; Credit Is Lax, So Why Buy Banks?
By FLOYD NORRIS
669 words
25 June 1995
The New York Times
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Sometimes the news you get from opening junk mail is more important than the information that makes headlines.
Last week there was a bit of a stampede into bank stocks on the news of the biggest bank takeover yet, of New
Jersey's First Fidelity by First Union, the North Carolina-based bank holding company. Lots of people were
searching for the next bank to be bought for twice book value. We wish luck to those doing the searching.
The more important news is available in your trash can. Banks are eager to lend and are cutting prices. That
shows up in credit card applications and in the terms for second mortgages. The personal loan come-ons --
"Check this box and we'll send you a check for $10,000" -- are also on the rise.
What does that mean? It means that credit standards, and loan pricing, are on the way down. Martha Klessen, an
analyst for the Loan Pricing Corporation, which monitors the corporate loan market, uses the word "desperate" in
describing the attitude of banks trying to push loans out the door.
"Banking is such a relationship business that, even if they are going to lose mony on a loan, they have to do it to
preserve the relationship," she explains. After all, some other bank would make the loan.
It was only a few years ago that everyone was talking about how tightfisted bankers were, complete with
handwringing over excessive caution brought on by over-regulation. Of course, back then a bank could also lock
in a good profit by taking deposits at a low rate and then lending them out to the Federal Government by
purchasing two-year Treasuries. It was the beginning of a golden age for banks, and their share prices zoomed
from badly depressed levels as weak balance sheets became strong. Standard & Poor's regional bank index is up
219 percent from its 1990 low, while the S.& P. 500 has gained 86 percent.
Now the average rate on six-month bank certificates of deposit is almost 5 percent, and some banks are paying 6
percent. A bank has costs to cover, and it can't cover them if it takes in money at those rates and then buys
two-year Treasuries, which are yielding just 5.6 percent. So borrowers must be found, and more and more banks
are willing to lend in both the junk and investment-grade corporate markets. The competition for lending is
showing up in the junk bond market, which is requiring a lot less in the way of indentures before making loans.
There are also suspicions that some banks are getting credit card accounts by being a bit too lenient in deciding
who is a good credit.
One might think that the signs of declining credit standards and lower profit levels on new loans would have
scared shareholders, but that is not the case. Bad loans are not showing up on profit statements now, so who
cares? "Any notion that the credit cycle will re-emerge as an issue is not present in the valuations," reports Frank
R. DeSantis Jr., the bank watcher at Donaldson, Lufkin & Jenrette. You can get more attention from investors by
putting together a list of potential takeover targets.
Bankers say privately that the excesses now are nothing like those of the late 1980's, and they are probably right.
But the trend seems to be in place. Bank profit margins have peaked, and are declining despite the fact that most
banks are setting aside less than ever before to cover potential bad loans. We will not know until the next
recession just how lax the lending standards have become, but it is clear now that takeover speculation and
investor enthusiasm over lower interest rates is overdone.
Graph: "Banks Ascendant" shows S.& P. Regional Bank Stock Index from for 1995.

Document NYTF000020050403dr6p00ri7

A Bumpy Landing: Economy May Face Painfully Slow Growth But Not a Recession --- Rate Cuts Don't
Seem Likely As Financial Markets Stay Strong, Inventories Lean --- A Rise in Capital Outlays
By David Wessel and Christopher Georges
Staff Reporters of The Wall Street Journal
1,845 words
2 June 1995
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WASHINGTON -- The economy is headed for a bumpy landing but probably not a crash.
Although the U.S. is in for a quarter or two of painfully slow growth and perhaps even rising unemployment,
business executives, economists and government officials all say the chances of recession this year remain slim.
And that's what the pilot thinks, too.
Top Federal Reserve officials don't see a recession on the horizon and, consequently, are unlikely to open the
throttle by cutting interest rates anytime soon.
Fed officials expect a slew of bad numbers -- and got plenty yesterday -- but they predict a pickup in growth by
year end. "The negative parts are likely temporary, largely inventory corrections that will hopefully work
themselves out," Fed Governor Janet Yellen says. Robert Parry, president of the San Francisco Federal Reserve
Bank, adds, "The underlying strength is certainly stronger than what we may see in the second-quarter numbers."
Undoubtedly, the economy has slowed -- a lot. Economists say it probably is now growing at a sluggish annual
pace of 1% to 1.5%, making this the weakest quarter in more than two years.
Just yesterday, the government said that initial claims for unemployment benefits are running at the highest level
since October 1992 and that consumer income and spending didn't rise enough even to compensate for inflation.
In apparent response to a buildup in inventories, factory orders fell in April for the third month in a row, and a new
survey of purchasing managers, the bleakest in four years, suggests that the manufacturing sector is contracting.
Retailers had to resort to discounting to boost sales modestly in May, and preliminary reports indicate that auto
sales climbed only slightly from April's depressed levels. Today's report on hiring and unemployment could bring
still more bad news.
A slow-growing economy, of course, is more vulnerable to a surprise that could push it into recession, and such a
surprise remains a risk. Economic forecasters and financial markets rarely see recessions coming. Anything
from a stock-market crash to war in Europe or the Mideast could instantly shatter confidence. And even some at
the Fed quietly worry about the effect on growth if Congress cuts government spending too much too soon.
But no matter what today's employment-rate report shows about the economy in May, the Fed, the Clinton
administration and most private forecasters play down chances that the current weakness will induce consumers
or businesses to slash spending sharply enough to spark a recession. They are reassured by stock and bond
market rallies and an accompanying decline of long-term interest rates, the export-enhancing weakness of the
dollar, U.S. companies' plans to keep investing and the fact that inventories, though growing a bit, remain lean by
historic standards. The usual precursors of recession -- an unsustainable buildup of debt, a surge in inventories,
rising interest rates, widespread pessimism -- aren't in evidence.
"The outlook for the next couple of quarters looks on the soft side, but the odds are definitely against a recession
and more toward the hoped-for soft landing with bumps," Fed Vice Chairman Alan Blinder says.
With so much bad news in the headlines, how can people be so confident about averting a recession?
"If you look more toward the second half of the year," says President Clinton's economic adviser, Laura Tyson,
"you see reasons to expect the economy would do better than the current set of numbers would suggest."
Inventories
A major cause of lower factory production, especially in the auto industry, is the unplanned increase in business
inventories. Companies added to inventories at a substantial $52.3 billion annual rate (in 1987 dollars) in the first
quarter, the Commerce Department said this week, not quite so much as previously estimated but still amounting
to nearly 1% of total output and twice the pace a year earlier.
The obvious response: Make less. Such an "inventory correction" can set off a chain reaction in which layoffs
reduce consumer spending and that, in turn, cuts production further, discourages investment and leads to a
recession.
But Fed Chairman Alan Greenspan, among others, is betting that inventories aren't big enough for that to happen.
In part, computerized just-in-time inventory systems enable businesses to avoid the huge increases in unwanted
inventories that have preceded most past recessions.
At Tenneco Automotive, a Lincolnshire, Ill., auto-parts division of Tenneco Inc. of Houston, business is slowing
and inventories are growing. "We're getting to the high end of where we'd like to be," says Richard Snell, the chief
executive. But he isn't overly concerned about an excessive buildup. "We're controlling inventories better than we
used to," he says. "We were able to react better" to the temporary closing of a Chrysler Corp. plant in Newark,
Del.
Inventories remain much lower than they were before the last recession. The Commerce Department reported
yesterday that factory inventories were equal to 1.37 months' sales in April. In contrast, inventories amounted to
1.64 months' sales in June 1990, the month before the last recession.
"The inventory correction is modest by historic standards," the Fed's Ms. Yellen says. "When you have an
inventory correction going on, you get a few quarters of low growth; it doesn't mean you've blown it. Firms have to
cut back to bring inventories down, and once they've done that, normal growth resumes." She adds: "There's
always a risk that the consumer responds negatively or business investment responds negatively, but it's not my
expectation."
Capital Spending
Business spending on new plant and equipment has been remarkably strong. Despite signs that the rate of
increase is slowing -- orders for capital goods fell last month -- many executives at companies big and small
remain optimistic enough about the economy to plan on continued growth. "Business is betting in favor of no
recession by continuing to invest and expand," says David M. Blitzer, chief economist at Standard & Poor's
Ratings Group.
At Packaging Corp. of America, in Evanston, Ill., Chief Executive Paul Stecko says, "Our investment plans haven't
in any way, shape or form been adversely affected by what you read in the paper about a slowdown." He doesn't
regret spending $73 million to refurbish a linerboard plant in Counce, Tenn. -- a move calculated to respond
rapidly to strong demand by rebuilding an existing plant rather than building a brand-new one.
In Bohemia, N.Y., Archimedes Products Inc., a precision-tool maker with sales of $750,000 a year, plans to invest
$150,000 this summer on new equipment, more than twice its outlay to upgrade existing equipment last year.
Most of the money will buy a high-tech saw designed to shape and cut parts that will allow the Long Island
company to expand. Although the company's defense and space business is down, it has offset that with orders
from the railroadequipment and computer industries.
Gloomier forecasters worry that businesses won't keep investing if demand for their products slumps. "The only
strength we've had recently is in business equipment," says Lawrence Chimerine of the Economic Policy Institute
in Washington. "With the [recently reported] declines there, the odds of recession go up."
Capital spending is the most tangible measure of business sentiment but not the only one. Various surveys also
indicate optimism. Barry Rogstad, president of the American Business Conference, a Washington-based
association of midsize, fast-growing firms, says his members' main concern isn't the slowdown but all the talk
about it. "They say there is too much discussion in the media of the slowing of the economy. It's more than they
see. They fear that the talk . . . will force things in that direction," he says.
The Markets

The Fed, despite pleas from some Democratic politicians and recession-wary economists, hasn't cut the
short-term interest rates that it controls, those that it earlier had raised three percentage points in an evidently
successful effort to slow too-rapid economic growth.
But interest rates set by the bond market have fallen sharply. The yield on 10-year Treasury notes, for instance,
was slightly above 6% yesterday, down from 7.8% at year's end. That is highly likely to stimulate interest-sensitive
sectors of the economy later this year.
The depressed home-building industry, for instance, generally anticipates a rebound before next year. "In the
coming months, we expect to see housing starts pick up a bit as lower mortgage rates encourage people to make
the decision to buy," says Jim Irvine, a Portland, Ore., contractor and president of the National Association of
Home Builders.
The buoyant bond market is one big reason the Fed is hopeful. "The markets have eased very recently," says
Fed Governor Lawrence Lindsey. "The effects of that will be felt later this year and will provide a cushion for the
economy."
The strong stock market is a plus, too, enabling companies to raise new capital more cheaply and swelling
personal portfolios so that consumers keep spending.
At the same time, banks are more than eager to lend, another plus for the economy and another excuse for the
Fed to delay any interest-rate cuts. Just as banks' reluctance to lend created what Mr. Greenspan described as a
"50-mph headwind" that was slowing the economy a few years ago, banks now are responsible for a tailwind of
sorts. A new Fed survey of senior lending officers, released yesterday, found that bankers continue to ease
standards for commercial and industrial loans to companies of all sizes.
Exports
Contributing to the slowdown is the softening of U.S. exports, partly because of Mexico's economic collapse. But
exports seem likely to become a source of strength within a year or so. The U.S. has probably absorbed the worst
of the Mexican recession; demand there for U.S. goods may not increase very fast but won't fall much more. "We
took a hit on Mexico in the first quarter that particularly depressed export growth, but that probably won't repeat
itself," Ms. Yellen says.
More significantly, the dollar's weakness -- despite all the hand wringing that it causes -- should be another
important source of stimulus to U.S. exports later this year. Despite a recent rally, the dollar since year end has
fallen nearly 9% against the mark and 15% against the yen. That will make U.S. goods more attractive to some
foreign buyers, but it takes months -- or more -- before that can help the U.S. economy.
"A lot of people are being driven by strong export sales because of the dollar," says George Fisher, Eastman
Kodak Co.'s chief executive. "I think that may be what keeps us out of recession."
Document j000000020011025dr6200ckb

CREDIT MARKETS; Treasuries Rise in Price After Talk By Greenspan
By ROBERT HURTADO
789 words
22 June 1995
The New York Times
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Prices of Treasury securities rose yesterday as traders put their own interpretations on complex and somewhat
ambiguous comments by Alan Greenspan, the Federal Reserve chairman, on Tuesday night.
Mr. Greenspan indicated that he was reluctant to cut short-term rates right away, despite the increased risk of a
mild recession. But he did leave open the possibility of a cut later this year if more signs emerged that the
economy was heading into worse trouble or if Congress passed a budget that would significantly narrow the
Federal deficit.
To traders, those were grounds enough for optimism that rates would come down.
The 30-year bond rose 20/32 , to a price of 1145/32 for a yield of 6.54 percent, down from 6.58 percent on
Tuesday.
Early in the session the Commerce Department released trade-deficit numbers for April that showed a gain of
16.2 percent, for a record $11.37 billion shortfall. Economists had forecast a $9.2 billion deficit. Exports fell 1.3
percent while imports gained 1 percent, to a record $75.35 billion.
In his speech to the Economic Club of New York on Tuesday night Mr. Greenspan acknowledged that the
currency markets imposed new constraints. "It would be a mistake to stimulate business activity by lowering
interest rates if that led investors to pull money out of the United States, weakening an already shaky dollar," he
added.
Mr. Greenspan said inventories would be the key in coming weeks.
The Fed's "beige book" report of regional economic conditions helped pare some early gains yesterday. The Fed
said that inflation had remained under control and that labor markets generally remained tight.
Anthony E. Spare, chief investment officer of Spare, Kaplan, Bischel & Associates, a San Francisco money
management firm, was not surprised by the market's rallying response to what others regarded as noncommittal
remarks by Mr. Greenspan.
"Speculators are running the market up and down right now," he said, "making a long-term determination of
interest rates in just a few hours of trading." He called it "reading the wrong tea leaves, by the wrong gypsies."
In fact, economists will not know what the last quarter did for at least three more years, when all the revisions are
finished, Mr. Spare said. "Our guess is that you will see a 7 percent long bond before you see 6 percent bond."
Despite the attention paid to talk by Fed officials lately, Mr. Spare said, "Monetary policy alone cannot achieve
higher real growth and low inflation, not without help from the Administration and Congress on spending and tax
policy."
The Treasury said yesterday that it planned to sell $29.25 billion of new two- and five-year notes next week in
addition to $27.2 billion of new three- and six-month maturities at the regular weekly bill auction.
In when-issued trading ahead of those auctions, the two-year note was being offered at a price to yield 5.65
percent and the five-year issue at a price to yield 5.88 percent.l
Municipal bond prices were up about a half-point yesterday. Since April tax-exempt securities had fallen on fears
that changes in tax law could make them less attractive, but by now municipal bond yields have reached a
percentage of benchmark Government bonds that investors find enticing, traders said.
About $3.2 billion of securities were sold yesterday, including $1.3 billion in short-term notes by Los Angeles
County, and bond sales by Guam, the Puerto Rico Building Authority, Huntsville, Ala., and Sacramento County,
Calif. The Los Angeles tax and revenue anticipation notes due July 2, 1996, and awarded to the Bank of America
for sale, were repriced because of good investor demand, lowering yields about 10 basis points, to 3.75 percent.
A basis point is one-hundredth of a percentage point.
Corporate bond issuers continue to take advantage of the lower borrowing costs. Cox Communications, which is
controlled by Cox Enterprises Inc., plans to price $800 million of debt today, with $300 million of five-year notes
expected to yield 65 basis points more than the five-year Treasury; $300 million of 10-year notes expected at
about 85 basis points more than the 10-year Treasury note, and $200 million of 30-year bonds at a price to yield
about 115 basis points more than the Government's long bond.
Graph: "Freddie Mac Yields" tracks average weekly yields on Federal Home Loan Mortgage Corporation 30-year
and 15-year participation certificates since March. Yields track changes in fixed-rate mortgages. (Source: Federal
Home Loan Mortgage Corp.)
Document NYTF000020050403dr6m00quf

INVESTING IT; A Fast 500 Points for the Dow
By FLOYD NORRIS
291 words
18 June 1995
The New York Times
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The Dow Jones industrial average took less than four months to get to 4,500 after it topped 4,000 for the first
time in February, and the gains were widespread, with only one of the 30 Dow stocks failing to make money for its
investors.
The laggard was Westinghouse, which disappointed buyers by reporting lower profits. But otherwise, even the
losers were winners. Woolworth shares tumbled when the company stopped paying dividends, but recovered
enough with the rest of the market to show a small gain.
The biggest winner for the period that ended friday, during which the Dow rose 12.7 percent, was Boeing, which
did everything wall street likes. It announced a bunch of new orders and won permission to fly its new 777 over
water immediately, rather than having to wait. And it also announced layoffs and said the workers would not be
rehired again - no matter how many new orders came in.
The last 100 points on the Dow were the hardest. Not only did it take more than a month to go from 4,400 to 4,50,
but the move was punctuated by a lot more volatility than earlier in the run.
Only twice on the road from 4,000 to 4,500 did the Dow lose as much as half a percentage point in a day. It
happened six times on the way from 4,400 to 4,500.
Graph: "The Dow This Year" shows the Dow Jones indutrial average from Jan. to June. (Source: Datastream)
Chart: "How They Fared" lists friday closing stock price and change since Feb 23 for the 30 Dow stocks.
Document NYTF000020050403dr6i00pdn

Market Place; The Magellan fund's manager bets on lower interest rates.
By Edward Wyatt
726 words
8 June 1995
The New York Times
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INVESTORS in America's largest mutual fund might not know it, but they are betting that the Federal Reserve is
about to ease interest rates -- and sharply.
In a speech two nights ago in New York, Jeffrey N. Vinik, manager of the $44 billion Fidelity Magellan fund, spoke
at length about what is, for a mutual fund manager, a risky proposition -- the direction of interest rates. The
Federal Reserve, Mr. Vinik predicted, will lower short-term rates "very soon and very rapidly over the next several
months."
Specifically, Mr. Vinik forecast that the Fed could ease rates as many as "four times by the end of the year" in
response to signs of a slowing economy.
The prediction holds significant implications for Magellan shareholders. All of Wall Street knows about the fund's
huge bet on technology stocks, which account for more than 40 percent of Magellan's assets. The strategy has
paid off so far this year, as Mr. Vinik has guided Magellan to a gain of more than 18 percent.
After technology, the fund's second-largest group of investments, at 25 percent of assets, is in cyclical stocks,
including big-ticket industrial manufacturers like Caterpillar, Deere and Parker-Hannifin. Because the earnings of
such companies typically fall as the economy slows, a move by the Federal Reserve to extend the economy's
growth by lowering interest rates could greatly improve their prospects.
But there is also great risk in relying on lower rates to keep the prices of cyclical stocks moving up. While the
Magellan fund's Gargantuan size gives Mr. Vinik an ability to make self-fulfilling prophecies that most mutual fund
managers don't enjoy, his influence on Alan Greenspan and company is less of a certainty.
There is no better example of Mr. Vinik's ability to move markets than his bet on technology stocks, which have
been on a several-year rally. In September 1992, three months after Mr. Vinik took over Magellan, only 7.8
percent of its $22 billion in assets were in technology stocks. As he has increased Magellan's stake, other mutual
funds and institutional investors have followed his lead.
Those stocks have cooled off in the last two weeks, a downturn that Mr. Vinik says is simply the sector's
traditional summer doldrums. "I think the best technology stocks could go up for 5 to 10 years," he said. "We're
only two years into that bull market."
But the two big sector bets together leave the Magellan fund open to the possibility of a double whammy if, for
example, the weakness in the dollar dissuades the Fed from raising rates, undermining his cyclical-stock
argument, while at the same time the price of technology stocks cools further.
Mr. Vinik offered no apologies for his outlook, which he admits flies in the face of reason if the economy is indeed
taking a breather. "How can you own cyclical stocks when the economy is slowing down?" he asked rhetorically
during a speech to subscribers to Worth magazine, a financial monthly published by a unit of the FMR
Corporation, parent of the Fidelity mutual funds.
He answered with his interest rate prediction. "As bullish as I am on technology stocks right now, I think the best
opportunity in the U.S. stock market is in cyclicals," Mr. Vinik said. While companies like Caterpillar have
reported huge earnings gains, "most people think this is the top of the cycle," he continued, adding, "I think we're
going to have a pause and then they're going to take off again."
Mr. Vinik distinguishes between what he calls early-stage cyclicals -- industrial-equipment makers, automobile
and auto parts companies, and home builders -- and late-stage cyclical companies, including retailers and makers
of consumer staples, industries he says suffer from an excess of inventory.
As the latter companies begin to burn off that inventory, built up over the last year as the economy has grown,
"prices for those commodities go down, and the stocks follow," he said. "The early cyclicals go against interest
rates. When rates go down, the companies I own go up."
If he's wrong, of course, the Magellan fund could be in for a rough stretch.
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MUTUAL FUNDS; Are Good Times Gone For the Funds Industry?
By EDWARD WYATT
1,506 words
11 June 1995
The New York Times
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THIS cannot be a good sign for the mutual fund industry: Jeffrey N. Vinik, who calls the shots for the $44 billion
Fidelity Magellan fund -- the biggest fund in the galaxy -- has been reduced to touting his favorite technology
stocks at a shopping center shoe store.
Improbable as it may seem, that was the scene one evening last week as several hundred people were
shoehorned into the Salvatore Ferragamo boutique at Trump Tower in Manhattan. The multitude came not to buy
fine Italian leather goods, but to hear Mr. Vinik's outlook on the stock market and the economy.
Although Mr. Vinik can sure draw a crowd, conversations with many of the attendees suggested that they were
more interested in his personal working habits and his investment ideas than in buying shares in his -- or any
other -- mutual fund.
Applying the contrarian way of thinking so common on Wall Street, anything that becomes too popular, like a
high-flying stock, bears some caution, their views suggested. And while fund news and superstar managers still
grab headlines, signs abound that individual investors may have had their fill and that the fund industry's growth is
slowing markedly.
The most telling sign is that even with stock prices hitting new highs almost daily, the flow of fresh cash into equity
funds remains below last year's levels. And that could ultimately affect all investors, because any further decline
in cash flows could spell trouble for the aging bull market.
As less cash flows in, fewer new mutual funds are being started. The Investment Company Institute, a fund
industry trade group, reports that the total number of funds grew to 5,539 at the end of April, which puts this year's
growth at an annual rate of 9 percent, half the growth rate recorded each of the last two years.
At Morningstar Inc. of Chicago, the large fund research and publishing company, revenues will grow only about 5
percent this year, to roughly $33.5 million. That's quite a falloff from last year's 50 percent sales increase and
from the 100 percent increases recorded in each of the two previous years.
Fund companies concede that the easy money has been made. "The very rapid growth phase of the mutual fund
business is pretty much over," said Roger T. Servison, a managing director at Fidelity who oversees the
company's retail marketing and sales. Because individuals tend to invest based on recent performance -- last
year wasn't stellar for either stocks or bonds -- and because interest rates on bank deposits have been rising for a
year, not as many people have been coming into mutual funds this year, he said.
And while the masses clamoring to meet Mr. Vinik last week expressed plenty of interest in the stock market,
mutual funds seemed decidedly out of fashion.
"I own no mutual funds; I only own shares directly," said Gerald Mazzalovo, chief executive of Moda Imports Inc.,
owner of the Ferragamo emporium, which hosted Mr. Vinik's appearance along with Worth magazine, a financial
monthly published by Fidelity's parent company.
"I'm here to get a competitive edge," said Abraham W. Tu, senior portfolio manager at I. A. Rabinowitz &
Company, a New York investment bank. "Maybe he'll give some advice, reveal his strategies." But Mr. Tu said he
wouldn't be buying shares of Magellan -- or any other fund. "I buy individual stocks," he said. "I go through what
the funds are buying and make my picks."
As more and more people become responsible for investing the money in their pension and 401(k) retirement
savings programs, mutual funds are likely to remain a big business -- just not as big as once envisioned.
According to the most recent data from the Investment Company Institute, net equity fund sales in April were
below the level of a year ago, and fund companies have said that equity sales fell in May from April.
John C. Bogle, founder and chairman of the Vanguard Group of mutual funds, sees an easy explanation. "Once
burned, twice shy," he said. "It's extraordinarily true in the bond business, and to a somewhat lesser extent, in the
stock fund business." The funds in which investors have recently suffered the most -- bond funds, international
equities and small-company aggressive growth funds -- have been the slowest to attract new money, Mr. Bogle
said.
Morningstar's experience shows just how quickly circumstances can change.
"We've cut back on marketing quite a bit in response to slowing fund sales," Joe Mansueto, chairman and founder
of Morningstar, said in an interview. The number of subscribers to Morningstar's most extensive collection of fund
information has fallen from more than 50,000 to close to 40,000, he said.
Part of Morningstar's sales decline might stem from Value Line Inc.'s introduction last year of a less expensive
mutual fund guide, which was followed by a cut-rate product from Morningstar. Now, both companies report
slower growth.
"The market for that kind of information is certainly not in a rapidly growing mode, as it was two years ago, but it's
still a good business," said Stephen Savage, editor of the Value Line Mutual Fund Survey.
Mr. Mansueto insists that for the long term, "we don't see anything out of the ordinary" affecting sales trends. But
fewer people are signing up for the company's three-month trial subscriptions, which means fewer become
long-term customers.
In addition to a decline in sales growth, paid attendance was down by nearly a quarter, to just over 300 people, at
last month's Morningstar Mutual Funds Conference, a gathering of investors and managers in no-load fund
companies.
Other companies also have altered plans in response to the declining appetite for mutual fund information.
Several potential suitors have talked to Morningstar about buying part or all of the privately held company, but all
have passed so far.
One frequently mentioned suitor, Dow Jones & Company, publisher of The Wall Street Journal, began exploring
the possibility last year of creating a weekly tabloid just on mutual funds, but those plans appear to be on hold.
The company is moving ahead, however, with a mutual fund newswire, aimed at institutions and marketed
through its Telerate division.
And at the fund companies themselves, even the most chronically optimistic people hint at some wariness about
the future. Taking note of the size of the crowd that turned out to greet him last week, Mr. Vinik compared his
apparent popularity to the relatively poor rating these days of President Clinton, and suggested his was the less
enviable position. "If Bill Clinton were a stock, I'd buy him," Mr. Vinik said. "Based on this turnout, I hope I'm not a
sale." Working in Peter Lynch's Shadow
WHAT do people want to know of Jeff Vinik, the accomplished manager of the Fidelity Magellan fund?
"Do you work as many hours as Peter Lynch did?" asked one eager fan during Mr. Vinik's appearance in New
York last week.
It seems that despite his own admirable record, Mr. Vinik can't escape the specter of his legendary predecessor.
While most of the people at Mr. Vinik's publicity party were subscribers to Worth magazine, in which Mr. Lynch
writes a column, they seemed fixated on comparing the two men.
"I don't own Magellan fund because of the change in manager," said Gail Diamond, making clear she was
referring not to Mr. Vinik's appointment in July 1992, but to Mr. Lynch's decision to step down in May 1990.
(Morris J. Smith ran the fund for those two years in between.) "I didn't think anyone<PP192>could do as good as
Peter Lynch."
Since Mr. Vinik took over, the fund's assets have doubled, recently surpassing $40 billion. This year, Magellan is
up 19 percent, and since Mr. Vinik took over, the fund has compiled a 15.6 percent average annual return,
according to Lipper Analytical Services. During Mr. Lynch's 13-year reign, the fund's average annual return was
29.2 percent, according to Lipper.
Mr. Vinik was nonchalant about the comparisons. "Peter was Peter and I'm me," he said after the event. "I'm not
trying to beat him or compete with him. I'm just trying to do a great job."
Perhaps he's doing it more efficiently. "Peter said he worked 80 hours a week," Mr. Vinik said. "I work about 70
hours. So I guess I only work about 85 percent as much."
Photos: Joe Mansueto, Morningstar's chairman, says the number of subscribers for fund information has fallen.
(Steve Kagan for The New York Times); The Magellan Fund's manager, Jeffrey N. Vinik, at right, chatted at a
reception at a Ferragamo boutique in Manhattan last week. (Carol Halebian for The New York Times)
Document NYTF000020050403dr6b00nkc

A Rare Nudge for a Drop in Rates
By KEITH BRADSHER
785 words
12 June 1995
The New York Times
NYTF
2
English
WASHINGTON, June 11 -- The Clinton Administration today made its most public effort to persuade the Federal
Reserve to lower interest rates, with Leon Panetta, the White House chief of staff, saying that any help from the
central bank in preventing a recession would be appreciated.
Asked on the NBC News program "Meet The Press" whether the Federal Reserve should reduce interest rates to
prevent the American economy from slipping into a recession, Mr. Panetta said, "Well, it would be nice to get
whatever kind of cooperation we can get to get this economy going."
Asked if his comments were an effort to jawbone the Fed into cutting rates, Mr. Panetta replied with a laugh, "Is
that what it's called?"
The Fed raised short-term interest rates seven times between Feb. 4, 1994, and Feb. 1 of this year. While many
on Wall Street were anticipating a rate cut before too long, Alan Greenspan, the chairman of the Federal Reserve,
implied on Wednesday that such a step was unlikely. In remarks that sent bond prices tumbling and interest
rates up, Mr. Greenspan raised the possibility of a recession but said he thought the economy would recover later
in the year.
The decisions on interest-rate policy that the Federal Reserve makes in the next few months are likely to have
more influence on President Clinton's re-election prospects than any other economic policy decisions in the next
year and a half. Changes in short-term interest rates, which the Federal Reserve directly controls, can take a year
to affect the economy fully and are the biggest single influence on the pace of economic growth in the United
States.
Mr. Panetta's comments represented a breach of the Administration's policy for the last two years of refraining
from comment about the highly independent central bank. Treasury Secretary Robert E. Rubin imposed the ban
on such comment while serving as head of the White House's National Economic Council.
The ban reflects the view of the Administration's economists and Wall Street veterans alike that nudging the
Federal Reserve accomplishes little, particularly when done in public. The central bank has been known in the
past to do the opposite of what the White House desired in order to demonstrate its indepenence.
White House criticism of the Federal Reserve also tends to unnerve financial markets, driving down bond
prices and the value of the dollar and driving up long-term interest rates. That is because investors worry that if
an Administration succeeds in jawboning the Federal Reserve into lowering short-term interest rates for political
rather than economic reasons, the resulting faster money supply growth and possibly faster economic growth will
eventually lead to higher inflation.
When Mr. Greenspan abruptly canceled a speech in Houston on March 18, 1994, because President Clinton had
called him to the White House, financial markets were thrown into turmoil. The bond market gave up a week of
gains and long-term interest rates climbed.
The Federal Reserve might be vulnerable to pressure now because Mr. Greenspan's term expires next March,
and he is widely believed to want President Clinton to appoint him to a third term. At the same time, Mr.
Greenspan is described by close associates as eager to leave a reputation as an inflation fighter and is unlikely to

sacrifice that reputation by slashing interest rates now if he thinks the economy's condition does not warrant such
a move.
Notwithstanding his comment today on the Fed, Mr. Panetta said he did not anticipate a recession. "Everybody's
a little concerned about where it is right now, but I think we all feel that it isn't going to go into a recession," he
said. "We're going to see a period of growth take place at the end of this year and into next year."
Mr. Greenspan was in Basel, Switzerland, today for a meeting of the Bank for International Settlements. In
remarks there to journalists, he repeated his assessment that the odds had diminished of the United States
having a severe, inventory-led recession. But the likelihood of a brief economic downturn had risen, he noted,
repeating the gist of his comments last Wednesday.
"Because of the dramatic slowing of the economy, the probability of the type of severe inventory recession that
we would have had -- had the economy kept going and still been strong at this point -- the probability of that
scenario has gone down dramatically," he said. "The probability of a modest adjustment -- whether you call it a
recession or not -- has obviously gone up as a consequence."
Document NYTF000020050403dr6c00nrm

Economy
Economy's Pace Is Cut for 1st Quarter But the Details Bode Well for Rest of '95
621 words
1 June 1995
J
A2
English
WASHINGTON -- The government slightly revised downward its estimate of economic growth in the first quarter,
but the details offered some reassurance about the economy's strength in the coming months.
Real gross domestic product, the value of all goods and services produced in the U.S., adjusted for inflation, grew
at an annual rate of 2.7% in the first quarter, down from an earlier estimate of 2.8%, the Commerce Department
said. The first-quarter performance was down sharply from 5.1% in the fourth quarter of 1994 and was the
weakest showing since the fourth quarter of 1993.
But there were bullish signs in the report as well. Inventories of unsold goods, for example, grew less than
previously estimated while consumer spending, residential construction and capital-goods spending were revised
upward.
"We are not looking at a recession, but slow growth," said Marilyn Schaja, an economist at Donaldson, Lufkin &
Jenrette.
Such comments offered relief to investors and pushed stock prices to new highs. The Dow Jones Industrial
Average surged 86.46 points, or 1.97%, to 4,465.14. Broader indexes also closed at record levels.
In a separate report, the Commerce Department said sales of new homes slipped 2.7% in April, the second drop
this year despite steadily falling mortgage rates. Purchases were down in all regions except the Midwest. Analysts
predict, however, that falling mortgage rates will bolster home sales later this year.
In the GDP report, the department said that final sales -- a measure of products actually purchased during the
period as opposed to items that end up as unsold inventories -- grew at a 2.5% annual rate, substantially stronger
than the government's initial 1.8% estimate.
Inventories grew at an annual rate of $52.3 billion, well below the original $63 billion estimate. Although
production cuts sometimes follow inventory buildups and particularly severe cuts can trigger a recession,
economists say the current level of inventories isn't excessive. "While inventory building will be a drag on the
subsequent quarter, there is now slightly less downside risk," said Donald Straszheim, chief economist at Merrill
Lynch.
Most economists forecast that growth in the current quarter will be slower still -- with most predictions ranging
between 1% and 2%. Nonetheless, many economists predict a pickup in the second half. To avoid a buildup of
inflationary pressures, the Federal Reserve has been trying to slow economic growth to roughly a 2.5% annual
pace.
But inflation during the first quarter was slightly greater than previously reported. Prices paid by U.S. residents
rose at a 3% annual rate, up from the 2.8% previous estimate and from the 2.6% pace in the previous three
months.
Pretax profits from current production increased 1.5% in the first quarter, the department said, nearly double the
0.8% rise in the fourth quarter of last year. The internal funds available to corporations for investment increased
1.4%; this cash-flow measure fell 0.6% in the previous quarter.
--- GROSS DOMESTIC PRODUCT

Here are some of the major components of the gross domestic product expressed in seasonally adjusted annual
rates in billions of constant (1987) dollars:
4th Qtr. 1st Qtr. 1994 1995
GDP ............................. 5,433.8 5,470.0 less: inventory chng ........... 49.4 52.3 equals: final sales ............ 5,384.4
5,417.7
Components of Final Sales Personal Consumption ........... 3,629.6 3,646.1 Nonresidential Invest. ......... 708.2
742.3 Residential Invest. ............ 231.5 230.0 Net Exports .................... -107.1 -120.0 Gov't Purchases ................
922.2 919.4
Document j000000020011025dr6100c8h

U.S. Bonds Take Plunge On a Rumor
By ROBERT HURTADO
508 words
10 June 1995
The New York Times
NYTF
36
English
Prices of Treasury securities, already beaten back by the fading prospects that the Fed would ease credit, were
battered again yesterday, as traders speculated that the Japanese might curtail future purchases of United States
Government securities.
However, the Japanese rumor may have served as an excuse for investors to sell in a market that has run too far,
too fast on anticipation that the economy will continue to slow, analysts said. No one saw it as indicative of a
major new direction in the market.
Eugene J. Sherman, director of research for M. A. Schapiro & Company, a Wall Street investment bank, said he
was not buying the rumor, even though the Japanese hold a big part of a now record amount of Treasury
securities being held by foreign central banks and official institutions. "If they were to sell their holdings, there is
no other market or combination of markets that can absorb that magnitude of money," he said. The bond market
was ready to sell and found this a convenient reason to do so, he continued.
Rusty Vanneman, a senior fixed-income analyst for Technical Data in Boston, agreed, noting that prices have
risen 20 percent since the beginning of the year and have been in an upward trend since November. "Essentially
it is overbought and just looking for an excuse to sell," he said. "Fundamentally nothing has really changed to
alter the picture. Inflation is still in check, and -- simply put -- the market is overbought and overextended and is in
need of taking a breather."
The 30-year bond fell 119/32 of a percentage point yesterday, to a price of 11119/32 , sending its yield surging to
6.72 percent, from 6.61 percent on Thursday. It opened the week at 6.53 percent.
Matthew F. Alexy, chief market strategist at CS First Boston, said it was the biggest increase in the long bond's
yield since Sept. 16, 1994, when it rose 14 basis points, to 7.77 percent.
"I think we need to keep today in context with the powerful rally we've had in the market," Mr. Alexy said. The
rumor that Japanese investors were being asked to sell Treasury securities had a big impact on the market, he
noted, "but here again we have a situation were people have made significant profits and now are quick to defend
them."
Mr. Vanneman, who sees less volatility in the market in coming weeks, said, "We may see the market now move
back into a stable environment, with 30-year Treasury yields between 6.5 percent and 7 percent."
Prices of Treasury securities reacted little to the May Producer Price Index yesterday. Normally bond traders hate
inflation and might have been expected to react favorably to yesterday's report, which showed inflation braked at
the producer level. The index was unchanged from April, compared with estimates that it would rise by as much
as three-tenths of 1 percent.
Document NYTF000020050403dr6a00m55

MARKET WATCH; Orange County Gets A Message
By FLOYD NORRIS
651 words
18 June 1995
The New York Times
NYTF
1
English
What would you do if someone owed you a lot of money and showed no intention of paying it back? Would you
lend more money?
That's what municipal bond investors did last week, as they lent $295 million to bankrupt Orange County, Calif.,
which shows every intention of stiffing its previous lenders. Orange County, as you no doubt recall, went broke by
speculating on interest rates and is in bankruptcy court trying to weasel out of its obligations.
Looked at in isolation, the buyers last week got a pretty good deal. Orange County's latest bond issue was
insured by MBIA, the nation's largest municipal bond insurer, and locks up some revenue streams that might
otherwise have gone to pay the creditors that the county wants to avoid paying. The county paid a premium of
about one-quarter percentage point over normal rates.
But the lending also sent a message to the county, that money will be available to it in the future no matter what it
does about its past debts. Next week the county's voters are expected to turn down a proposal to raise sales
taxes by one-half of a percent. Without that, default looms.
That message should surprise no one. To be sure, the bond industry has been talking tough, threatening not to
lend any more money to Orange County, and maybe not to anyone in California, unless the state and the county
live up to their responsibilities. But this market's history is one of a total inability to act tough when confronted with
the most outrageous conduct. Never forget the Washington Public Power Supply System, a group of local utilities
that was able to borrow again only shortly after walking away from its obligations and getting the State Supreme
Court to approve the repudiation.
Still, it is breathtaking to see MBIA, a company that has the most to lose from a widespread repudiation of
obligations by municipalities, stepping up to guarantee the bonds of a deadbeat that is certainly wealthy enough
to pay but whose elected leaders see no reason why it should do so.
The money from this bond issue will go to pay off the local agencies, like school districts, whose money was
gambled away by the county. Neil Budnick, the MBIA man on the deal, explains that without the bond issue, a lot
of school districts would have defaulted, bringing "chaos that is in no one's interest." Mr. Budnick adds that MBIA
got four times its usual fee for insuring the Orange County deal, and says other bond insurers were bidding for the
business. Of course, Orange County has done wonders for MBIA's stock price, which has soared on the theory
that more bond buyers will want insured bonds.
Joe Mysak, the editor of Grant's Municipal Bond Observer, thinks this could lead to a historic reversal in which
revenue bonds, those backed by a project like a toll bridge, yield less than comparably rated general obligation
bonds. After all, those bonds have something that may be seized by angry creditors.
California tax-free muni bond mutual funds have seen some money flow out this year. But a lot is left, and it will
be invested. Some funds may, for a time, refuse to buy new Orange County paper, which will have to carry a
small extra yield, but then they will lag in the yield sweepstakes to those that do, and the money will go to the
buyers. If Orange County finds a way to stiff holders, it will not be punished by the markets.
When it comes to forgiving, only an indulgent mother can match the muni bond market.

Graph: "Some have Propered" shows change in the MBIA and S.& P. 500 since Orange County filed for
bankruptcy.
Document NYTF000020050403dr6i00pjf

Business Digest
649 words
10 June 1995
The New York Times
NYTF
English
Treasury Market Slumps For Third Day in a Row Prices of Treasuries took their worst beating since September
amid speculation that the Japanese might curtail future purchases of United States Government securities. The
yield on the 30-year bond rose to 6.72, up from 6.61 percent on Thursday and 6.53 percent at the beginning of
the week.
Some analysts said the rumor might have served as an excuse for investors to sell in a market that has run too
far, too fast on anticipation that the economy will continue to slow. No one saw the trading as a sign of a major
new direction in the market. [ Page 36. ] The stock market turned sour, with the Dow Jones industrial average
dropping 34.58 points to 4,423.99, as traders saw further evidence of an economic slowdown but without the
prospects of a cut in interest rates that would help lift sagging corporate earnings. The traders were so troubled
by the outlook that they ignored surprisingly good news on the inflation front. For the week the Dow was down
20.4 points. [ 37. ] Share prices plunged in Tokyo to the lowest level in nearly three years, amid discouragement
over the economic outlook and the Government's rescue plan for the banking industry. The Nikkei fell 398.12
points, or 2.6 percent, to 15,044.18, its lowest close since Aug. 19, 1992. The latest development to pull down
stocks was the release of the central bank's quarterly survey of Japanese business sentiment, which found that
businesses had become more optimistic, despite the strong yen. That seemed to depress the market, analysts
said, because it would deter the central bank from cutting interest rates to stimulate the economy. [ 34. ] The
dollar dropped sharply on a rumor that large Japanese investors were selling United States securities. It
recovered much of the loss as traders concluded the rumor was groundless. [ 42. ] Producer Prices Flat, With No
Sign of Inflation Inflation at the producer level disappeared again in May, reflecting the slowing economy, as price
declines for food and energy products offset increases for other types of finished goods, Government figures
showed. [ 36. ] Tokyo Rejects Iran Embargo The Japanese Government has told Washington it will refuse to join
the embargo on trade with Iran, undercutting the Administration's effort to isolate Teheran economically for its
sponsorship of terrorism and its pursuit of nuclear weapons. [ 1. ] Lotus's Employees Cautioned Lotus
Development has directed employees not to buy or sell shares in the company until the board has announced its
position on I.B.M.'s takeover offer. [ 35. ] Microsoft Damns the Torpedoes Despite a Justice Department
investigation, Microsoft said it had no intention of altering its plans for entering the computer on-line services
business in August. [ 35. ]
A Rockefeller Center Roadblock A Federal bankruptcy judge blocked an attempt by Rockefeller Center
Properties, the real estate investment trust that holds a $1.3 billion mortgage on Rockefeller Center, to wrest
control of the property from its bankrupt owners. [ 46. ] ITT Completes Sale of Units ITT said it had agreed to sell
the remaining portions of its ITT Financial subsidiary for about $5.5 billion, completing a process it announced in
September. [ 35. ] Steinway Agent Raided in Japan Raiders from Japan's Fair Trade Commission confiscated
documents at the Tokyo offices of the local sales agent of Steinway & Sons, on suspicion that the agent had
prevented rivals from importing pianos made by the New York company. [ 34. ] Books From Rock and Roll Brian
Roylance and his Genesis Publications are turning from facsimiles of classic novels and historic documents to
rock and roll, preparing to sell limited editions of books by George Harrison and Eric Clapton and about the
Rolling Stones and Jimi Hendrix. The books sell for hundreds of dollars each. [ 11. ]
Document NYTF000020050403dr6a00m8m

Global View: Japan's Trade Habits Are the Wrong Worry
By George Melloan
1,141 words
5 June 1995
J
A15
English
While the Clinton administration has been alienating trading partners all over the globe with its efforts to club
Japan into buying more U.S. stuff, the real problem of the U.S.-Japan economic relationship has been going
largely unnoticed by Washington. The real problem is that the Japanese financial system, with its intimate
connections to the U.S. capital market, is tottering and in some danger of collapse. The bad debt load of
Japanese banks is continuing to rise even though it has been five years since the Japanese stock market and
real-estate bubble went kaplooey.
This situation has been described in some detail in this newspaper in recent weeks. An editorial page article last
Thursday by a young Belgian economist, Jean-Michel Paul, cited one estimate that the volume of problem loans
in Japanese bank portfolios could rise to as high as one quarter of Japan's Gross Domestic Production (GDP).
That's a lot of shaky loans by any standard of financial unsoundness. The total has been rising because the
Japanese authorities have tried to sweep the problem under the rug, hoping for an economic upturn that isn't
materializing. Among other things, they have allowed banks to lend problem debtors the money to cover unpaid
interest, which of course simply expands the size of the bad loans.
Mr. Paul urges a banking bail-out sooner rather than later on the plausible grounds that the bad loan problem will
merely get worse if massive loan write-offs continue to be postponed. The Bank of Japan claims that its efforts at
monetary stimulation aren't working because of the phenomenon that American economists years ago dubbed
"pushing on a string." When an economy has suffered a deflationary shock of the type that hit Japan when stock
and real-estate prices took their nose dive, the money-creation process is affected as well. Money is created
primarily by the central bank furnishing reserves to banks in exchange for government bonds. But that process
breaks down when the banks are getting very little borrowing demand, as is the case now in Japan, and therefore
aren't in a mood to take on additional reserves. The sad state of their existing loan portfolios contributes to that
reluctance. Both borrowers and lenders are cautious about assuming new risks and obligations.
Efforts by the Ministry of Finance to bail out the banks and their creditors by pumping up the stock market also
have been notably unsuccessful. The Nikkei stock averages just don't want to climb, as Baring Brothers trader
Nick Leeson found out to his great sorrow when he bet his employers' bank on a Nikkei recovery early this year
and lost.
It is not easy to calculate in advance what the international repercussions might be of either a Japanese banking
crisis, or what is more likely, a massive government bail-out of Japanese banks. But there is no reason to believe
that those consequences would be good for the global financial system. A bail-out on the scale some analysts
envision, $345 billion, would be even larger than the U.S. savings and loan rescue, drawing on the resources of a
debilitated economy considerably smaller than that of the U.S. That could shift Japan sharply further in the
direction of becoming a borrower rather than creditor nation, removing yet another major source of fuel for the
world's capital markets. If the weakness in bond prices last year was partly the result of an overstretched global
supply of capital, as some analysts believe, then it is conceivable that a big Japanese bail-out could mean a rise
in borrowing costs around the globe once again. Another sharp slump in the bond markets like the one last year is
not something the world would welcome.
A banking collapse in Japan, although far less likely, would be even worse. The damage to capital markets would
then have a ripple effect as other banks and financial institutions would face delays in recovering on any credits
they have extended to Japanese banks. That too would restrict the world's access to credit. It's one thing for the
Japanese banks and the MOF to pretend that nonperforming loans are no problem, but it could be something else
again should the level of such debt grow so large that the banks become illiquid or even insolvent. If that
happens, there can be no more pretense.
The global capital market dangers that Japan poses have been disguised by several things. The sharp rise in the
yen against the dollar this year suggested that the Japanese economy is strong and the U.S. economy weak,
when precisely the opposite is true. A better explanation for this phenomenon is the trouble the Bank of Japan is
experiencing with money creation, whereas the U.S. is having no difficulty keeping the world bounteously
supplied with dollars. Adding further to the seeming anomalies is that, the weak dollar notwithstanding, the U.S.
stock market has been strong. That, however, is best explained by the fact that all those dollars sloshing around
in the global economy have to find a home and rising U.S. stocks have been a magnet for them. The sharp
change in the yen-dollar balance also suggests that some Japanese holders of dollars and dollar securities have
been turning them in to the Japanese central bank in exchange for yen. This may have been partly to cut dollar
losses and partly to obtain cash needed to run Japanese businesses.
The synergy between the U.S. and Japanese economies has been an important factor in global flows of trade and
capital for over a decade. The big U.S. trade deficit with Japan has been recycled into Japanese investments in
the U.S., particularly the Treasury bonds that finance the U.S. government's deficit. Contrary to the conventional
wisdom, this has been a far better deal for Americans than for the Japanese. The Japanese have, in effect, been
producing cars and electronic goods for American consumers in exchange for rapidly depreciating IOUs from the
U.S. government, which can as a result afford its generosity toward America's special interests.
Given all these circumstances, it was a strange time for the Clinton administration to pick a fight with the
Japanese, particularly over something so trivial as how many American-made auto parts the Japanese are
importing. If the administration goes through with its punitive duties on Japanese luxury cars (which it probably
won't), this alone won't put the Japanese economy in the tank. But it certainly will further jostle Tokyo's shaky
financial edifice. In the interconnected global economy of today, no national economy is an island. Trade warriors
take heed.
Document j000000020011025dr6500cuj

Two Exchanges Post Rises In Uncovered Short Sales
3,358 words
22 June 1995
The New York Times
NYTF
16
English
Open positions of short sales on the New York Stock Exchange rose nearly 2.7 percent in the month that ended
on June 15, the exchange said yesterday.
The increase in uncovered short sales -- in essence, bets that stock prices will fall -- came despite a continued
ascent by stocks that has pushed the Dow Jones industrial average to more than 4,500 points. Uncovered
short sales rose to 2.05 billion shares on the Big Board, up from 2 billion shares for the month that ended on May
15.
On the smaller American Stock Exchange, uncovered short sales increased as well, the exchange said
yesterday. Short interest rose 3.9 percent, to 107.1 million shares on June 15 from 103.1 million a month earlier.
In a short sale, investors borrow shares from a brokerage firm and sell them, hoping to buy them back later at a
lower price and earn a profit on the difference. If the share price rises, the short-seller faces a loss.
Uncovered short sales, which the exchanges measure once a month, are the total of shares that have been
borrowed and sold, but not yet covered by a purchase.
High short-interest positions have been considered an indicator of bearish sentiment among market investors.
But some analysts say large short interest positions are a positive sign, because short-sellers eventually have to
buy the shares back.
Still, short interest can also increase as a result of complex trading strategies involving options, futures and other
stock-related derivatives.
The largest short-interest position on the New York exchange was in shares of the Ford Motor Company, with an
open position of 37.5 million shares, down from 51.1 million a month earlier.
Largest Increases
Security Name 06/15/95 05/15/95 Change
+Micron Tech 11,422,117 5,901,373 5,520,744 N

Bank of New York 11,647,450 6,480,927 5,166,523 N
Kmart Corp 17,123,731 12,338,050 4,785,681 N
Stone Container Corp 12,827,251 8,168,711 4,658,540 N
Fleet Fin Group 21,107,718 16,539,578 4,568,140 N
+Schering-Plough Corp 7,218,172 3,032,220 4,185,952 N
Vitro S.A. (ADR) 4,579,403 1,088,412 3,490,991 N
Freeport-McMoran C&G 9,041,069 5,847,651 3,193,418 N
Loral Corp 3,782,518 627,306 3,155,212 N
News Corp (ADR) 13,245,173 10,334,606 2,910,567 N
Norwest Corp 9,873,388 7,135,719 2,737,669 N
Tel de Mexico ADR L 12,066,769 9,563,878 2,502,891 N
Abitibi-Price Inc. 6,702,637 4,239,609 2,463,028 N
+Thermo Electron Corp 7,173,673 4,727,136 2,446,537 N

Mylan Labs Inc 10,325,758 8,087,072 2,238,686 N
Grupo Tribasa (ADR) 8,110,585 5,940,246 2,170,339 N
Coram Healthcare 4,959,661 2,979,360 1,980,301 N
Potomac El Pwr Co 4,510,631 2,557,845 1,952,786 N
Fed Dept Stores 6,497,613 4,548,599 1,949,014 N
Canadian Occidental 4,745,892 2,927,370 1,818,522 A
Beverly Enterprises 5,553,678 3,768,167 1,785,511 N
Office Depot Inc 13,359,141 11,580,796 1,778,345 N
Morrison Knudsen Cp 6,699,260 5,107,951 1,591,309 N
Southern Co 6,817,057 5,227,097 1,589,960 N
Levitz Furniture Inc 2,695,048 1,147,555 1,547,493 N
<TABLE BORDER CELLPADDING=2> 
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Largest Decreases</TD> </TR> <TR> <TD
ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Security Name</TD> <TD ALIGN=RIGHT>06/15/95</TD>
<TD ALIGN=RIGHT>05/15/95</TD> <TD ALIGN=RIGHT>Change</TD> </TR> <TR> <TD ALIGN=LEFT></TD>
</TR> <TR> <TD ALIGN=LEFT>Ford Motor Co</TD> <TD ALIGN=RIGHT>37,472,703</TD> <TD
ALIGN=RIGHT>51,089,098</TD> <TD ALIGN=RIGHT>-13,616,395</TD> <TD ALIGN=RIGHT>N</TD> </TR>
<TR> <TD ALIGN=LEFT>Chrysler Corp</TD> <TD ALIGN=RIGHT>6,349,383</TD> <TD
<TR> <TD ALIGN=LEFT>Glaxo Wellcome Plc</TD> <TD ALIGN=RIGHT>8,003,130</TD> <TD
<TR> <TD ALIGN=LEFT>Chemical Banking </TD> <TD ALIGN=RIGHT>1,893,408</TD> <TD
<TR> <TD ALIGN=LEFT>Citicorp</TD> <TD ALIGN=RIGHT>22,820,905</TD> <TD
<TR> <TD ALIGN=LEFT> *Ivax Corp</TD> <TD ALIGN=RIGHT>4,144,342</TD> <TD
ALIGN=RIGHT>6,933,729</TD> <TD ALIGN=RIGHT>-2,789,387</TD> <TD ALIGN=RIGHT>A</TD> </TR>
<TR> <TD ALIGN=LEFT>Maderas Y Sinteticos</TD> <TD ALIGN=RIGHT> 8,500</TD> <TD
<TR> <TD ALIGN=LEFT>BankAmerica Corp </TD> <TD ALIGN=RIGHT>5,721,404</TD> <TD
<TR> <TD ALIGN=LEFT>Schwab (Charles) </TD> <TD ALIGN=RIGHT>4,796,322</TD> <TD
<TR> <TD ALIGN=LEFT>Broadway Stores Inc</TD> <TD ALIGN=RIGHT>3,194,920</TD> <TD
<TR> <TD ALIGN=LEFT>Apache Corp</TD> <TD ALIGN=RIGHT>3,535,353</TD> <TD
<TR> <TD ALIGN=LEFT>Intl Business Mach</TD> <TD ALIGN=RIGHT>8,149,120</TD> <TD
<TR> <TD ALIGN=LEFT>Dean Witter Discover</TD> <TD ALIGN=RIGHT> 690,726</TD> <TD
<TR> <TD ALIGN=LEFT>Pepsico Inc</TD> <TD ALIGN=RIGHT>8,013,779</TD> <TD
<TR> <TD ALIGN=LEFT>Allstate Corp</TD> <TD ALIGN=RIGHT>6,354,380</TD> <TD
<TR> <TD ALIGN=LEFT>EMC Corp</TD> <TD ALIGN=RIGHT>4,415,152</TD> <TD
<TR> <TD ALIGN=LEFT>Callaway Golf Co </TD> <TD ALIGN=RIGHT>17,127,538</TD> <TD
<TR> <TD ALIGN=LEFT>Pacificorp</TD> <TD ALIGN=RIGHT>3,468,629</TD> <TD
<TR> <TD ALIGN=LEFT>Philip Morris Cos.</TD> <TD ALIGN=RIGHT>4,805,271</TD> <TD
<TR> <TD ALIGN=LEFT>Ameridata Technologs</TD> <TD ALIGN=RIGHT> 240,547</TD> <TD
<TR> <TD ALIGN=LEFT>General Motors Corp</TD> <TD ALIGN=RIGHT>6,346,783</TD> <TD
<TR> <TD ALIGN=LEFT>Abbott Labs</TD> <TD ALIGN=RIGHT>3,211,125</TD> <TD

<TR> <TD ALIGN=LEFT>Officemax Inc</TD> <TD ALIGN=RIGHT> 366,270</TD> <TD
<TR> <TD ALIGN=LEFT>Agco Corporation </TD> <TD ALIGN=RIGHT>4,039,026</TD> <TD
<TR> <TD ALIGN=LEFT>Repsol S.A. (ADR) </TD> <TD ALIGN=RIGHT> 451,642</TD> <TD
</TABLE>
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Largest Positions</TD> </TR> <TR> <TD
</TR> <TR> <TD ALIGN=LEFT>Ford Motor Co</TD> <TD ALIGN=RIGHT>37,472,703</TD> <TD
<TR> <TD ALIGN=LEFT>Disney (Walt) Co </TD> <TD ALIGN=RIGHT>29,533,911</TD> <TD
ALIGN=RIGHT>28,332,362</TD> <TD ALIGN=RIGHT>1,201,549</TD> <TD ALIGN=RIGHT>N</TD> </TR>
<TR> <TD ALIGN=LEFT>Wal-Mart Stores Inc</TD> <TD ALIGN=RIGHT>27,318,387</TD> <TD
ALIGN=RIGHT>26,610,303</TD> <TD ALIGN=RIGHT> 708,084</TD> <TD ALIGN=RIGHT>N</TD> </TR>
<TR> <TD ALIGN=LEFT>Citicorp</TD> <TD ALIGN=RIGHT>22,820,905</TD> <TD
<TR> <TD ALIGN=LEFT>Columbia/HCA Hlthcar</TD> <TD ALIGN=RIGHT>21,146,139</TD> <TD
ALIGN=RIGHT>21,442,074</TD> <TD ALIGN=RIGHT> -295,935</TD> <TD ALIGN=RIGHT>N</TD> </TR>
<TR> <TD ALIGN=LEFT>Fleet Fin Group</TD> <TD ALIGN=RIGHT>21,107,718</TD> <TD
<TR> <TD ALIGN=LEFT>Callaway Golf Co </TD> <TD ALIGN=RIGHT>17,127,538</TD> <TD
<TR> <TD ALIGN=LEFT>Kmart Corp</TD> <TD ALIGN=RIGHT>17,123,731</TD> <TD
<TR> <TD ALIGN=LEFT>Merck & Co</TD> <TD ALIGN=RIGHT>15,125,904</TD> <TD
<TR> <TD ALIGN=LEFT>Foundation Health </TD> <TD ALIGN=RIGHT>14,108,398</TD> <TD
<TR> <TD ALIGN=LEFT>Office Depot Inc </TD> <TD ALIGN=RIGHT>13,359,141</TD> <TD
<TR> <TD ALIGN=LEFT>News Corp (ADR)</TD> <TD ALIGN=RIGHT>13,245,173</TD> <TD
<TR> <TD ALIGN=LEFT>Stone Container Corp</TD> <TD ALIGN=RIGHT>12,827,251</TD> <TD
<TR> <TD ALIGN=LEFT>Frontier Corporation</TD> <TD ALIGN=RIGHT>12,472,047</TD> <TD
<TR> <TD ALIGN=LEFT>General Electric Co</TD> <TD ALIGN=RIGHT>12,332,500</TD> <TD
<TR> <TD ALIGN=LEFT>Tel de Mexico ADR L</TD> <TD ALIGN=RIGHT>12,066,769</TD> <TD
<TR> <TD ALIGN=LEFT>AT&T Corp</TD> <TD ALIGN=RIGHT>12,058,680</TD> <TD
<TR> <TD ALIGN=LEFT>U.S. Surgical Corp</TD> <TD ALIGN=RIGHT>12,042,454</TD> <TD
<TR> <TD ALIGN=LEFT>Barrick Gold Corp </TD> <TD ALIGN=RIGHT>11,917,176</TD> <TD
<TR> <TD ALIGN=LEFT>Bank of New York </TD> <TD ALIGN=RIGHT>11,647,450</TD> <TD
<TR> <TD ALIGN=LEFT>+Micron Tech</TD> <TD ALIGN=RIGHT>11,422,117</TD> <TD
<TR> <TD ALIGN=LEFT>Unisys Corp</TD> <TD ALIGN=RIGHT>11,399,162</TD> <TD
<TR> <TD ALIGN=LEFT>Silicon Graphics </TD> <TD ALIGN=RIGHT>11,176,935</TD> <TD
<TR> <TD ALIGN=LEFT>Coca-Cola Co</TD> <TD ALIGN=RIGHT>10,432,100</TD> <TD
<TR> <TD ALIGN=LEFT>Mylan Labs Inc</TD> <TD ALIGN=RIGHT>10,325,758</TD> <TD
</TABLE>
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Largest Cover Ratios</TD> </TR> <TR> <TD
<TD ALIGN=RIGHT>Avg. Vol.</TD> <TD ALIGN=RIGHT>Days</TD> <TD ALIGN=RIGHT>Mkt</TD> </TR>
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Ionics Incorp.</TD> <TD
ALIGN=RIGHT>1,947,680</TD> <TD ALIGN=RIGHT> 33,783</TD> <TD ALIGN=RIGHT> 58</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Ipalco Enterprises</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Dimon Incorporated</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>L.A. Gear Inc.</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Abitibi-Price Inc.</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Coleman Company</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Domtar Inc.</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Nevada Pwr Co</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Biocraft Labs Inc </TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Legg Mason Inc</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Lomas Fin Corp</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>LCI International </TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Delmarva Pwr & Lt </TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Frontier Corporation</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Foundation Health </TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Solectron Corp</TD> <TD
ALIGN=RIGHT>8,446,601</TD> <TD ALIGN=RIGHT> 187,916</TD> <TD ALIGN=RIGHT>45</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>IRT Property Co</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Chock Full O'Nuts </TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Coeur d'Alene Mines</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>U.S. Surgical Corp</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Alcatel Alsthom-ADS</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Symbol Technologies</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>+Thermo Electron Corp</TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Fruehauf Trailer </TD> <TD
ALIGN=RIGHT>N</TD> </TR> <TR> <TD ALIGN=LEFT>Catellus Develop </TD> <TD
ALIGN=RIGHT>N</TD> </TR> </TABLE>
+ Stock split. * (American Stock Exchange only.)

Document NYTF000020050403dr6m00qvr

Budget Predictions by Clinton, CBO Vary Because of Different Assumptions
By David Wessel
1,046 words
23 June 1995
J
A7
English
WASHINGTON -- Would President Clinton's plan to balance the budget actually balance it by 2005?
Mr. Clinton says yes. But the Congressional Budget Office, now held in high regard by Republicans who once
criticized it, says Mr. Clinton's plan would leave a deficit of $209 billion in 2005, equal to 1.7% of the nation's total
output.
Here's an explanation.
Q. How can the White House and CBO look at the same budget proposal and come to such different
conclusions?
A. The two sets of bean-counters use different starting points, known as baselines. The White House projections
show a substantially smaller deficit over the next decade so it doesn't have to cut spending as much as
Republicans, who use the CBO's more pessimistic forecast. Without any change in spending or tax policies, the
White House says the deficit would be $266 billion in 2005; the CBO figures it would be $422 billion.
Q. What does this have to do with evaluating the Clinton plan?
A. Budget analysts estimate how much money a particular set of proposals would save; the sum is then
subtracted from the estimated deficit. The White House and CBO don't have major disagreements over how much
money Mr. Clinton's still somewhat sketchy proposals would save. In 2005, for instance, the White House says
the Clinton plan would reduce the deficit by $284 billion from projected levels; CBO figures $246 billion. Most of
the gap has to do with different guesses about what interest rates would do if Mr. Clinton's plan were adopted.
Q. Does any of this matter?
A. If Mr. Clinton and congressional Republicans are ever to negotiate a way to eliminate the deficit, they first must
agree on a common road map. If the politicians are so inclined, technicians likely could reach a compromise
within a few days. The credibility of any deficit-reduction program in financial markets depends on using
reasonable economic and spending projections. But arguments over forecasts often are used to divert attention
from tougher issues, such as how to hold down Medicare costs or what programs to eliminate. "You can lay in
front of you any set of assumptions or projections that you want, but you still have to come back and make the
hard choices," says White House spokesman Michael McCurry.
Q. What accounts for the different starting points?
A. For one thing, the White House sees faster economic growth and higher inflation over the next decade. That
means more tax revenues and smaller deficits. The White House sees the economy expanding 2.4% a year; and
puts inflation, measured by the GDP deflator, at about 3% a year after the turn of the century. CBO sees 2.3%
growth and 2.8% inflation. So, before accounting for any changes in taxes, the White House expects federal
revenues in 2005 will be $67 billion greater than the CBO does.
Q. Who's right?
A. Neither side. No one can see accurately that far into the future. Both guesses, however, are in line with private
forecasts and are more conservative than some. A recent survey of 59 economic forecasters by the Federal

Reserve Bank of Philadelphia, for instance, found the average prediction was that the economy will grow at an
average annual rate of 2.6% over the next decade -- more than either the White House or CBO projects.
Q. What about health-care costs?
A. That's the other big difference between the White House and CBO. "Although CBO believes that the growth of
these programs has slowed from the extremely high rates of recent years, it is not quite as optimistic as the
administration," says CBO Director June O'Neill. Both predict that Medicare, the federal program for the elderly,
and Medicaid, the federal-state program for the poor, will grow somewhere between 9% and 10% a year unless
the government does something. The White House figures Medicare and Medicaid combined would cost $604
billion in 2005. CBO predicts $656 billion. For Medicare, the administration forecasts a faster drop in spending on
home health care and skilled nursing facilities. On Medicaid, the administration says it uses more up-to-date
information to gauge current trends. Both administration and CBO projections will be updated this summer.
Q. How do interest rates figure in all of this?
A. With surprisingly little controversy -- and little evidence -- both the administration and CBO have agreed that
adopting a plan to balance the budget will prompt a sharp drop in long-term interest rates and save the federal
government billions of dollars on its interest tab.
CBO figures the yield on 10-year Treasury notes would average 6.7% over the decade if no steps are taken but
would drop to 5.1% if a plan to wipe out the deficit by 2002 is adopted. The House of Representatives is counting
on that savings to reach its balanced-budget goal while cutting taxes. The Senate passed a plan to balance the
budget without relying on such savings but says it would use the savings from an anticipated drop in interest rates
to finance a tax cut.
Despite reservations of some advisers, Mr. Clinton is counting on a similar-sized "fiscal dividend" to wipe out the
deficit while simultaneously cutting taxes. CBO says the Clinton plan likely would result in "a modest drop" in
interest rates even though it wouldn't eliminate the deficit. But CBO didn't count this in evaluating his plan
"because of the uncertainties involved."
Q. Is either side using figures outside of the range that private forecasters use?
A. All sides expect changes in the way the consumer price index is calculated to reduce that important inflation
gauge; that, in turn, would reduce government spending on benefits that are tied to changes in the CPI. The
administration assumes a drop of one-tenth of a percentage point in the CPI beginning in 1999. Taking the advice
of the CBO, the Senate assumes a two-tenths drop beginning in 1998. But with no apparent foundation, the
House assumes a six-tenths of a percentage point drop beginning in 1999.
Document j000000020011025dr6n00dj2

National Desk; A
Doubts Voiced By Greenspan On a Rate Cut
By KEITH BRADSHER
1,465 words
21 June 1995
The New York Times
NYTF
1
English
In the strongest statement of his intentions since economic growth began to stall earlier this year, Alan
Greenspan, the chairman of the Federal Reserve, indicated last night that he was reluctant to cut short-term
interest rates right away despite an increased risk of a mild recession.
Speaking to the Economic Club of New York, Mr. Greenspan said it was uncertain whether the country would slip
into a recession in the next few months. But in an open acknowledgment of the new constraints imposed by
currency markets, he said it would be a mistake to stimulate business activity by lowering rates if that led
investors to pull money out of the United States, weakening an already shaky dollar.
Mr. Greenspan left open the possibility of a cut in interest rates later this year if more signs emerged that the
economy was heading into worse trouble or if Congress passed a budget that would significantly narrow the
Federal deficit. During a question-and-answer session after the speech, Mr. Greenspan said that he detected an
easing of the inflation pressures that prompted the Federal Reserve to begin raising interest rates last year.
The chairman said current interest rate policies were under review in light of the economy's weakness, and he
hinted at possibly vigorous debate within the Federal Reserve committee that sets short-term rates; that panel is
scheduled to meet on July 5 and 6.
A few members of the panel, including Alan S. Blinder, the vice chairman of the Federal Reserve Board, have
publicly expressed concern that the economy is now in considerably worse shape than they had expected it
would be after seven rate increases during the 12-month period that ended on Feb. 1. Still, Mr. Greenspan is
widely thought to have the influence to insure that short-term rates will fall only if he wants them to.
"Of one thing I am certain: our Federal Open Market Committee meeting in a couple of weeks will be most
engaging," Mr. Greenspan said. "I am also confident that the consideration given to the stance of policy will be in
the context of our longer-term goal of price stability. A consistently disciplined monetary policy is what our global
financial system increasingly requires and rewards."
Mr. Greenspan's remarks on the growing force of international currency markets represented a break from
decades of Federal Reserve policy, in which domestic considerations were given primacy, at least in public.
Mr. Greenspan, in his speech, discussed how the increased flows of money across national borders had made it
harder for any central bank -- even the Federal Reserve -- to avoid the kind of swift retribution suffered by
countries, like Mexico, that are seen as pursuing reckless economic policies.
"While there are many policy considerations that arise as a consequence of the rapidly expanding global financial
system, the most important is the necessity of maintaining stability in the prices of goods and services and
confidence in domestic financial markets," he said. "Failure to do so is apt to exact far greater consequences as
a result of cross-border capital movements than those which might have prevailed a generation ago."
In afternoon trading today in Tokyo, the dollar fell slightly as traders said they had trouble drawing conclusions
from news service reports of Mr. Greenspan's comments. During night trading on the Chicago Board of Trade,
bond future prices climbed as traders bet that Mr. Greenspan might yet cut rates soon.
The Federal Reserve chairman's resistance to reducing short-term interest rates is likely to disappoint both the
Clinton Administration and the financial markets.
Because changes in interest rates affect the pace of economic growth 6 to 18 months later, a rate cut in July
would be likely to stimulate the economy during the 1996 election year. Some Administration officials, particularly
the President's political advisers, had been hoping that Mr. Greenspan would cut rates soon to provide insurance
against an economic decline next year even if such a move meant accepting an extra risk of feeding inflation.
Leon Panetta, the White House chief of staff, said on June 11 that it would be helpful if the Federal Reserve
lowered interest rates soon. But Treasury Secretary Robert E. Rubin has strongly reminded his colleagues since
then that such remarks could be counterproductive if they convinced financial markets that the independence of
the Fed had been compromised and that inflation might be allowed to rise.
Whatever the complaints from the White House, they appeared to have made little impression on Mr. Greenspan.
During the question-and-answer period after his speech, he praised the Administration generally and Mr. Rubin in
particular for not pressing the independent central bank. "Our relationship with the Secretary of the Treasury and
his predecessor, Senator Bentsen, has been exemplary," he said.
Mr. Greenspan spoke last night at a dinner at the New York Hilton in midtown Manhattan attended by more than
1,000 corporate and financial leaders -- probably the central bank's single most important constituency. His
remarks appeared intended as an explanation to them of his reasons for postponing a cut in interest rates that
many traders and analysts in the stock and bond markets had started to take for granted.
When Mr. Greenspan, in Seattle on June 7, raised the possibility of a recession but emphasized the economy's
long-term health, stock and bond prices fell for three consecutive days as many investors were dismayed that a
cut in short-term interest rates seemed less likely. The markets then rose when Mr. Greenspan said in Basel,
Switzerland, on June 11 that the economic slowdown might turn into a mild recession, a comment widely
interpreted as making a rate cut more likely.
But in Seattle and Basel, Mr. Greenspan made only brief off-the-cuff comments. Yesterday he provided a detailed
picture of his thinking and specifically mentioned for the first time the coming meeting of the Open Market
Committee.
Mr. Greenspan said the current slowdown reflected an effort by companies to pare their inventories of unsold
goods, which have risen sharply this spring. But the economy's long-term health will depend on the pace at which
businesses, consumers and government actually buy goods, clearing the shelves and creating a demand for
more goods to be produced.
As he had in Seattle, Mr. Greenspan welcomed the decision by companies to cut production to reduce
inventories. If the stockpiles had continued to accumulate even as spending slowed, the economy might have
faced a more severe recession later, he said last evening.
"The process of slowing to a more sustainable pace has not been entirely smooth -- anyone who thought it would
be is not a very close student of economic history or human nature," he said. "It is difficult at this point to judge
with any confidence how these various forces will work themselves out in the period ahead."
The impact of economic demand abroad and of the Government's spending at home will affect how quickly
inventories return to more typical levels and how soon the economy resumes a faster pace of growth, Mr.
Greenspan said. Growth appears to be stagnating for many of the United States' biggest trading partners, notably
Japan, and that may reduce sales of American goods to these countries.
Mr. Greenspan spent most of his speech last night reviewing how the new techniques in communications and
trading have changed the international financial system. The same complex financial deals and computerized
trading that apparently allowed a single trader at the British investment house of Barings to lose almost $1 billion
earlier this year have also allowed investors to move vast sums to whatever country offers the highest returns on
investments with the lowest inflation.
All this has made a unilateral reduction in interest rates difficult for any country, even the United States, which has
traditionally been more insulated because of the sheer scale of its economy and the special status of the dollar in
currency markets. Although he did not elaborate, Mr. Greenspan's remarks suggested that the Fed might not cut
interest rates until after the Bundesbank of Germany had done so.
The German mark has emerged as the main rival to the dollar in international currency markets. Despite the
mark's rise this year, Bundesbank officials have been reluctant to cut rates because of concerns that this could
feed inflation in Germany.

During the late 1980's, the Reagan and Bush Administrations and the Federal Reserve were also worried about
the value of the dollar, and made repeated efforts to persuade the Bundesbank to cut rates. But the Fed avoided
public acknowledgment then of the importance of the dollar in its decision- making.
Document NYTF000020050403dr6l00q5g

...and Then There Were 2
By REED ABELSON
2,914 words
11 June 1995
The New York Times
NYTF
1
English
WASHINGTON -- SURELY, when Americans talk about the need to shrink government, this can't be what they
have in mind.
For the first time in its 61-year history, the Securities and Exchange Commission, the Government agency
responsible for safeguarding trillions of dollars of investors' money, may operate with only two commissioners,
both Democrats.
Set up in the aftermath of the 1929 stock market crash to restore faith in the nation's securities markets, the
commission was deliberately established as a bipartisan agency whose five voting members were to be selected
by the President and confirmed by the Senate. These men and women police the securities industry, voting on
whether to take enforcement actions against companies believed to have violated Federal securities laws. They
also determine the rules by which everyone involved in the nation's stock and bond markets must play.
But of late, the commission is a child of neglect, an odd status for one of the few Government agencies that
actually makes money -- lots of it, in fact. No one powerful has it in for the agency, but no one particularly cares
about it either. What's more, the White House, which already has a record of botching high-level appointments,
has its hands full, what with the crisis in Bosnia and the battle of the budget. So, unlike vacancies on the Supreme
Court, which all of Washington would be scrambling to help fill, the S.E.C. is making little progress filling the
openings for its $115,700-a-year commissioner jobs.
"It's a deplorable situation," said A. A. Sommer Jr. a former S.E.C. commissioner appointed by President Carter.
"The failure of the Administration to make timely appointments tends to signal the Administration doesn't consider
the commission important."
Two seats have been empty since the departures last year of Mary L. Schapiro and J. Carter Beese Jr. And
barring immediate intervention from the White House and Congress, the shortage of commissioners will become
more acute this month when Richard Y. Roberts, who was appointed as a Democrat but now considers himself a
Republican, is expected to step down.
That would leave only Arthur Levitt Jr., the commission's chairman for the last two years, and Steven M. H.
Wallman, a newcomer who is just learning the ropes, in place to conduct business. To avert total gridlock and
"preserve its flexibility" in the event its numbers dwindle even further, the agency changed its rules in April so that
one commissioner, rather than the customary three, could function as a quorum should it become necessary.
But the remaining commissioners are painfully aware that anything they tackle on their own could be challenged
in court later. "I'm hopeful that the process will develop to nominate and recommend to the Senate very, very
quickly," said Mr. Levitt. "I need and want commissioners."
A White House spokeswoman, Ginny Terzano, would not discuss candidates, but said the Administration was "in
the process of filling the vacancies." A spokesman for Senator Bob Dole, the Republican majority leader, said he
could not be reached on Friday.
AT least some Washington officials insist that nominations are imminent. But at the very least, the delays pose
some awkward problems for those who have to hold down the fort while the politicians deliberate. For instance,
the sixth floor of 450 Fifth Street in northwest Washington, where the commissioners could once be found

vigorously debating one issue or another, is eerily quiet these days. Because sunshine laws require that any
gathering of commissioners sufficient for a quorum be publicized in advance, Mr. Levitt and Mr. Wallman can't be
seen talking shop much at all.
And what to do, for instance, if they split down the middle on a crucial vote, as they are likely to do given their
different temperaments and agendas? Mr. Wallman is an intense corporate lawyer who favors easing the S.E.C.'s
filing requirements, while Mr. Levitt is a genial businessman who is more concerned with winning points with small
investors by cleaning up the municipal-bond business. They've already been said to have some dust-ups. "It's
become the incredible shrinking agency," said a former commissioner who insisted on anonymity.
The situation would almost be funny except the agency has so much on its plate. The mounting debate in
Congress over securities litigation reform, which would make it harder for individuals to sue companies, would
place more of the burden of investor protection on regulators. Mr. Levitt, a popular figure here, has come out
swinging against many of the proposals, but would be helped greatly if he had a Republican commissioner by his
side.
In coming months, the S.E.C. must also weigh in on such fundamental issues as how the nation's regulatory
framework applies to banks, insurers and securities firms as the barriers between their activities under the
Glass-Steagall Act erode. The agency is also expected to play a role in reviewing the operations of the country's
second-largest stock market, operated by the National Association of Securities Dealers. Its market-makers, the
firms that buy and sell over-the-counter securities, are under investigation by the Department of Justice for
possible violations of antitrust law.
"I think it is important for the commission, the people who work with the commission and the people the
commission regulates to know where it is headed," said Philip Feigin, the president of the North American
Securities Administrators Association, which represents state regulators. "For all Arthur Levitt's energy and the
like, it's still an incomplete vision."
Representative John D. Dingell, a Michigan Democrat, issued a similar warning last month in a letter he sent
President Clinton. "It will be very difficult for the commission to conduct routine business with only two
commissioners," the letter stated, "much less to make important policy decisions for our nation's financial
markets."
In essence, it chided the President for squandering an opportunity to shape an important Government agency:
"The new appointments which you must soon make will comprise the majority of members of the commission and
will in large part determine the course it wil follow over the next five years."
THE calming presence of the agency's commissioners would also be handy, to say the least, if the stock market
suddenly developed a bad case of nerves. With just two commissioners, both of whom have hectic travel
schedules, the agency could have no commissioner in Washington on a day when stocks plunged, a growing
possibility as the Dow Jones industrial average flirts with new records daily.
There's also little doubt the agency could use all the help it can get to fight its battles on Capitol Hill. Those
include a turf war over which regulatory body will be given the authority to monitor securities issued by banks or
insurers.
Then there's the struggle to keep its budget intact. Last year, the commission collected $588.2 million just in fees
it levies on companies that register with it, and it only cost $260.3 million to run, leaving taxpayers with a tidy
$327.9 million surplus. For all that, the Republican Senate, for example, held up the agency's budget last fall,
temporarily forcing the S.E.C. to cancel some investigations and make plans to shut down its electronic filing
system.
It's no wonder Mr. Levitt is feeling a bit underappreciated these days. A longtime Wall Street executive who
cofounded the brokerage firm that eventually became Shearson Brothers and later was acquired by Smith
Barney, he also headed the American Stock Exchange before Mr. Clinton asked him to join the S.E.C. Since his
arrival two years ago, Mr. Levitt has struggled to clean up the municipal-bond business and expand what
companies disclose to investors.
He is optimistic that the staffing problem will be remedied soon. But like most everyone else in Washington, he is
hard-pressed to explain why it has taken so long to replace the two commissioners who stepped down last year,
let alone deal with Mr. Roberts's imminent departure, which was announced a year and a half ago.

Ordinarily, there would be plenty of takers for such a prestigious job, despite the fact that top securities lawyers,
the most obvious candidates, can usually make several hundred thousand dollars more in private practice. "I can't
believe there's any dearth of qualified and interested candidates," said Ms. Schapiro, a former commissioner who
now runs the Commodity Futures Trading Commission.
But what has made the job a little less attractive, at least in the opinion of one securities lawyer, are new
conflict-of-interest rules requiring anyone who leaves the job to wait five years before doing business with the
agency.
A bigger hurdle by far, however, appears to be the White House's skittishness about mishandling another
high-level nomination. After being criticized for bungling the nominations of Zoe Baird for Attorney General and
Dr. Henry W. Foster for Surgeon General, to name just two of many, the process has become even slower as the
White House seems determined to head off another Republican attack.
Thus, for tactical reasons, even though President Clinton has the power to name one more Democrat to the
commission, he appears to be delaying until the Republicans come forward with a Republican name for him to
propose, so that the two can be considered in tandem.
BY most accounts, no one expects the White House to risk any political capital trying to fill the fifth seat on the
commission: it lapses next June anyway, and the Republicans seem to prefer waiting until 1997 when they might
have one of their own as President. "White House appointments tend to get all wrapped up in political subtleties,"
said James Doty, a former S.E.C. counsel who is now a lawyer for the Washington firm of Baker & Botts.
What has also struck many people formerly or currently involved with the commission, is that many of the names
that have surfaced as possibilities seem heavily motivated by a desire to win approval from an important
constituency or Washington ally, suggesting that President Clinton does not feel he can singlehandedly strongarm
his choice through a Republican Senate.
For instance, Ellen Seidman, a White House aide who once worked closely with Robert Rubin, the current
Treasury Secretary, is sometimes mentioned as a candidate and would presumably have Mr. Rubin's support.
Likewise, Brian Borders, the president of the Association of Publicly Traded Companies, an industry group that
enjoys broad backing from small business, was briefly considered a candidate.
In the current cutthroat climate in Washington, even people once regarded as shoo-ins like Dennis Shea, a key
aide to Senator Dole, have either removed themselves from consideration or been swallowed up by political
intrigue. The frontrunner for the Republican bid is now thought to be not Mr. Shea, but Norman S. Johnson, 64, a
Salt Lake City securities lawyer and one-time S.E.C. staff attorney. He is believed to have the support of Senators
Dole and Orrin Hatch, the Utah Republican.
As of last week, the White House was said to be settling on Isaac C. Hunt Jr., 57, the retiring dean of the law
school at the University of Akron in Ohio, as its nominee for the remaining Democratic seat. The first black to
graduate from the University of Virginia Law School, he, too, worked for a time as an S.E.C. staff attorney and
went on to serve on the Kerner Commission that investigated the 1967 race riots.
To be sure, a lean S.E.C. won't bring the securities markets to a halt. Other agencies, such as the commodities
futures commission, have made do with just two commissioners for periods of time. Mr. Levitt and Mr. Wallman
are both well-respected, and the agency is known for its strong and capable staff. "The public shouldn't worry that
the job isn't being done," said Ms. Schapiro. "It will weather this. Still, it's nice to have more hands on deck."
But even if the long-awaited list of names were announced tomorrow, it could take months to get through
Congress, and then the appointees would have to get up to speed. Other forces in Washington are also at work
that could set back any progress. For instance, though he strongly discourages such talk, Mr. Levitt's name is
being bandied about as a possible replacement for Ronald H. Brown as Secretary of Commerce should Mr.
Brown have to step down as a result of a likely investigation into his business dealings.
IN the meantime, the agency will have to make do with less than its full complement of commissioners. For
instance, sometimes, a commissioner simply needs to be on hand to assist with a breaking insider-trading case,
where it's necessary to convince a judge to freeze assets before they disappear.
It may also have trouble signing off on the bigger initiatives investors expect it to take. The S.E.C.'s general
counsel, Simon Lorne, himself said to be a possible candidate for a top job, believes that the agency acted well
within its authority when it amended its rules on quorums in April to insure that the agency could "take effective
action in the event, however unlikely, that there would be a period with only one commissioner in office."
But outside lawyers aren't so sure. Defense lawyers are already said to be delving into whether a decision
reached by just two commissioners, let alone one, would be legally binding. "The issue hasn't been resolved by
the courts, so nobody really knows the answer," said Harvey Pitt, a former S.E.C. counsel and lawyer with Fried,
Frank, Harris, Shriver & Jacobson.
More troubling, even if the S.E.C. can legally operate with just one or two commissioners, it does so at the risk of
its reputation. "The credibility and moral authority of the comission's actions and decisions are somewhat
hindered," said Mr. Pitt.
That is at least in part because the agency has had a long unblemished record of acting independently of the
commissioners' politics, as when it investigated possible securities violations by George W. Bush, the son of the
former President.
Besides insuring that both major political parties are represented, the whole point of having a five-member
commission, rather than an agency headed by an individual, such as the Food & Drug Administration or the Office
of the Comptroller, is the belief that five minds are better than one in making critical decisions. "I was made better
by my colleagues," explained Joseph A. Grundfest, a former commissioner.
Walking back to his office from lunch one afternoon a few days ago, Commissioner Roberts was stopped by a
colleague who asked whether he is still at the agency. "Thirty days," the commissioner replied with a smile. Is Mr.
Roberts the only one counting? Leading Contenders for Two Of the S.E.C. Vacancies. . .
NORMAN S. JOHNSON Age: 64 Current Job: Senior partner in the firm of Van Cott, Bagley, Cornwall &
McCarthy, Salt Lake City Political Party: Republican Education: San Jose (Calif.) State College, 1949. Brigham
Young Univ., 1956. Univ. of Utah Law School, 1959. Highlights -- S.E.C. Attorney in Salt Lake City, 1965-67 --
has served on a number of bar association committees, and as president of the Utah State Bar Association,
(1985-86) -- has written a number of articles on securities regulation, including: "Securities Law and Franchise
Agreement," 1981, and "The Dynamics of SEC Rule 2(e): A Crisis for the Bar," 1975. ISAAC C. HUNT, JR. Age:
57 Currect Job: Dean, Univ. of Akron Law School Political Party: Democrat Education: Fisk Univ., 1957. Univ. of
Virginia Law School, 1962 Highlights -- S.E.C. staff attorney, 1962-67 -- Dean of Antioch Law School, 1983-87 --
First black graduate from the Univ. of Virginia Law School -- Served on the Kerner Commission, 1967-68, which
investigated race riots in cities after the summer of 1967. -- Topics of recent speeches include, "How Do We
Make a Better Lawyer?" 1994, and "Where are Minority Law Professors?" 1989. . . . And Some of the Also-Rans
SHEILA BAIR Former acting chairwoman of the commodity Futures Trading Commission. SIMON LORNE S.E.C.
general counsel MARK GRIFFIN Utah state securities regulator JEAN GLEASON Attorney in the Washington firm
of Fulbright & Jaworski. DENNIS SHEA An aide to Senator Bob Dole ELLEN SEIDMAN An economic aide to the
White House
Photos: STAYING -- Arthur Levitt, left, named as chairman in July 1993, and Steven M.H. Wallman, right, a
lawyer who joined the Commission last July. Both are Democrats. GOING -- Richard Y. Roberts, a Democratic
appointee who now considers himself a Republican, is expected to leave later this month. GONE -- Mary L.
Schapiro, an independent, left last October when she was named chairwoman of the Commodity Futures Trading
Commission. GONE -- J. Carter Beese Jr., a Republican, left in November to go back to Alex. Brown, a Baltimore
brokerage firm. (Levitt photograph by Stephen Crowley/The New York Times; Roberts and Wallman courtesy of
the S.E.C.; montage by Jack Taromina/The New York Times)(pg. 1); For two years, Arthur Levitt has headed an
S.E.C. riddled by attrition. (Stephen Crowley)(pg. 11)
Document NYTF000020050403dr6b00nj6

Economy
Greenspan Sees `Little Growth' In 2nd Quarter --- Fed Chairman Still Avoids Any Hint of Rate Cut At July
Policy Meeting
By David Wessel
697 words
21 June 1995
J
A2
English
WASHINGTON -- Federal Reserve Chairman Alan Greenspan said the economy may be contracting, but didn't
shed much light on whether he is inclined to cut interest rates when Fed officials meet in early July.
There is "very little . . . growth" in the gross domestic product -- the value of all goods and services produced -- in
the current quarter ending June 30, Mr. Greenspan told the Senate Banking Committee. "It is a very low rate of
increase and it could be marginally negative," the Fed chairman said.
But that doesn't mean Mr. Greenspan is prescribing lower interest rates. The key issue for the Fed is whether,
despite all the recent disappointing data, it still expects the economy to snap back strongly this year; if so,
interestrate cuts won't be necessary.
In a speech last night at the Economic Club of New York, Mr. Greenspan said the Fed is "intensifying our normal
surveillance and analysis of ongoing developments to gauge whether [interest-rate] policy still is appropriately
positioned." That was as close as he came to suggesting he was thinking about lowering rates.
In a question-and-answer session afterward, Mr. Greenspan did say that "it has become increasingly clear in the
last month or two that underlying inflation pressures are easing." The Fed chairman acknowledged that consumer
prices are rising more rapidly this year than last, but attributed that to "the afterglow of a very significant economic
expansion which slowed down very dramatically this year." But when asked directly whether the Fed will cut
interest rates, Mr. Greenspan responded: "Yes and no."
Financial markets were cautious in advance of last night's speech. Stock prices finished mixed and bond prices
declined modestly.
In his speech, Mr. Greenspan repeated his recent statements that "incoming information . . . does suggest some
increased risk of a modest near-term recession," but that "the early onset of this process of moderation" has
"markedly reduced prospects for a more severe inventory-induced downturn later."
Mr. Greenspan said that the current slowdown, largely the result of the Fed's interest-rate increases last year, is
welcome in the central bank's quest for stable prices. The hope was that businesses would quickly cut production
to reduce inventories to levels compatible with slower growth. The risk is that this reduced production could
prompt business and consumers to pull back. "Movements in financial markets recently, along with ample credit
availability, should help support underlying demand going forward," Mr. Greenspan said. With characteristic
caution, he added: "Nonetheless, uncertainties abound."
By rule of thumb, it takes two quarters of negative growth to constitute a recession. And almost every postwar
economic expansion has been marred by at least one quarter in which the economy contracted. In the current
expansion, the U.S. economy has grown every quarter since the first quarter of 1991. To slow down the economy
and keep inflation in check, the Fed raised the short-term rates it controls to 6% from 3% between February 1994
and February 1995.
Some other Fed board members, including Vice Chairman Alan Blinder, have suggested that the economy is
deteriorating more rapidly than anticipated and that demand from businesses and consumers may be softening.
They appear to be advocating a prompt cut in short-term rates. From their public statements, some other Fed

bank presidents appear inclined to wait a while longer. Mr. Greenspan said he was sure the next meeting of the
Fed's policy committee, set for July 5 and 6, will be "most engaging."
Mr. Greenspan has enough influence within the Fed to sway the decision. He still hasn't sent a clear signal of his
intentions and isn't likely to do so.
Asked by Senate Banking Chairman Alfonse D'Amato (R., N.Y.) yesterday what economic indicators the Fed will
examine to decide whether to lower rates, Mr. Greenspan joked, "If I say something which you understand fully in
this regard, I probably made a mistake."
---
Fred R. Bleakley in New York contributed to this article.
Document j000000020011025dr6l00fix

CREDIT MARKETS; Bond Prices Move Higher On Jobless-Claims Report
By ROBERT HURTADO
809 words
23 June 1995
The New York Times
NYTF
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English
The Labor Department's report that more Americans than expected filed for jobless benefits last week sent bond
prices higher yesterday. Investors and dealers viewed the report as added proof of an econmic slowdown, raising
the likelihood that the Fed would cut interest rates.
The 30-year bond jumped nearly a full point in price -- 31/32 , to 1156/32 -- for a yield, which moves in the
opposite direction of the price, of 6.47 percent, down from 6.54 percent on Wednesday.
Jobless claims rose by 20,000, to 395,000, in the week ended June 17, and the claims numbers in the previous
June 10 report were revised up to 375,000 from 371,000.
Another factor in the rally, according to James Hale, fixed-income analyst with MMS International in San
Francisco, has been strong recent demand for corporate issues, which has allowed the rapid unwinding of hedge
positions.
Investment bankers who underwrite corporate bond issues initially have the new issue on their balance sheets, he
explained. Since the bonds are exposed to market fluctuations, the investment bankers hedge that exposure with
short positions in Treasury securities.
"So, of course, the next step when the underwriters do sell the corporate issue," he said, is to "unwind the hedge
positions by buying back Treasury securities." This, he said, has helped fuel the latest run-up in Treasury prices.
An offering by Cox Communications Inc., which is controlled by Cox Enterprises Inc. was well received by
investors yesterday, and the company increased the size of the deal by 19 percent, to $950 million, through the
CS First Boston Corporation. The Atlanta-based cable television company sold $425 million of five-year notes at a
price to yield 6.44 percent, or about 65 basis points more than a Treasury security with a comparable maturity;
$375 million of 10-year notes at a price to yield 6.89 percent, or 85 basis points over Treasury; and $150 million of
30-year bonds at a price to yield 7.68 percent, or about 115 basis points over the Treasury benchmark issue. A
basis point is one-hundredth of a percentage point.
Donald E. Maude, chief fixed-income strategist at Scotia McLeod U.S.A. Inc., characterized the jobless claims as
the key event to shape yesterday's market. "This was important because this is the survey period for the June
employment report due July 7, the day after the Federal Open Market Committee meets," he said, referring to the
Federal Reserve's policy-making panel.
"Basically, the level we're looking at is the highest jobless number since October 1992," he said. "And that would
imply only a modest increase in nonfarm payrolls, somewhere in the vicinity of 100,000. The bottom line for the
market is that it definitely puts into play the strong likelihood of an interest rate cut at the July meeting of the
F.O.M.C."
But the prospect of a July Fed easing, Mr. Maude said, could change quite a few times before the policy meeting.
Among the key data to be released before the meeting is held are those in the National Association of Purchasing
Management's report.
Mr. Maude said that the Fed's chairman, Alan Greenspan, "constantly refers to vendor performance and feels it is
a good measure of the health of the manufacturing sector as compared to the durable-goods reports, which are

usually volatile." The Commerce Department is scheduled to release the report on May's durable-goods orders
this morning.
Mr. Maude said the coming purchasing-management report could swing the vote in either direction. "If it weakens
significantly more, then a easing is almost certain," he said.
Traders said yesterday's Treasury auction of new one-year bills did not produce any surprises. The average yield
was 5.53 percent, down a basis point from last month's auction and the lowest since July 21, 1994, when it was
5.20 percent.
Following are the results of yesterday's Treasury auction of a new 52-week bill:
(000 omitted in dollar figures) Average Price . . . 94.722 Discounted Rate . . . 5.22% Coupon Yield . . . 5.53%
High Price . . . 94.742 Discounted Rate . . . 5.20% Coupon Yield . . . 5.50% Low Price . . . 94.712 Discounted
Rate . . . 5.23% Coupon Yield . . . 5.54% Accepted at low price . . . 65% Total applied for . . . $41,807,162
Accepted . . . $18,292,192 Noncompetitive . . . $886,912 The one-year bills mature on June 27, 1996.
Graphs: "Tax-Exempt Yields" shows average weekly yields for 20 general obligation bonds and 25 revenue
bonds, in percent from March-June, 1995. (Source: The Bond Buyer); "1-Year Treasury Bills" shows average
discounted rate in percent from March '94-June '95. (Source: Treasury Department)
Document NYTF000020050403dr6n00r1w

INVESTING IT; How Do the Bulls Think? With a Smile
By FLOYD NORRIS
541 words
11 June 1995
The New York Times
NYTF
5
English
It's been a long time since it was a good idea to be bearish on the American stock market. In fact, the market
has never before gone this long -- since 1990 -- without a single decline of 10 percent or more.
The following was written by a professional investor who is, as you might suspect after reading it, quite bearish
on the stock market. He has been, in his words, "around for more than one market cycle."
He has lately lost more than a little money through selling technology stocks short -- that is, betting that they will
decline. In fact, tech stocks have been market leaders.
The author titled it, "Things I've Learned in the Last Year." Whether for reasons of modesty or to avoid
humiliation, he does not want his name used. FLOYD NORRIS A STRONG economy is good for earnings, which
is good for stocks.
A weaker economy lowers interest rates, which is good for stocks.
Share repurchase programs shrink the available float, which is good for stocks.
New share issuance raises book value and infuses liquidity, which is good for stocks.
Acquisitions promise synergy, which is good for stocks.
Divestitures rid companies of losers, usually past acquisitions, which is good for stocks.
A weakening dollar increases our competitiveness, which is good for stocks.
A strengthening dollar would encourage foreign investment in the United States, which is good for stocks.
Capital gains tax cuts favor equity over debt, which is good for stocks.
No capital gains tax cuts help reduce the deficit (since no one ever cuts spending), which is good for stocks.
The collapse of Mexican and other developing markets induces American investors to invest their funds in the
United States, which is good for stocks.
Recovery in developing markets creates stability, which is good for stocks.
Trade conflicts with Japan show our resolve, which is good for stocks.
Resolution of trade conflicts shows unity, which is good for stocks.
Mutual fund investors, who historically have invested heavily at tops -- as in American and foreign bond funds,
biotech funds and emerging market funds -- will be correct in American equity funds, because this time is
different.
Mutual fund managers were right to retain the lowest cash reserves in 20 years at a time when stock yields are at
a 70-year low.

All-time high price-to-book values, which once were considered signs of market excess, now are deemed
irrelevant because huge write-offs have depressed book values. But it is O.K. to ignore the higher earnings that
stem from the absence of depreciation from the written-off assets, thereby artificially depressing reported
price-earnings ratios.
Fund managers have discovered the perpetual motion machine. Concentrating new investments in stocks one
already owns pushes up their price and enhances performance, thereby attracting new money that can be
invested in the same stocks, thereby pushing their prices still higher, etc.
The market always mysteriously rises at the end of the day.
Momentum is forever. More analysts recommend Intel at $115 than at $60.
Everyone will know when to sell, and there will be willing buyers at that time.
Drawing
Document NYTF000020050403dr6b00nkw

CREDIT MARKETS; Prices Retreat In Quiet Day After Gains On Tuesday
By ROBERT HURTADO
716 words
15 June 1995
The New York Times
NYTF
24
English
Prices of Treasury securities sagged yesterday in quiet trading, as some investors sold to consolidate the large
gains they had made in Tuesday's huge market advance.
Certainty that the Fed will ease sometime soon has given way to uncertainty as to whether it will act soon enough
to keep interest rates from rising, traders said.
Douglas Burtnick, senior fixed-income analyst for Technical Data in Boston, said, "The market has already priced
in a decent amount of Fed easing, so traders and investors are reluctant to push things much further before they
have clear confirmation that an easing is actually in the works."
The 30-year bond fell 12/32 , to a price of 11322/32 for a yield of 6.57 percent, up from 6.54 percent in the
previous session. Shorter-maturity bills were mixed, with the three-month issue unchanged at 5.43 percent and
the six-month maturity up 1 basis point, to 5.38 percent.
None of the economic data released yesterday had much impact on prices. April business inventories showed a
gain of eight-tenths of 1 percent, and first-quarter nonfarm productivity was revised to a gain of 2.7 percent
instead of the rise of seven-tenths of 1 percent previously reported.
Traders said that despite yesterday's drop, the market remained positive in tone. "There is only so far you can
take the market without concrete proof the Fed is going to ease," Astrid Adolfson said.
Carroll J. Delaney, director of research at Stires, O'Donnell & Company, said it was not easy for fund managers
and investors when markets go from overbought to oversold and back again in a few days.
Anthony Dwyer, chief market strategist at Josepthal, Lyon & Ross, said the outlook at present was for "a slow
growth economy, low inflation, and a low interest rate environment, which is favorable for returns on both stock
and bond investments."
He added, "I still have priced in a Fed easing down the road." He put it at "25 to 50 basis points," or a quarter to a
half percentage point.
Mr. Dwyer changed his asset allocations yesterday. "In January I took 15 percent out of cash and added it to
bonds," he said. "And now I believe that the bulk of the appreciation in the longer maturities is behind us, and
therefore, we took 15 percent out of bonds and added it to stocks because we think the lower interest rates since
January will help prevent the economy from moving into a recession." His current asset allocation includes 65
percent stocks, 20 percent bonds and 15 percent cash.
"From a yield standpoint bonds are still attractive," Mr. Dwyer said, "but I believe the best total return will be in
stocks. That's not to say I don't like bonds; if I didn't I wouldn't have any money in them."
Meanwhile, the corporate debt market, aided by the low interest rate environment, has become crowded with
borrowers. The Tennessee Valley Authority priced a $2 billion global bond issue yesterday through underwriters
led by Lehman Brothers International (Europe) and Deutsche Bank A.G. London.
Time Warner Inc. priced $500 million of 10-year noncallable notes through Morgan Stanley & Company. The
issue was given a 7.75 percent coupon and priced at 99.314 to yield 7.85 percent, or about 170 basis points more
than the Treasury's 10-year note. By late in the day yesterday the yield on the 10-year Treasury was 6.14
percent.
Underwriters said the issue was split rated, with Moody's Investors Service giving it a junk bond rating of Ba-1,
while Standard & Poor's Corporation gave it an investment grade of BBB-.
Time Warner joined dozens of borrowers, including Viacom Inc., Rockwell International and Eli Lilly & Company,
that have sold more than $50 billion of bonds since April to take advantage of a rally in Treasury bonds.
and 15-year participation certificates since March. Yields track changes in fixed-rate mortgages. (Source: Federal
Home Loan Mortgage Corp.)
Document NYTF000020050403dr6f00o5r

Bond Prices Retreat After Durables Data
By ROBERT HURTADO
525 words
24 June 1995
The New York Times
NYTF
36
English
Prices of Treasury securities retreated in quiet trading yesterday as a strong report on durable goods caused
traders to reassess the chances of a cut in short-term interest rates.
The 30-year bond fell 13/32 , to a price of 11425/32 for a yield of 6.49 percent, up from 6.47 percent on Thursday.
Shorter-maturity bill rates were also weaker, as were the intermediate-term notes.
Prices fell after the Commerce Department reported that orders for durable goods -- big-ticket items ranging from
air-conditioners to aircraft -- jumped 2.5 percent. The market had been expecting an increase of two-tenths to
seven-tenths of 1 percent.
The report suggested that the economy might not be slowing as sharply as previously thought, which could
forestall an expected cut in interest rates by the Fed when its policy makers next meet in early July.
But the durable goods report tends to be volatile from month to month. So while the stronger-than-expected
numbers may have put a dent in the case for a Fed cut in rates, they have not greatly damaged it. Traders say
that is why coming data will still be critical and as Alan Greenspan, the Fed chairman, noted recently, there are
still considerable uncertainties in the economy.
"The process of assessing and fine- tuning monetary policy, and ultimately the economy, is a complex and
gradual one," said Carroll J. Delaney, director of research at Stires, O'Donnell & Company. "The market's recent
meteoric rise, on the other hand, has been anything but complex and gradual. Sooner or later the piper must be
paid. We tend to think sooner."
But the market's view of Fed policy is not the only factor moving prices. Peter McTeague, a market analyst with
MCM Moneywatch, a market research and analysis firm in Boston, said quarter-end pressures to enhance money
managers' portfolio performance were helping to drive the market. Expectations about the Fed's next move, he
said, "are running wild and there's a real big chance of disappointment."
The market must also turn its attention next week to a new supply of two-year and five-year notes. The two-year
notes will be auctioned on Tuesday, and the five-year notes on Wednesday. In when-issued trading late
yesterday, the two-year notes were offered at a price to yield 5.57 percent and the five-year notes at a price to
yield 5.80 percent.
Rusty Vanneman, a senior fixed-income analyst with Technical Data in Boston, said the market was "just simply
overextended." He noted that the futures bond contract, which established a high of 116 in early June, reached
11530/32 yesterday.
"What this implies is that the market does not have enough gas to go beyond that level," he said. "And raises the
possibility of a double top, or a resistance level that will be a formidable obstacle in the future.
"From a technical standpoint the market is essentially trading in a range and coiling for its next big move."
Document NYTF000020050403dr6o00r3n

Economic Focus
TEXAS JOURNAL
As Energy Gains, So Does The Outlook for Houston
By Caleb Solomon and Laura Johannes
1,002 words
14 June 1995
J
Texas Journal
T1
English
Poor Houston. For four years now, it has limped along with meager growth, while most of the rest of the state
enjoyed boom times.
Well, pity Houston no more. Just as the most of the rest of the state is worrying about slowing down, Houston is
gaining ground. And the engine of growth is the same as it has been since World War II: energy.
"Houston is back to its old counter-cyclical ways," says Bill Gilmer, an economist at the Houston branch of the
Federal Reserve Bank. But then, that shouldn't be surprising: Despite the oil bust that hit Houston so hard in
1986, energy has continued to play a much bigger role in Houston's economy than in the economies of the state's
other major metropolitan areas.
As the accompanying table shows, from 1988 to 1990, Houston's job growth far outpaced the rest of the state's.
Much of that was due to increased chemical exports and a rebound in oil prices. Indeed, the catalyst for the last
national recession was the spike in oil prices in 1990 caused by Iraq's invasion of Kuwait. That year, Houston job
growth surged to 6%, while statewide job growth totaled only 3.7%.
But as oil prices plunged again, the Texas economy began a recovery that left Houston behind. Even last year,
Houston had just moderate job growth while the rest of Texas experienced an expansion it hadn't seen since the
good old days of the early 1980s.
Fast forward to the present, and the economies begin to shift again: Texas is slowing and Houston is picking up
steam. And the reason isn't hard to find: Although energy nowadays doesn't make up two-thirds of Houston's
output, as was the case just a few years ago, it still accounts for more than 50%, the Fed's Mr. Gilmer figures.
Still, the improvement isn't quite a carbon copy of the 1990 performance. This time, the biggest factor isn't oil and
gas exploration and production activity. It's chemicals.
Because of soaring demand world-wide for plastics and other petrochemical-based products, chemical prices
have surged, and a score or more plants are investing in new capacity-increasing equipment.
"Most people on the block have some little expansion they are looking at -- some not-so-little," says Earl
Armstrong, a partner at DeWitt & Co. Inc., a Houston-based consultant. "Generally the market is very, very good."
Houston benefits in two ways. Most obviously, there are the increased exports of petrochemicals from Houston. In
addition, though, billions of dollars of new chemical plants are planned for construction in Texas and around the
world. And Houston provides much of the engineering and construction work force that will design and build those
new facilities.
Just ask Tom Hammond, a group vice president in Houston for Jacobs Engineering Group Inc., which is based in
Pasadena, Calif. He's almost cavalierly optimistic about the chemical industry's prospects.
"If the [national] economy grows at only 2% to 3%, that may be of great concern to the politicians," Mr. Hammond
says. "But as long as the growth in the economy is more than zero, we expect the chemical industry to keep
spending."
M.W. Kellogg Co. of Houston, an engineering and construction subsidiary of Dallas's Dresser Industries Inc., says
it has hired 600 people over the past year in Houston, raising employment to 2,850, to handle the expansion in
the chemical industry.
"We have a huge backlog, and it is continuing to grow," says Ray Waters, a Kellogg spokesman. Mr. Waters adds
that the job growth is especially beneficial because it involves engineering positions that start at around $40,000 a
year.
Even the traditional exploration and production side of the oil business shows signs of recovery. Because of
strong world-wide demand, oil prices have recovered to around $20 a barrel, high enough to encourage
development activity. (The price was around $15.50 as recently as the end of last summer.) Overseas,
natural-gas prices are strong, and in the U.S. they've recovered somewhat from a disastrous winter.
That leads Charles Ofner, vice president of business development for Houston-based Reading & Bates Corp., an
international drilling company, to say: "Our outlook for the offshore drilling business is better than it has been in a
long time -- maybe ever."
Of Reading's 17 rigs, 15 are working. That's an 88% utilization rate, up from 75% last year. And Mr. Ofner
expects the other two rigs to be signed up for jobs by the end of the month.
A tightening supply of rigs, particulary for the most modern deep-water equipment, has caused daily contract
rates to soar to a starting rate of $60,000, up 50% from a year ago, says Tom Marsh, an analyst for
Houston-based Offshore Data Service Inc.
The energy sector's strength looks all the more dramatic -- and important -- because the rest of Houston's
economy isn't looking nearly as strong.
"The three major legs of our economy are energy, aerospace and health care," says M.L. "Luli" Heras, an
economic-development official for the Greater Houston Partnership.
But, Ms. Heras says, the city's enormous medical-center complex is suffering from the national effort to cut costs
-- although the major reductions may have already occurred. And the aerospace industry, represented by the
Johnson Space Center and nearby companies, has suffered a series of actual and threatened funding cuts.
But with the energy leg showing renewed strength, and with its effects rippling throughout the city, that may be
enough. It's enough, anyway, for Bill Rice, supervisor for economic analysis of Houston Lighting & Power Co.
Given the strength of the energy sector, he says, "we're pretty optimistic about the economy."
Document j000000020011025dr6e00d81

COMPANY NEWS; Stock Funds At $1 Trillion In May Assets
By FLOYD NORRIS
587 words
27 June 1995
The New York Times
NYTF
4
English
Mutual funds that invest primarily in stocks have topped $1 trillion in assets, only 27 months after first exceeding
$500 billion and just a decade after exceeding $100 billion.
The figures reflect two factors that have profoundly changed the American capital markets in recent years.
Investors have warmed greatly to stocks, and more and more of them have turned to mutual funds as their
primary way to invest.
The figures were reported yesterday by the Investment Company Institute, a mutual fund trade group. Fund
companies reported continued strong inflows into stock funds in June, especially for those funds that invest
primarily in American stocks.
"Like summer, investors are warming up to the equity market," said Joan Miller, a spokeswoman for State Street
Research & Management, a subsidiary of the Metropolitan Life Insurance Company. State Street Research
reported that net flows into its stock funds this month tripled May's level.
At T. Rowe Price Associates, the flow of cash into domestic stock funds was up 42 percent from May, said
Rowena Itchon, a spokeswoman. The company's science and technology fund snared 40 percent of the cash flow
into all of its stock funds.
But the big gains were not universal. Marilyn Morrison of Fidelity Investments said the flows into Fidelity's
domestic stock funds so far this month were a bit behind the May level. Fidelity's funds have taken in $1.8 billion
in assets. And Jack Sharry, a managing director of Putnam Investments, a subsidiary of the Marsh & McLennan
Companies, said his domestic stock funds did slightly worse in June than in May.
The figures from the Investment Company Institute showed that all equity funds had assets of $1.03 trillion at the
end of May, up from $989 billion a month earlier. The group said that such funds first topped $100 billion in May
1985 and first exceeded $500 billion in February 1993.
The group said domestic stock funds took in a net $7.1 billion in May, down from $8.6 billion the previous month
but still a strong figure. Part of the drop came in aggressive growth funds, which took in $1.7 billion in May, down
from $2.4 billion in April and the lowest monthly amount this year. Funds devoted entirely or primarily to foreign
stocks took in $1.2 billion in May, down from $2 billion the prior month.
The cash flow figures include sales and redemptions, as well as net transfers between different types of funds.
But they do not include reinvested dividends.
The professionals who run domestic stock funds grew a bit more cautious in May. By the end of the month, they
had 7 percent of their funds' assets in cash, up from the April figure of 6.8 percent, which had been the lowest
since 1978.
For bond funds, the good news was that funds devoted primarily to American bonds had a net cash inflow of $940
million in May, after seeing cash flow out in the previous two months. But several fund companies said bond fund
outflows resumed in June. The bond market's dramatic rally this year has stanched the outflow of money from
bond funds, but so far has not drawn back the large sums that were taken out during 1994, when bond prices fell
sharply.

Chart: "Rapid Growth" lists the first time stock fund assets exceeded each level. (Source: Investment Company
Institute)
Document NYTF000020050403dr6r00roq

Nasdaq Posts Rise of 0.5% In Uncovered Short Sales
3,213 words
27 June 1995
The New York Times
NYTF
20
English
Open positions of short sales on the Nasdaq market increased one-half of 1 percent in the month that ended
June 15, the exchange announced yesterday.
Uncovered short sales amounted to 837.5 million shares, compared with 833.5 million shares for the month that
ended on May 15. Open positions of short sales reflect the total number of shares sold short by Nasdaq
members and their customers.
In a short sale, an investor borrows stock from a brokerage firm and sells it, with the expectation that the price will
decline so that the borrowed shares can be replaced with shares bought at a lower price. But if the price of the
stock rises, the investor can suffer a loss.
Uncovered short sales, or those with open positions, are those shares that have been borrowed and sold, but not
yet covered by repurchases.
Large short interest positions have traditionally been considered a negative sign and an indication of bearish
sentiment. But many other factors now enter into short-selling because of complex strategies involving options,
futures and other derivatives.
The biggest short interest position on the Nasdaq market was in shares of American Power Conversion, with an
open position of 16 million shares, down from 16.5 million the previous monthly period.
Largest Increases
Security Name 06/15/95 05/15/95 Change
Nellcor Inc 3,732,983 84,066 3,648,917 T

US Bancorp Oregon 5,059,560 1,574,454 3,485,106 T
Broderbund Software 3,755,820 1,592,209 2,163,611 T
Sybase Inc 6,047,772 4,131,358 1,916,414 T
Charter One Finl Inc 1,775,984 156,437 1,619,547 T
Radius Inc 2,017,765 730,952 1,286,813 T
Quantum Cp 6,448,977 5,172,633 1,276,344 T
Intel Cp Wts 2,227,001 1,050,947 1,176,054 T
First Team Sports 1,434,329 279,431 1,154,898 T
Phycor Inc 1,569,247 456,585 1,112,662 T
Cephalon Inc 1,166,091 104,608 1,061,483 T
Iomega Cp 1,756,286 723,518 1,032,768 T
Republic Waste Inds 1,015,873 10,596 1,005,277 T
Sovereign Bancorp 1,988,417 991,470 996,947 T
Olympic Finl Ltd 3,136,289 2,148,364 987,925 T
Borland Intl Inc 3,655,831 2,696,988 958,843 T
VLSI Tech Inc 2,833,437 1,884,609 948,828 T
Oracle Systems Cp 5,406,513 4,492,585 913,928 T
Medisense Inc 1,372,934 499,942 872,992 T
Interactive Network 1,100,636 287,075 813,561 T
Advanced Tissue Sci 2,186,038 1,478,279 707,759 T
Tele Commun Inc Cl A 7,143,241 6,436,651 706,590 T
Respironics Inc 3,305,106 2,608,602 696,504 T
Comp Concepts Cp New 729,386 44,787 684,599
Integrated Silicon 1,004,338 335,525 668,813 T
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Largest Decreases</TD> </TR> <TR> <TD
</TR> <TR> <TD ALIGN=LEFT>Noble Drilling Cp</TD> <TD ALIGN=RIGHT>296,359</TD> <TD
ALIGN=RIGHT>4,136,917</TD> <TD ALIGN=RIGHT>-3,840,558</TD> <TD ALIGN=RIGHT>T</TD> </TR>
<TR> <TD ALIGN=LEFT>Intel Cp</TD> <TD ALIGN=RIGHT>6,212,187</TD> <TD
<TR> <TD ALIGN=LEFT>Microsoft Cp </TD> <TD ALIGN=RIGHT>6,320,031</TD> <TD
<TR> <TD ALIGN=LEFT>Dell Computer Cp</TD> <TD ALIGN=RIGHT>2,035,806</TD> <TD
<TR> <TD ALIGN=LEFT>LM Ericsson Tel ADR</TD> <TD ALIGN=RIGHT>1,296,811</TD> <TD
<TR> <TD ALIGN=LEFT>LDDS Commun Inc </TD> <TD ALIGN=RIGHT>3,985,843</TD> <TD
<TR> <TD ALIGN=LEFT>Casino Magic Cp </TD> <TD ALIGN=RIGHT>5,114,587</TD> <TD
<TR> <TD ALIGN=LEFT>Fritz Cos Inc </TD> <TD ALIGN=RIGHT>352,337</TD> <TD
<TR> <TD ALIGN=LEFT>Lotus Development Cp</TD> <TD ALIGN=RIGHT>1,378,984</TD> <TD
<TR> <TD ALIGN=LEFT>Telefonos De Mexico</TD> <TD ALIGN=RIGHT>132,610</TD> <TD
ALIGN=RIGHT>1,378,979</TD> <TD ALIGN=RIGHT>-1,246,369</TD> <TD ALIGN=RIGHT></TD> </TR> <TR>
<TD ALIGN=LEFT>Integrated Process</TD> <TD ALIGN=RIGHT>240,305</TD> <TD
<TR> <TD ALIGN=LEFT>Boston Chicken Inc</TD> <TD ALIGN=RIGHT>5,826,148</TD> <TD
<TR> <TD ALIGN=LEFT>Wang Labs Inc Del</TD> <TD ALIGN=RIGHT>580,933</TD> <TD
<TR> <TD ALIGN=LEFT>Amgen</TD> <TD ALIGN=RIGHT>2,656,553</TD> <TD
<TR> <TD ALIGN=LEFT>Ecogen Inc</TD> <TD ALIGN=RIGHT>640,770</TD> <TD
ALIGN=RIGHT>1,637,806</TD> <TD ALIGN=RIGHT>-997,036</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR>
<TD ALIGN=LEFT>Novell Inc</TD> <TD ALIGN=RIGHT>3,699,434</TD> <TD ALIGN=RIGHT>4,624,403</TD>
<TD ALIGN=RIGHT>-924,969</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Abbey
Healthcare Gp</TD> <TD ALIGN=RIGHT>776,359</TD> <TD ALIGN=RIGHT>1,680,965</TD> <TD
ALIGN=RIGHT>-904,606</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Whole Foods
Market</TD> <TD ALIGN=RIGHT>326,982</TD> <TD ALIGN=RIGHT>1,228,157</TD> <TD
ALIGN=RIGHT>-901,175</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Biocontrol Tech
Inc</TD> <TD ALIGN=RIGHT>1,214,762</TD> <TD ALIGN=RIGHT>2,090,286</TD> <TD
ALIGN=RIGHT>-875,524</TD> <TD ALIGN=RIGHT></TD> </TR> <TR> <TD ALIGN=LEFT>Cellstar Cp</TD>
<TD ALIGN=RIGHT>888,414</TD> <TD ALIGN=RIGHT>1,714,351</TD> <TD ALIGN=RIGHT>-825,937</TD>
<TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Cedar Group Inc </TD> <TD
ALIGN=RIGHT>589,271</TD> <TD ALIGN=RIGHT>1,401,775</TD> <TD ALIGN=RIGHT>-812,504</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>DSC Commun Cp </TD> <TD
ALIGN=RIGHT>3,920,817</TD> <TD ALIGN=RIGHT>4,715,519</TD> <TD ALIGN=RIGHT>-794,702</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Washington Mut Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Aura Systems Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>AST Research Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> </TABLE>

<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Largest Positions</TD> </TR> <TR> <TD
</TR> <TR> <TD ALIGN=LEFT>Amer Power Convers</TD> <TD ALIGN=RIGHT>16,017,033</TD> <TD
ALIGN=RIGHT>16,470,038</TD> <TD ALIGN=RIGHT>-453,005</TD> <TD ALIGN=RIGHT>T</TD> </TR>
<TR> <TD ALIGN=LEFT>Nextel Commun A </TD> <TD ALIGN=RIGHT>14,340,416</TD> <TD
ALIGN=RIGHT>13,690,901</TD> <TD ALIGN=RIGHT>649,515</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR>
<TD ALIGN=LEFT>America Online Inc</TD> <TD ALIGN=RIGHT>7,578,240</TD> <TD
<TD ALIGN=LEFT>Cisco Sys Inc </TD> <TD ALIGN=RIGHT>7,473,775</TD> <TD
<TD ALIGN=LEFT>Acclaim Entertainmnt</TD> <TD ALIGN=RIGHT>7,419,407</TD> <TD
<TD ALIGN=LEFT>Tele Commun Inc Cl A</TD> <TD ALIGN=RIGHT>7,143,241</TD> <TD
<TD ALIGN=LEFT>Aura Systems Inc</TD> <TD ALIGN=RIGHT>6,747,677</TD> <TD
<TD ALIGN=LEFT>MCI Comm Cp</TD> <TD ALIGN=RIGHT>6,612,181</TD> <TD
<TD ALIGN=LEFT>Quantum Cp</TD> <TD ALIGN=RIGHT>6,448,977</TD> <TD
ALIGN=RIGHT>5,172,633</TD> <TD ALIGN=RIGHT>1,276,344</TD> <TD ALIGN=RIGHT>T</TD> </TR>
<TR> <TD ALIGN=LEFT>Pyxis Cp</TD> <TD ALIGN=RIGHT>6,411,528</TD> <TD
<TD ALIGN=LEFT>Microsoft Cp </TD> <TD ALIGN=RIGHT>6,320,031</TD> <TD
<TR> <TD ALIGN=LEFT>Intel Cp</TD> <TD ALIGN=RIGHT>6,212,187</TD> <TD
<TR> <TD ALIGN=LEFT>Sybase Inc</TD> <TD ALIGN=RIGHT>6,047,772</TD> <TD
ALIGN=RIGHT>4,131,358</TD> <TD ALIGN=RIGHT>1,916,414</TD> <TD ALIGN=RIGHT>T</TD> </TR>
<TR> <TD ALIGN=LEFT>Calgene Inc</TD> <TD ALIGN=RIGHT>5,960,825</TD> <TD
<TD ALIGN=LEFT>Boston Chicken Inc</TD> <TD ALIGN=RIGHT>5,826,148</TD> <TD
<TR> <TD ALIGN=LEFT>Electronic Arts Inc</TD> <TD ALIGN=RIGHT>5,711,875</TD> <TD
<TD ALIGN=LEFT>Cott Cp</TD> <TD ALIGN=RIGHT>5,447,263</TD> <TD ALIGN=RIGHT>5,413,394</TD>
<TD ALIGN=RIGHT>33,869</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Oracle
Systems Cp</TD> <TD ALIGN=RIGHT>5,406,513</TD> <TD ALIGN=RIGHT>4,492,585</TD> <TD
ALIGN=RIGHT>913,928</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Casino Magic Cp
</TD> <TD ALIGN=RIGHT>5,114,587</TD> <TD ALIGN=RIGHT>6,746,178</TD> <TD
ALIGN=RIGHT>-1,631,591</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>US Bancorp
Oregon</TD> <TD ALIGN=RIGHT>5,059,560</TD> <TD ALIGN=RIGHT>1,574,454</TD> <TD
ALIGN=RIGHT>3,485,106</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Sunglass Hut
Intl</TD> <TD ALIGN=RIGHT>5,027,579</TD> <TD ALIGN=RIGHT>5,241,752</TD> <TD
ALIGN=RIGHT>-214,173</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Starbucks Cp
</TD> <TD ALIGN=RIGHT>4,839,543</TD> <TD ALIGN=RIGHT>4,982,097</TD> <TD
ALIGN=RIGHT>-142,554</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Michaels Stores
Inc</TD> <TD ALIGN=RIGHT>4,612,852</TD> <TD ALIGN=RIGHT>4,806,729</TD> <TD
ALIGN=RIGHT>-193,877</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Fastenal Co</TD>
<TD ALIGN=RIGHT>4,520,604</TD> <TD ALIGN=RIGHT>5,032,779</TD> <TD ALIGN=RIGHT>-512,175</TD>
<TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>ComcAst Cp Cl A Spcl</TD> <TD
ALIGN=RIGHT>4,436,638</TD> <TD ALIGN=RIGHT>4,342,976</TD> <TD ALIGN=RIGHT>93,662</TD> <TD
ALIGN=RIGHT>T</TD> </TR> </TABLE>
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Largest Cover Ratios</TD> </TR> <TR> <TD
<TD ALIGN=RIGHT>Avg. Vol.</TD> <TD ALIGN=RIGHT>Days</TD> <TD ALIGN=RIGHT>Mkt</TD> </TR>
<TR> <TD ALIGN=LEFT></TD> </TR> <TR> <TD ALIGN=LEFT>Cell Com Puerto Rico</TD> <TD
ALIGN=RIGHT>1,905,658</TD> <TD ALIGN=RIGHT>44,613</TD> <TD ALIGN=RIGHT> 43</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>TPI Enterprises </TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Gibson Greetings Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Southland Cp </TD> <TD
ALIGN=RIGHT></TD> </TR> <TR> <TD ALIGN=LEFT>Alliance Gaming Cp</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Telewest Commun ADR</TD> <TD
ALIGN=RIGHT>883,512</TD> <TD ALIGN=RIGHT>28,491</TD> <TD ALIGN=RIGHT> 31</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Corel Cp</TD> <TD ALIGN=RIGHT>2,345,265</TD>
<TD ALIGN=RIGHT>79,723</TD> <TD ALIGN=RIGHT> 29</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR>
<TD ALIGN=LEFT>J Baker Inc</TD> <TD ALIGN=RIGHT>1,036,023</TD> <TD ALIGN=RIGHT>37,015</TD>
<TD ALIGN=RIGHT> 28</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>First Commerce
Cp La</TD> <TD ALIGN=RIGHT>1,572,362</TD> <TD ALIGN=RIGHT>59,691</TD> <TD ALIGN=RIGHT>
26</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>People's Choice TV</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Discovery Zone Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Omega Environment</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Universal Elect Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Papa John'S Intl Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Rouse Co</TD> <TD ALIGN=RIGHT>1,397,234</TD>
<TD ALIGN=LEFT>Thomas Nelson Inc</TD> <TD ALIGN=RIGHT>1,061,347</TD> <TD
ALIGN=RIGHT>49,394</TD> <TD ALIGN=RIGHT> 21</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD
ALIGN=LEFT>Bell Sports Cp </TD> <TD ALIGN=RIGHT>1,155,594</TD> <TD ALIGN=RIGHT>60,767</TD>
<TD ALIGN=RIGHT> 19</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Copytele Inc </TD>
<TD ALIGN=RIGHT>1,388,993</TD> <TD ALIGN=RIGHT>71,896</TD> <TD ALIGN=RIGHT> 19</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Corp Express Inc</TD> <TD
ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>IHO P Cp</TD> <TD ALIGN=RIGHT>1,217,850</TD>
<TD ALIGN=LEFT>Summit Tech Inc </TD> <TD ALIGN=RIGHT>2,494,148</TD> <TD
ALIGN=RIGHT>129,694</TD> <TD ALIGN=RIGHT> 19</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD
ALIGN=LEFT>Veterinary Ctrs </TD> <TD ALIGN=RIGHT>645,385</TD> <TD ALIGN=RIGHT>33,963</TD> <TD
ALIGN=RIGHT> 19</TD> <TD ALIGN=RIGHT>T</TD> </TR> <TR> <TD ALIGN=LEFT>Irvine Sensors Cp</TD>
<TD ALIGN=RIGHT>784,585</TD> <TD ALIGN=RIGHT>43,937</TD> <TD ALIGN=RIGHT> 18</TD> <TD
ALIGN=RIGHT></TD> </TR> <TR> <TD ALIGN=LEFT>Fastenal Co</TD> <TD ALIGN=RIGHT>4,520,604</TD>
<TD ALIGN=LEFT>Landrys Seafood Rest</TD> <TD ALIGN=RIGHT>2,060,309</TD> <TD
ALIGN=RIGHT>113,627</TD> <TD ALIGN=RIGHT> 18</TD> <TD ALIGN=RIGHT>T</TD> </TR> </TABLE>
Document NYTF000020050403dr6r00rr0

I.B.M.'S BIG MOVE: THE INVESTORS; Winners in Lotus Deal Enjoy a Return of 37 to 1
By ANTHONY RAMIREZ
633 words
6 June 1995
The New York Times
NYTF
8
English
Every bidding war for large companies has its winners and losers, but there seem to be especially big ones in the
$3.3 billion offer by I.B.M. for Lotus Development.
Chief among the apparent winners are the people who bought Lotus stock -- or better still, options to buy Lotus
stock -- on Friday, when apparently no one, aside from I.B.M. insiders, knew that a deal was in the works.
The sharp operators who bought one particular option known as a put -- or the right to buy 100 shares of Lotus at
$40 each from now to June 16 -- acquired it for $56.25 on Friday and could have sold it for $2,100 yesterday.
The return in 96 hours for this option? More than $37 for every $1 invested.
The downside, as traders say, is that both the American Stock Exchange, where the Lotus options are traded,
and the Nasdaq market, where Lotus shares are traded, are reviewing the activity on Friday for possible referral
to the Government for investigation of illegal insider trading. I.B.M. had no immediate comment yesterday.
More clear-cut are the losers. They include mutual fund operators and Wall Street titans like Fidelity
Management, State Street Research and Merrill Lynch & Company, which together sold more than five million
shares of Lotus as recently as April, when Lotus looked like an especially poor performer. Those dumped shares
are now valued at more than $310 million.
The loss, at least on paper, by the Lotus eaters? At least $100 million.
The action started on Friday, when shares of Lotus rose $3.25, or about 11 percent, to $32.50. The trading
volume was quite heavy, with little news that could account for the increased interest.
After I.B.M. disclosed its surprise bid yesterday morning, shares of Lotus rose $28.9375, or 89 percent, to
$61.4375, even more than the I.B.M. bid of $60. Nearly 30 million Lotus shares were traded, compared with 3.8
million shares on Friday, which was itself several times the average daily trading volume this year.
There may be nothing nefarious in the stock and option activity on Friday. The Nasdaq composite index rose
sharply on Friday and there was strong interest in technology stocks of all sorts last week.
Lotus has also been the frequent subject of takeover rumors in recent years. A smart trader may have simply
interpreted the rise in its price on Friday as a prelude to an acquisition bid.
At least three big stockholders, the ones that sold Lotus shares, presumably did not see the bid coming.
Spokesmen for the companies said State Street, a unit of the Metropolitan Life Insurance Company, had sold
1,795,000 Lotus shares and Merrill Lynch 785,000 shares, as of March.
By far the biggest seller of Lotus shares, Fidelity, a unit of the FMR Corporation, remains one of the company's
biggest holders. From March 20, when Lotus filed its latest proxy statement, to April 30, the ending date for a
filing by Fidelity with the Securities and Exchange Commission, Fidelity sold 2,473,974 shares of Lotus. Fidelity,
the nation's largest family of mutual funds, still owns 4,320,000 shares.
The second-biggest seller of Lotus shares, State Street, seemed especially divided about the stock. State Street
still owns 1.7 million shares, as of March 30, keeping almost half its stake.
Paul Saperstone, a technology analyst at State Street, said some analysts and portfolio managers there were
adamant about selling the stock. But he had urged other portfolio managers to hold on to Lotus.
Document NYTF000020050402dr66005tv

The Outlook
Recession Holds Peril For These 3 Officials
By Alan Murray
945 words
5 June 1995
J
A1
English
WASHINGTON -- There is never a good time to have a recession. But for each of the three main players in
economic policy these days -- President Clinton, Federal Reserve Chairman Alan Greenspan and House Speaker
Newt Gingrich -- a recession now would hold special perils. Friday's economic figures make it clear the "recession
now" scenario can't be ruled out. Payrolls in May took their biggest plunge since the end of the last recession in
April 1991. And the government's index of leading indicators dropped for the third month in a row -- an occurence
economic mystics often see as a signal of recession.
Fed Chairman Greenspan remains sanguine that the economy will bounce back after a period of slow growth. So
do many other economists. The financial markets read the latest numbers as proof that the economy is headed
for the much hoped for "soft landing."
But the airplane metaphor has its limits. If pilots' vision were as bad as economists', Amtrak would be profitable.
Recessions are by definition surprises, seldom seen until they are underway. It is at least possible that one is
underway right now. And if so, the world inside the beltway will change significantly. Here's how:
SPEAKER GINGRICH: History will judge the Newt-onian revolution not by anything that happened in the first 100
days, but by what happens over the next six months. If his Republican troops fail to follow through on their
promises to reduce the size of government, their other accomplishments will fade in comparison.
So far, the Republicans in Congress have marched with surprising discipline and determination toward their fiscal
goal. Even cynical observers now think the nation may see an unprecedented cut in government spending this
year. But history suggests if a downturn hits, the troops will scatter. "One clear lesson of American politics seems
to be that it is much more difficult to cut spending in times of recession," says the Hoover Institution's John
Cogan, a veteran of Ronald Reagan's budget office.
That is partly because, despite frequent obituaries, the ideas of British economist John Maynard Keynes are not
dead. Like Salman Rushdie, they are only in hiding, appearing in public when it is safe. If a recession occurs,
plenty of voices will be heard arguing that a big cut in spending only makes our economic problems worse.
A recession also makes deep cuts in programs for the poor less palatable. "Get a job" may seem a fitting
response to those asking for a handout when unemployment is at 5.7%; it will be less so if the jobless rate climbs
to 8% or 9%.
CHAIRMAN GREENSPAN: Barring a recession, Mr. Greenspan probably is headed toward reappointment to a
third term as Fed chairman when his current term expires next March. That isn't because Mr. Clinton thinks he is
the best man for the job. He doesn't. Administration officials say the cozy relationship between the two that
existed in the first year of the Clinton presidency disappeared in the second. Like all Fed chairmen, Mr.
Greenspan found himself more welcome at the White House when he was cutting interest rates than when he
was raising them.
But the President and his advisers are smart enough to know there is a price to be paid for appointing a new Fed
chairman. Wall Street will be skeptical, even if the new chairman is one of their own -- Treasury Secretary Robert
Rubin, a former Goldman Sachs chairman, for instance. The financial markets will push, test and probe, just as
they did when Mr. Greenspan got the job in 1987, and could force the new chairman to pursue an even
tighter-fisted monetary policy during the election year than Mr. Greenspan would.

If a recession hits, however, that calculus changes. Mr. Clinton will need a scapegoat, and Mr. Greenspan will fit
the bill.
A cynic might assume Chairman Greenspan will be tempted to cut rates now, in an effort to ensure a recession
doesn't cut short his tenure. But don't count on that. Mr. Greenspan is convinced that a recession is unlikely. He
has his eye on his reputation in the history books as an inflation fighter. And he has a policy committee that limits
his ability to maneuver unilaterally. No rate cut is imminent, though more bad economic news could prompt a
reduction in July.
PRESIDENT CLINTON: Political economists have long believed that a president's chance for re-election is
heavily dependent on the economy's performance in the year or so before the election. So, a recession now could
assure a new president in 1996.
Of course, the link between the economy and politics has become more complicated in the past few years.
George Bush presided over a modest recovery in 1992, but lost anyway. Mr. Clinton enjoyed a robust economy in
1994, and his party was clobbered at the polls. That is partly because the wages of the average person, relative
to inflation, have remained depressed.
But while the link may have become more complicated, it hasn't disappeared. Whatever chance Mr. Clinton has of
winning re-election will certainly be diminished if a recession begins soon.
A footnote: Mr. Clinton's precarious situation does raise a question about the political wisdom of taking on Japan.
White House politicos calculated that a tough trade attack on Japan might score points in the car-making
Midwest. But if the issue isn't resolved soon, prospects of a trade war could cause turmoil in the financial
markets and possibly even help push a weakened economy over the brink.
Document j000000020011025dr6500cva

CREDIT MARKETS; Prices Mixed For Treasury Securities In Slow Day
By ROBERT HURTADO
706 words
7 June 1995
The New York Times
NYTF
20
English
Prices of Treasury securities were mixed yesterday, with bonds at times moving in tandem with the dollar and
other maturities slipping lower on raised doubts about how soon there might be a rate cut.
Trading was slower than normal, as some investors waited for Friday's producer price data for direction. The
30-year bond was up 6/32 , to a price of 11422/32 for a yield of 6.50 percent, down from 6.52 percent the
previous day. Meanwhile, shorter- maturity bills were mixed, and intermediate-term notes were down a bit.
Some analysts cite concern by dealers and traders about the market's ability to remain at these high price levels
without a quick Fed move to ease interest rates. They say people are looking for the second quarter to be soft,
and yesterday investors did receive more signs of a cooling economy that could keep inflation subdued.
Wholesale trade inventories built up in April, suggesting slackening demand that could lead to cutbacks in
production and economic growth. The Government said wholesale sales rose five-tenths of 1 percent in April,
while inventories for the month surged 1.2 percent. Both numbers were stronger than expected. That report along
with private forecasts that balancing the budget could further restrain the economy's growth rate, lifted bonds a
bit.
Congressional plans to close the budget gap could increase unemployment by 50 percent and tip the economy
into a prolonged contraction, the WEFA Group, an economic research firm in Bala-Cynwyd, Pa., said.
Charles Roden, managing director and head of fixed-income investing at Josephthal, Lyon & Ross, said that
yesterday for "the first time in days" the firm began getting queries from retail investors who were interested in
selling bond holdings. One reason, he said, is that bonds are now approaching the levels at which they were
bought, so investors "want some bids."
"As a portfolio manager, I've started to sell my low-coupon intermediate maturities," Mr. Roden continued, adding
that he was either staying with the cash or buying a limited number of higher-coupon Ginnie Maes. "I'm doing this
because interest rates have had a big run," Mr. Roden said. "I am talking now as a pure trader."
Mr. Roden said he had instructed his firm's traders to play close to the vest, implying that he does not want to be
overly exposed in the event of a sharp unexpected move in rates, in either direction, "but especially upwards."
The Johnson Redbook report on retail activity out in the afternoon showed a 1.8 percent gain for the first week of
June over the first week in May. That was considerably higher than the four-tenths of 1 percent gain reported last
week and was up 8 percent over the first week in June 1984.
That was a bit stronger than expected, Mr. Roden said, and some traders sold off, but the market managed to
close out on a better tone.
Carroll J. Delaney, managing director of Stires, O'Donnell & Company, said his firm still believed that Treasury
prices were far too expensive. Thus, he expects a serious correction over the near term. "The lack of upward
price movement will gradually encourage liquidation," Mr. Delaney said. "The best things in life are free, or at
least cheap, and Treasury securities are definitely not in that category at the moment."

Municipal bond prices, on the other hand, had a fair day, as money managers looking to reinvest money from
seasonal bond calls and payments showed good demand for yesterday's new issues. As a result, municipalities
were able to sell much of the day's $1.6 billion in new securities at yields below existing issues.
Municipals outperformed Treasury securities for a second day. The yield on a 10-year insured revenue bond fell
four basis points, to 5.01 percent, according to the PSA/ Bloomberg Municipal Bond Yield Table, which
measures yields on insured revenue bonds. A basis point is one-hundredth of a percentage point.
Document NYTF000020050402dr6700ad4

Enterprise
New Business Incorporations Reached Record in 1994 --- Corporate Restructuring Created Opportunities
for Specialized Services
By Udayan Gupta
788 words
6 June 1995
J
B2
English
New business incorporations reached a record last year-partly because of big company downsizing.
According to Dun & Bradstreet Corp., the number of businesses incorporating in the U.S. rose 5% to a record
741,657 in 1994. Along with the general growth of the economy, "the continued restructuring of large corporations
has created new opportunities for specialized business services, and has driven substantial gains in the number
of new incorporations during the past three years," said Joseph W. Duncan, vice president and corporate
economist of D&B.
Other factors also helped the South Atlantic region report the biggest increase in new incorporations last year
from the previous year -- an 8.3% rise to 226,524. "A lot of the growth we saw was centered in the manufacturing
sector in which the South Atlantic states excel," says Doug Handler, manager of econometric analysis for D&B.
"The resurgence of auto production and parts in North and South Carolina contributed greatly to the start-up
activity," he adds.
California and Massachusetts, rebounding from hard times, both reported large increases in business
incorporations. The figure rose 7% to 42,871 in California and 9.5% to 14,065 in Massachusetts. Both states
benefited from an increase in seed venture capital activity and a concerted effort by government agencies to steer
more contracts to newly formed businesses, officials say.
Connecticut and Rhode Island reported the greatest declines in business incorporations. Connecticut reported a
decline of 8.1% to 6,911. Rhode Island's total declined 7.2% to 2,503. "Defense cutbacks and high labor costs,
factors that plagued the economy in the early 1990s, continue to hurt the two states," explains Mr. Handler.
Nationally, legal changes affected new incorporations. "We've made it easier for people to start businesses," says
David Brophy, a University of Michigan authority on entrepreneurship. Federal legislation that has streamlined
business formation in the last few years is encouraging more people to incorporate, he adds. Women coming into
the entrepreneurial economy and a wave of outplacements also are adding to the number of newly incorporated
businesses, Prof. Brophy says.
Still, corporate streamlining and downsizing offered some the greatest business opportunities, entrepreneurs say.
Timothy Scala and Kenneth Jingozian last year started Treasury Resources Consulting and Advising Inc., in New
York to help banks better manage investment risk. The two former bank executives now help banks train their
employees about new investment products and the inherent risks. They also work with law and accounting firms
to analyze some of the problems that have emerged from poor investment decisions.
Banks and other institutions can't devote the resources to keep abreast of changes in the increasingly volatile
and complex financial markets, Mr. Scala says. And because many of these institutions have drastically cut
back employee training, "we have become more necessary," he says.
Edmund Burton, a New York dentist, also is taking advantage of the wave of cost-cutting that has reached the
business environment. His start-up, Patient Safety Products Inc., provides a system to help hospitals devise ways
to reduce secondary infections, a major health-care problem.

Dr. Burton's company analyzes infection data at hospitals and helps them create disinfectant systems that require
minimal labor. The present environment of cost-controls and financial austerity creates a demand for this,
particularly as many hospitals don't have the resources to do the work themselves, Dr. Burton says.
Still, the record incorporation numbers can be confusing, experts warn. "Don't confuse new incorporations with
new business activity," warns Prof. Brophy of the University of Michigan. Many incorporations involve outplaced
executives and independent contractors who now find it more expedient to incorporate than to declare
themselves self-employed.
It is difficult to figure "how much new business incorporations measure job displacement and how much they
measure new job creation," Mr. Handler of D&B concedes. Nonetheless, the record numbers for 1994 and "the
fact that we've had over two million new incorporations since 1992 suggests that many entrepreneurs are
profitably tackling the business environment," he says.
--- Active States
States with most new-business incorporations in 1994
NEW-BUSINESS % CHANGE STATE INCORPORATIONS FROM 1993
Florida
93,388 + 6.1% New York
70,689 + 1.2 Delaware
44,762 +14.4 California 42,871* + 7.0 Texas
37,362 + 7.0 Illinois
34,287 + 4.7 New Jersey 30,869 + 4.3 Michigan
30,374 + 5.5 Georgia
24,707 + 7.0 Ohio
20,013 - 0.3
*Estimate
Source: Dun & Bradstreet Corp.
Document j000000020011025dr6600ddj

Last-Ditch Loans: Bankrupts Who Drive Are Lucrative Market To a Growing Lender --- Credit Acceptance
Corp. Uses High Rates of Interest And Plenty of Repo Men --- A Deal for Used-Car Dealers
By Michael Selz
2,548 words
28 June 1995
J
A1
English
SOUTHFIELD, Mich. -- It is only midafternoon, but Credit Acceptance Corp. already has heard from more than
2,200 beleaguered borrowers.
As banks of employees take notes on computers, hundreds of customers a day explain why they can't pay this
month. Many others want to know what will happen to their cars, which the company has repossessed. Still others
are frantic because Credit Acceptance has garnisheed their wages.
It is a lending world J.P. Morgan would never recognize. Most of the customers already have defaulted on other
debts or filed for personal bankruptcy. Most have turned to Credit Acceptance because no one else will lend them
money. Yet Credit Acceptance approves almost every application it gets.
Charging interest rates of up to 30% a year where usury laws permit, Credit Acceptance mostly helps high-risk
borrowers buy high-mileage cars. The borrowers often pay twice or more what the cars cost the dealers. Some
decline to buy warranty contracts and end up owing money on broken-down vehicles they can't afford to fix.
Lending to this underclass of consumers has become a thriving business for entrepreneurs such as Donald A.
Foss, Credit Acceptance's 50-year-old founder. Since the company went public three years ago, its earnings have
doubled and its stock price is up tenfold. Credit Acceptance doesn't originate loans but purchases them from
used-car dealers.
Critics say lenders like Credit Acceptance foster financial irresponsibility when they show that even declaring
bankruptcy won't keep someone from getting a car loan. But typical borrowers, such as Marianne Thomas, say
they have little choice.
Mrs. Thomas, a German immigrant and 48-year-old mother of five, had defaulted on her debts in 1991 following a
divorce. When she bought a seven-year-old Mercury Topaz in 1993 with Credit Acceptance financing, she says
she thought its $2,300 price was high. The loan's interest rate of more than 20% also seemed steep. But, she
says, "I was desperate for a car to get to my job." She earned $5 an hour as an aide at a home for the mentally
retarded near her residence in Steubenville, Ohio.
The car overheated and stalled on the highway the day she bought it, Mrs. Thomas says. A friend, now her
husband, repaired it. But eight months and more breakdowns later, she was behind on her payments. A spinal
injury suffered in an auto accident kept her from working, she says.
One morning last July, Mrs. Thomas awoke to find the car had been repossessed. In November, Credit
Acceptance sold it at auction for $525. The company claims she still owes $677, although she says it hasn't been
trying to collect it.
Few enterprises go after such borrowers more zealously than Credit Acceptance. Some critics assail its
aggressive collection methods. Others question the company's low level of reserves against loan defaults and the
way it claims to protect itself against them -- a two-step system of initially paying car dealers for only part of loans
it buys from them, and then pooling these loans.
But the methods seem to work. Although intensifying competition for high-risk borrowers has prompted talk of an
industry shakeout, Credit Acceptance last year earned $20.6 million on revenue of $54.5 million. Its portfolio of

high-risk used-car loans has tripled over two years to $553 million, the company has a stock-market value of
more than $900 million, and Mr. Foss's stake alone is worth more than $550 million.
This is heady success for the son of a used-car dealer who took a job selling paint instead of going to college. In
1967, Mr. Foss opened his own used-car lot on Detroit's dealer-heavy Livernois Avenue. He sold his first car, a
1959 Sunbeam convertible, for $100 down and a promise from the customer to pay the balance at $25 a week.
"I'm still waiting for the first payment," he says.
As the business grew (he now owns about a dozen dealerships), the lots began spending as much time arranging
financing as making sales. In 1972, Mr. Foss formed Credit Acceptance to centralize the task. Today, the
company arranges high-risk loans for more than 2,000 auto dealers in 48 states and Britain.
It serves a growing market. So far in the 1990s, over four million Americans have filed for personal bankruptcy --
as many as in all of the previous 10 years.
As competition for unblemished borrowers has intensified, financial institutions are soliciting more of those they
used to reject. One measure: The number of credit-card accounts that require a security deposit has more than
doubled since 1992, to 915,000 last year.
More than a quarter of people who file under Chapter 7 liquidation proceedings of the Federal Bankruptcy Code
are extended credit within two years, according to a study by Purdue University's Credit Research Center. Within
five years, more than half are borrowing again, often from lenders like Credit Acceptance.
The researchers suggest that lenders even may find former bankrupts ideal customers: In addition to emerging
from court debt free, they are barred from filing for bankruptcy again for seven years.
But lending to this market takes its own set of skills. In terms of where it expends its efforts, Credit Acceptance is
as much a collection agency as a lender. At the state court in this Detroit suburb alone, the company in 1993 and
1994 filed some 800 civil suits against Michigan customers, mostly to collect money lent.
Two-thirds of Credit Acceptance's nearly 300 employees spend their time tracking down delinquent borrowers,
persuading them to pay and arranging the seizure of their cars and wages when they don't. In customer service,
for instance, Brenda Holm does nothing but handle inquiries from customers who have fallen behind.
It's stressful work. "The customer may be screaming and yelling, but I'm not going to yell back," she adds. "If they
use foul language, I'll terminate the call."
Credit Acceptance says it tries to keep borrowers in their cars as long as possible. But when it loses confidence in
a debtor's ability or willingness to pay, repossession often follows, as James W. Little discovered. The Cleveland
resident had been in financial trouble before. In the late 1980s, he and a woman he describes as his former
common-law wife defaulted on $30,000 in debt they had accumulated buying a car, furniture and household
appliances, he says.
Despite his experience with overspending, Mr. Little says, he bought a six-year-old GMC Sierra in 1993 to use as
a second car. He says he borrowed the $3,000 down payment against his tax-deferred savings plan at work. At
the time, he was earning $13 an hour at a frozen-foods plant.
Mr. Little says he began falling behind on his payments last year, after his employer fired him for taking too many
days off. He had been missing work to drive his mother to a hospital for kidney dialysis, he adds. Credit
Acceptance seized his truck last September, the month after his mother died, he says. Credit Acceptance won't
comment on the repossession.
Credit Acceptance says it ultimately seizes one out of 10 cars it finances. About 1,600 times a month, the
company turns to a nationwide network of repossession agents, who usually charge $200 per car. Customers can
get their vehicles back, though it usually costs them a payment equal to the sum of the overdue amount,
repossession expenses, and two additional monthly installments on the loan.
Repo-department manager Wayne Mancini says he must judge his company's chances of getting all its money
before returning a repossessed car to a borrower. "If we know the customer can continue to make payments,
we're going to let them back into the vehicle," he says. "If we get a pretty good idea they're going to try to stiff us
again, we're better off selling at auction."

He says Credit Acceptance's goal is to fetch at auction at least 30% of the account's unpaid principal and of the
interest that would accrue if the loan were carried to full term. To recover this balance, the company is free in
most states to garnishee the wages of its customers.
To Mr. Foss, such practices are business as usual. "If you advertise for people who are poor credit risks, you
shouldn't be surprised when they don't pay," he says.
Some critics, however, contend that the company's methods can be irresponsible. Without telling his mother,
Marcia Baker's teenage son Matthew three years ago signed a Credit Acceptance loan with a high-school friend
who wanted to buy a car. Matthew, now 21, also pitched in half of her down payment. The 1984 Mercury broke
down within a week. When the dealer who sold the car refused to repair it, Mrs. Baker's son and his friend had it
towed by the city.
The Indianapolis mother says she learned of the matter only when Credit Acceptance called her home to warn
her son that his first monthly payment was overdue. He eventually defaulted on the debt, and his friend moved
away. "I feel like a fool," he says.
His mother feels worse. Allowing teenagers with no credit experience to commit to a $3,000 used-car loan is
immoral, she says. "His dad and I would never have allowed him to do this. He was just trying to impress this girl,"
she adds. "He had no idea of the financial ramifications." Credit Acceptance says the youth never made a single
payment. It adds that it lends to people with no credit as well as to people with bad credit.
Others claim, in complaints to state regulators, that Credit Acceptance's methods can be abusive. Wilbur Nichols
tells bitterly of the time two years ago when, he says, he and his wife received a call at 9:45 p.m. from a Credit
Acceptance employee over $25 in late-payment fees that Mr. Nichols disputed.
The Kentucky resident, who filed for personal bankruptcy in 1988, had borrowed nearly $4,300 at an interest rate
of 22% to buy a car. He says that when his wife, who answered the phone, complained about the hour of the call,
the bill collector said, "Look, bitch, your name isn't even on the loan. Get off the phone and get your husband." Mr.
Nichols says he then took the phone. In the argument that ensued, he says, the caller threatened, "We will get our
money. If you can't pay, we'll come and get the damn car."
Mr. Nichols says his credit rating has improved enough that he refinanced the loan through a credit union. But he
also complained about Credit Acceptance's practices to the state attorney general. In a letter to the attorney
general, Credit Acceptance denied the couple's version of the incident and claimed Mr. Nichols was the one who
began using foul language.
Other critics say Credit Acceptance's accounting practices may be as aggressive as its bill collection. The
company has reserves for potential losses equal to only 1% of its loan portfolio. That is one-seventh the level of
reserves at Mercury Finance Co., Northbrook, Ill., the largest used-car finance company. Yet Mercury makes
much more conservative loans and says only 0.8% of them are 60 days or more past due. At Credit Acceptance,
where more than 25% of loans are at least 120 days overdue, the lower reserves boost reported earnings, but
possibly expose the company to future write-offs.
Credit Acceptance says its reserves are sufficient because it obligates dealers to accept much of the risk for loan
defaults. Like many other auto-finance companies, Credit Acceptance buys loans from dealers at a discount. But
unlike companies such as Mercury, it initially hands over to the dealer only part of the loan's discounted purchase
price, in the form of a so-called advance.
Credit Acceptance says it combines the debt it buys from each dealer into pools of 100 or more loans. It pays
dealers the rest of their money only after recovering enough from borrowers to cover a pool's dealer advances.
The pooled money it withholds mitigates the risk that borrowers will default before Credit Acceptance recovers all
of its up-front payments, says Richard Beckman, vice chairman and chief financial officer. In such a case, Credit
Acceptance doesn't have to pay the dealer the balance of the loan purchase price. And it can make up its loss on
the advance out of loan repayments it otherwise would have handed over. The dealer, of course, commonly
mitigates its risk by charging a high price for the car.
During the first quarter, $12.1 million of loans, or 2.2% of Credit Acceptance's portfolio, went into default,
according to its unaudited quarterly securities filing. But with the pooling mechanism, only $310,000 of those
defaults were charged against reserves, Mr. Beckman says.
The company's loss-protection method "works better than any other model I've ever seen in high-risk lending,"
says Michael Corasaniti, an analyst in New York for Alex. Brown & Sons Inc.
But the practice troubles Paul R. Brown, a New York University professor who edits the Journal of Financial
Statement Analysis. Dr. Brown, who analyzed the company at The Wall Street Journal's request, notes that there
is little explanation of the risk pooling in Securities and Exchange Commission filings.
"Given that there is hardly any discussion of this crucial element to their protection, one has to doubt how
thorough the company is in implementing it," Dr. Brown says.
Indeed, the loss-protection system relies on Credit Acceptance's exercising the discipline to withhold funds from
dealers even as a growing number of competitors are advancing more money to auto lots.
Nearly a dozen companies offering high-risk auto finance have gone public in the 1990s. The heightened
competition is prompting some to give dealers larger amounts up front.
Three months after signing on this year with Credit Acceptance, John Leclair, owner of Luke's Auto Sales Inc. in
Springfield, Mass., says he is jumping ship. "I'm done with Credit Acceptance," he says. "I've found a
10-times-better deal."
Others also foresee pressure. "Clearly there's more competition in this market," says Thomas FitzSimmons, a
Credit Acceptance director and partner at William Blair & Co., the Chicago firm that underwrote Credit
Acceptance's initial public offering. "So there's probably going to be price-cutting and some type of industry
consolidation."
However fierce the competition gets, Mr. Foss vows that his company will remain a market leader. In a display of
ambition that belies his cherubic face and unassuming presence, he adds: "I'd like to be in the Fortune 500 some
day."
Document j000000020011025dr6s00eez

Intrinsic Value
Risky Business: Informing Fund Investors
By Roger Lowenstein
811 words
22 June 1995
J
C1
English
The subject of the hour at the Securities and Exchange Commission is "risk."
Having asked the public whether mutual-fund prospectuses should do a better job of warning investors, the SEC
has heard from 1,200 comment-givers, mostly small investors. The agency is thinking of extending its comment
period, but early returns are in. Investors want to hear more about risk, and if such a thing is possible, would like
to see the risk of each and every fund sized up, summed up and quantified in a single number, much as odds
makers put a number on a horse.
The mutual-fund industry, naturally, is aghast at the prospect of new requirements. But the SEC is pressing
ahead. One tool getting hot consideration is an arithmetic yardstick beloved to generations of statistics classes,
known as "standard deviation." This is a cousin of some measures in favor on Wall Street, such as beta and
Morningstar ratings. Each of these algorithms measures historical (usually month-to-month) gyrations of a fund.
Standard deviation -- a pop quiz will follow -- describes the width of what number-crunchers call the bell curve. If a
fund has a standard deviation of 3%, it means that, about two-thirds of the time, its monthly performance fell
within 3% of its average. According to proponents such as Susan Woodward, the SEC's outgoing economist, it is
also suggestive of the fund's variance in less typical months.
As much as a simple number may appeal to investors, this -- and similar -- scales have some possibly mortal
flaws. Indeed, simplicity itself may be a problem, because investors tend to think of numerical indicators as being
precisely reliable forecasters.
Academics are fond of such yardsticks because the underlying data are easily quantifiable. That doesn't mean
they are useful. Trading records provide a rear view -- not a prospective one. Moreover, as the University of
Chicago's Eugene Fama and Kenneth French showed, a fund's prior volatility says nothing about its future
returns.
This begs the underlying question: what sort of risk should investors worry about? "That's a big issue," admits
Barry Barbash, head of the SEC's investment-management division.
Volatility yardsticks convey only the risk of short-term, often transitory, meanderings. Standard deviation, in
particular, says nothing about the risk that should truly concern investors: that of a one-time, substantial and
sustained loss of capital, such as occurred to bond funds last year. And just as a swimming pool's average depth
may be of little comfort to a man drowning in the deep end, a fund that usually varies by only 1% may, on
occasion, zigzag wildly.
Indeed, early in 1994, Morningstar assigned the highest, or safest, risk-return rating to the Piper Jaffray
Institutional Government Income Portfolio. When the bond market crashed, the Piper fund, stocked with
high-octane derivatives, plummeted 25%.
Should the SEC then throw up its hands? Not at all. An analyst at the very same Morningstar wrote of the Piper
fund, just before the crash: "If interest rates move up again this fund would be hurt far worse than its peers."
Donald Phillips, president of Morningstar, draws the obvious conclusion. People willing to do the legwork of
studying a fund's holdings can get at its genuine investment risks, which mirror the fundamental risks of the fund's
actual assets. The numerical yardstick may provide a quicker fix, but it is sorely superficial.

Mr. Phillips suggests that funds, which now file their portfolios with the SEC twice a year, be required to do so on
a monthly, or perhaps quarterly, basis. Robert Pozen, general counsel of Fidelity Investments, demurs, but offers
that funds could be required to summarize major holdings -- and particularly, major exposures to particular
industries, countries, and markets -- in shorter, plainly worded summaries for investors.
Certainly, if Morningstar clearly spelled out the risks in the Piper fund, Piper's own prospectus could have done a
better job. At present, the SEC allows funds to get away with fuzzily general, meaningless narratives. According
to Julie Allecta, a fund-industry lawyer, fund prospectuses don't get nearly the same legal review as prospectuses
for single-company offerings, which are viewed as liability documents and contain far more red flags.
One further suggestion: require funds to make their presentations of past annual returns in bar-graph form as well
as tables. That would make the yearly swings visible.
However, monthly volatility statistics might encourage investors, who are jumpy enough as it is, to focus on even
shorter time frames. And whatever the SEC adopts will affect not only fund investors but also fund managers. If it
blesses volatility as a standard, it will get more managers who invest for short-term stability rather than long-term
returns. This is a dubious goal.
Document j000000020011025dr6m00cyu

CREDIT MARKETS; Prices of Long Bonds Gain, But Short-Term Issues Slip
By ROBERT HURTADO
863 words
6 June 1995
The New York Times
NYTF
22
English
Prices of long-term Treasury issues rose yesterday, but without the furor of the previous two sessions as activity
seemed to stall and the overall market finished mixed.
The 30-year bond rose 4/32 , to 11415/32 ; its yield, which moves in the opposite direction from its price, slipped
to 6.52 percent from 6.53 percent on Friday. Much of the day's strength was focused on the longer maturities.
James Hale, a fixed-income analyst with MMS International in San Francisco, said the market had something of a
negative spin even though the yield on the long bond was lower. He said prices of short-term bills retreated
substantially, as investors began to realize that their expectations for an interest rate cut were a bit premature.
The expectations, he said, were fueled by Friday's weak employment report. He also cited the comments last
week of the Federal Reserve's vice chairman, Alan S. Blinder, that there might be some bumpy quarters along the
way in achieving a sustainable growth rate of 2.5 percent.
Mr. Hale thought the implications of the price drop pointed toward a rate cut sometime later this year.
"Right now yields on everything from a 10-year note down to a three-month bill are below the 6 percent Federal
funds target rate," Mr. Hale said. "And to justify any further gains in bond prices the market will have to get more
pieces of news about the economy that would make it more certain about the Federal Reserve cutting interest
rates."
Yesterday's auto sales figures did not provide the certainty of a weakening economy, Mr. Hale said. While Ford
auto sales were a bit disappointing, truck sales for the company and the industry as a whole were respectable.
"Which means concerns of weakness in the economy were maybe a little exaggerated," Mr. Hale said.
Earlier in the day the Commerce Department reported that April housing completions fell 7 percent, to a 1.33
million annual rate. Some traders thought the numbers were too old to provide much useful information for the
market.
Despite the weakness in housing completions, prices of Treasury securities pulled back from the session's highs
on some profit taking by investors who did not want to overplay their hands as the market continued to move
forward.
Price gains were probably exaggerated by the lighter-than-average volume of trades, but many market
participants say they believe the bond market is still in great shape. And while profit taking did chip away at the
day's gains, traders and dealers said overseas investors were once again quick to buy up Treasuries.
Joel Marver, senior fixed-income analyst at Technical Data in Boston, said that "for once, we are seeing a
two-sided market, with neither buyers or sellers having the upper hand in the short run."
At yesterday's Treasury auction of new three- and six-month bills, retail participation came up a bit short. Traders
said they were not surprised since after two big days in the market last week after the purchasing management
and payroll reports, prices were at a premium, and small investors were finding securities steep. "That may
account for the weaker-than-normal retail participation in yesterday's bill auction," Mr. Hale said.

The average rate for a three-month maturity was 5.48 percent, sharply lower than the 5.64 percent posted the
week before. For the six-month issue, the average rate was 5.35 percent, compared with 5.61 percent a week
ago.
Municipal bond prices gained. The recent surge in Treasury bonds has helped make municipals more attractive,
traders said. Since tax-exempt securities have lagged behind the huge gains seen in Government issues, people
are starting to believe that municipals are cheap by comparison.
General obligation bonds rated triple-A and due in 20 years were yielding about 5.45 percent, or about 87 percent
of comparable Treasury bonds. Investors usually consider municipals attractive enough to buy when they yield
more than 82 percent of similar Government issues.
The following are the results of yesterday's Treasury auction of new three- and six-month bills: (000 omitted in
dollar figures)
3-Mo. Bills 6-Mo. Bills

Average Price 98.615 97.295
Discounted Rate 5.48% 5.35%
Coupon Yield 5.65% 5.59%
High Price 98.630 97.310
Low Price 98.615 97.295
Accepted at low price 72% 76%
Total applied for $42,350,503 $45,390,533
Accepted $14,218,041 $14,220,380
Noncompetitive $1,432,191 $1,327,805
Both issues are dated June 8, 1995. The three-month bills mature on Sept. 7, 1995, and the six-month bills
mature on Dec. 7, 1995.
Graph: "3-Month Treasury Bills" shows average discounted rate of 3-month treasury bills in percent at weekly
auction from Feb. to June. (Source: The Bond Buyer)
Document NYTF000020050402dr66005vh

Greenspan Sees Chance Of Recession
By KEITH BRADSHER
1,171 words
8 June 1995
The New York Times
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English
WASHINGTON, June 7 -- Alan Greenspan, the chairman of the Federal Reserve, raised the possibility today of a
brief recession, although he played down its likelihood. He stressed the economy's long-term health in terms that
the financial markets took as a signal that no imminent cuts in interest rates are planned.
Commenting on an abrupt economic slowdown, which he called "very pronounced," Mr. Greenspan
acknowledged that "as a consequence of the sluggish economic outlook, the probabilities, as some of my
colleagues have indicated, of a recession have edged up, as indeed one would expect."
But he went on to emphasize that the likelihood of a deep, lengthy recession lasting into 1996 and beyond had
"decreased very significantly." Mr. Greenspan spoke in Seattle at a conference of bankers.
Bond traders and financial analysts interpreted the comments by Mr. Greenspan as indicating an intention to
stand pat on interest rates. Traders had been expecting a cut in short-term rates, and sent prices down sharply
yesterday. [ Page D22. ]
Such expectations followed a recent string of unexpectedly weak economic indicators, including the
announcement by the Labor Department on Friday that the economy shed 101,000 jobs in May. Many traders
and analysts predicted last week that the Fed would be forced to lower rates soon to stimulate an economy
slowing too quickly.
But if Fed officials believe that the economy is poised to bounce back quickly from a temporary slowdown, they
would be unlikely to cut rates, because it takes up to a year to gain stimulation from lower rates.
The remarks by Mr. Greenspan today were particularly noteworthy because he typically chooses his words
carefully and does not use a word like recession lightly.
His comments were echoed in a telephone interview this afternoon by Alan S. Blinder, vice chairman of the Fed.
Mr. Blinder said the odds of a recession had increased but remained fairly low.
"I do not expect a recession," he said. "Have recent numbers raised the probability of a recession? Yes, they
have, but it is still very far from a high probability."
Mr. Blinder emphasized the vulnerability of the economy during the second and third quarters of this year, while
stressing that he expected the economy to do better later on.
Both Mr. Greenspan and Mr. Blinder said the recent sluggishness in the American economy was a result of
companies choosing to slow their accumulation of inventories instead of ordering new goods.
If the economy falls into a recession, it would most likely be because the fall in new orders and resulting layoffs
would produce a slump in consumer spending, Mr. Blinder added. If consumers buy fewer goods, then inventories
pile up and a vicious circle of recession can result.
Mr. Greenspan made a rare appearance at a news conference today during the international banking conference
in Seattle. Sponsored by the American Bankers Association, the conference was attended by the top executives
from 100 of the world's biggest banks, along with Hans Tietmeyer, president of the German central bank, and
Akira Nagashima, deputy governor of the Bank of Japan.
Economists commonly define a recession as two or more consecutive quarters in which the total economic output
shrinks. So a slight dip in output in the second quarter and again in the third quarter could qualify as a recession
in the eyes of professional economists like Mr. Blinder and Mr. Greenspan, even though such a downturn might
not bring the wrenching increases in unemployment and other hardships that many Americans associate with a
recession.
The overall tone of Mr. Greenspan's remarks today was positive. "I don't see any problems that really disturb me,"
he said.
He specifically told reporters that he did not see a broad risk to the American financial system from the economic
difficulties in Mexico. The Mexican currency and financial markets have stabilized this spring, after faltering last
December and in January.
Mr. Greenspan said that a move by companies to slow their accumulation of inventories would be healthy for the
economy in the long term. If inventories had continued to build at a rapid pace, there would have been "a fairly
high probability of a significant contraction later this year and next," Mr. Greenspan said today.
But he also cautioned that the slowing of the buildup in inventory was still modest and likely to "proceed for some
while."
Mr. Blinder, a Clinton appointee who is widely viewed as more willing than his colleagues to use interest rates to
bolster the economy, has publicly expressed concern several times in recent days about the prospects for the
economy, and Mr. Greenspan appeared to be responding today to those worries.
Edward W. Kelley Jr., another governor of the Federal Reserve Board, said today in a speech in Birmingham,
Ala., that the economy was strong. But he described recent declines in auto sales as "scary," and said the job
losses in May were worse than he had anticipated.
By contrast, Edward G. Boehne, president of the Federal Reserve Bank of Philadelphia, was more upbeat in a
speech in New York. And Robert Forrestal, president of the Federal Reserve Bank of Atlanta, said in an interview
today with Reuters that he was "not at all surprised at the kind of information we've been getting lately."
The combination of the various remarks suggested a reappearance of the Federal Reserve's longtime split
between the board governors who worry more about the short-term health of the economy and regional bank
presidents who fret more about controlling inflation. It is somewhat unusual for so many Fed officials to speak
publicly on the same day, though not unheard of at times when Fed policy makers have recently met and will not
have to vote on interest rate policy for another month.
Several financial analysts expressed surprise that Mr. Greenspan used the term recession, and said they
believed that it was the first time this year. "I'm a little surprised by that," said Lyle E. Gramley, a former governor
of the Federal Reserve Board. "I would be careful about using that word."
John Lipsky, an economist for Salomon Brothers, said Mr. Greenspan's choice of words was also striking. "I
would be surprised if Alan Greenspan would use a term like that lightly."
But Wall Street economists remained divided this evening about whether Mr. Greenspan was correct in playing
down the risks of a prolonged economic slowdown. "The latest figures portray an economy that is slowing
gradually but inexorably in the grips of a rather typical inventory adjustment," Mr. Lipsky said. "Several factors
suggest the economy will not be returning to trend growth without a new boost from monetary policy."
But David M. Jones, a longtime Fed watcher at Aubrey G. Lanston & Company, a Government securities dealer
in New York, expressed a view more common in the financial markets today when he agreed with the optimism
of Mr. Greenspan that the economy would right itself.
Document NYTF000020050403dr6800mbi

Economy
Interest-Rate Cuts Gaining Favor Among Fed Officials --- Greenspan Stance Is Unclear, And Policy
Makers Still Appear Split on Timing
By David Wessel
1,139 words
19 June 1995
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WASHINGTON -- There is strong and growing sentiment among some Federal Reserve policy makers to cut
short-term interest rates at their early July meeting, but Fed Chairman Alan Greenspan hasn't indicated if he is
prepared to do so.
Some Fed governors in Washington appear eager to cut rates to rescue the deteriorating economy. Some
regional Fed bank presidents, still counting on an upturn later this year, appear reluctant. Mr. Greenspan has
enough loyalists on the Fed policy committee to carry a majority no matter which way he goes.
Mr. Greenspan's public comments have been confusing -- even to people accustomed to his intricate syntax. He
has welcomed the economy's current slowdown, largely the result of the Fed's moves to increase interest rates
last year. But he has been cryptic on the crucial question: Has the economy slowed so much recently that he
wants to take out some insurance by cutting rates now?
At a meeting with bankers in Seattle on June 7, the day after Fed Vice Chairman Alan Blinder suggested he was
ready to cut rates, Mr. Greenspan suggested he wasn't.
Although acknowledging Mr. Blinder's worries about the economy, Mr. Greenspan told reporters that "the
probability of a significant inventory recession" -- a serious recession triggered by production cuts resulting from
bloated inventories -- was falling. Financial markets saw that as a hint Mr. Greenspan wasn't inclined to cut the
rates the Fed controls; market interest rates rose sharply as a result.
The reaction appeared to startle the Fed chairman. The following weekend, after meeting with other central
bankers in Basel, Switzerland, Mr. Greenspan tried to reel the market back. The odds of a severe recession have
fallen, he said, but "the probability of a modest adjustment -- whether you call it a recession or not -- has
obviously gone up." And he stressed that the Fed was continuing to look at new data. Financial markets took
that as a sign he might be ready to cut rates after all; market interest rates fell. Mr. Greenspan may shed more
light on his views in a speech tomorrow to the Economic Club of New York.
The Fed, which has lifted short-term rates to 6% from 3% since February 1994, has been holding them steady
since last February. A decision to lower them at the July 5 and 6 meeting of policy makers would be widely seen
as the first of a series of moves, another reason that some Fed policy makers would prefer to wait.
In speeches and interviews, the outspoken Mr. Blinder has made it clear he is increasingly worried. "Given the
fact that economic fundamentals were already suggesting a significant slowdown in '95 and the fact that the data
have continuously been coming in weaker than most forecasters had predicted, I think there's considerable
downside risk right now," he said in an interview last week.
Two other Fed governors, fellow Clinton appointee Janet Yellen and Bush appointee Lawrence Lindsey, are said
to be ready to cut interest rates, too. All three supported the round of interest-rate increases that ended 4 1/2
months ago.
The case for cutting rates is straightforward. Fed officials and their staff had anticipated that the economy would
be slowing now, but not so dramatically. After two months of declining payrolls, odds are growing that the
economy contracted in the current quarter. As the Fed anticipated, companies are spending less to produce

goods for inventories as the economy brakes to the slower-growth path the Fed engineered to avoid a pickup in
inflation.
The Fed's hope was that businesses would trim production just enough to reduce inventories but not so much that
they would cut payrolls and frighten consumers. If consumers spend less, then inventories will swell,
manufacturers will cut production more and the economy will be pushed into recession. The decline in retail sales
in April and the disappointing 0.2% increase in May raises the possibility that consumer demand is weakening --
and not just in the automobile industry.
"We've seen some mild evidence of upticks in inventory-to-sales ratios in other sectors" besides autos, says Ms.
Yellen. "I'm concerned about the downside."
A Fed move to cut interest rates in early July would have little immediate effect on the economy. But a rate cut in
July or in August could boost consumer and business confidence in the near term and provide the fuel for faster
growth and lower unemployment later this year and early next year.
That's exactly what worries some other Fed policy makers: If the Fed steps on the gas pedal now, the economy
will accelerate later this year when other forces will already be propelling it forward. These officials argue that with
long-term interest rates down already, the weak dollar likely to spur exports, consumer confidence at healthy
levels and business investment spending still holding up, the pace of growth should quicken later in the year
without any nudge from the Fed.
"The probabilities are that we're going to come through this period of sluggish growth and have a period of
moderate growth," said Edward Boehne, president of the Federal Reserve Bank of Philadelphia.
"At this point," he added in a recent interview, "I'm seeing the kind of conditions [in the economy] that one would
expect. Therefore, I think that one wants to be careful doing something with policy that runs the risk of being
destabilizing."
Mr. Boehne, the longest-serving of the 12 Fed bank presidents, isn't among the five who will vote on interest rates
next month. But he will participate in the deliberations and his views carry substantial weight inside the Fed.
The Labor Department releases the most important monthly reading on the economy, the employment report, on
July 7; the Fed gets the numbers the day before, but not before its July 6 meeting ends.
If the divisions on the committee are particularly deep and Mr. Greenspan decides that more data are needed to
resolve the question, the committee could give him the authority to lower rates after he sees the employment
data.
But Fed officials on both sides of the current disagreement don't like to give the public and the markets the
impression that their decisions turn on a single economic indicator.
--- Fed-Guessing
1 -- June 2: Labor Department: Payrolls fell 101,000 in May
2 -- June 6: Blinder: "Concerned about downside risk"
3 -- June 7: Greenspan in Seattle: No "significant inventory recession"
4 -- June 11: Greenspan in Basel: Probability of "modest adjustment" rising
5 -- June 13: May retail sales up only 0.2%
Source: Telerate Teletrac
Document j000000020011025dr6j00eff

Technology Brief -- Dynamics Research Corp.: Contract With IRS Is Valued At as Much as $200 Million
133 words
28 June 1995
J
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English
Dynamics Research Corp., Andover, Mass., received a contract to provide computer-support services to the
Internal Revenue Service in a pact the company valued at as much as $200 million over five years.
The contract is for one year plus four one-year options and represents a significant step in the company's
attempts to reduce its dependence on defense-related businesses.
Dynamics shares closed yesterday up 44%, or $2, at $6.50 in NasdaqStock Market trading.
Under the contract, Dynamics will assist the IRS in modernizing and upgrading its technology and systems. The
company will advise the IRS in managing other contractors that will supply it with equipment as well as offering
management-consultancy services.
Document j000000020011025dr6s00edu

Fed Sees Signs of Weakness in Robust Economy
By KEITH BRADSHER
999 words
22 June 1995
The New York Times
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WASHINGTON, June 21 -- The nation's economy is still robust, but showing some signs of weakness, the
Federal Reserve said in a survey released today, even as traders and financial analysts continued to puzzle over
a speech on Tuesday night by Alan Greenspan, the central bank's chairman.
"Economic activity remains at a high level across much of the nation, although there are indications of some
softening in many reports from the 12 Federal Reserve districts," said the study, the latest in a series that the Fed
publishes two weeks before each meeting of its top monetary policy panel.
The policy-setting Federal Open Market Committee is scheduled to meet on July 5 and 6. With the economic
signals particularly confusing right now, the Fed's chairman, Mr. Greenspan, said Tuesday night in New York that
he expected the two-day meeting to be "most engaging." At those sessions, the committee is likely to debate
vigorously whether or not it should lower short-term interest rates in response to a marked slowing of the
economy.
Mr. Greenspan said in his Tuesday speech that current Fed policies were under review in light of economic
weakness, but warned of the threat to the dollar if international currency markets began to worry about a
slackening in the fight against inflation. His carefully calibrated ambiguity included enough hints and caveats to
leave room for the Fed to make almost any decision. And that seemed to be exactly what Mr. Greenspan
intended. "I worry incessantly that I might be too clear," he said in a question-and-answer session after the
speech. To gales of laughter from the audience of economists and financial experts, Mr. Greenspan said he had
mastered "Fed-speak" in which the goal is to "mumble with great incoherence."
Nonetheless, the balance of his comments suggested a reluctance to cut rates at the meeting. In his speech, he
emphasized the economy's underlying health even while acknowledging the chances of a brief, modest
recession.
The study issued by the Fed today gave a similar picture of optimism with asterisks. It said the strongest
economic growth was now occurring in the middle of the country, while there are "generally less favorable
conditions on the East and West Coasts."
Manufacturers of factory equipment and electronics continue to enjoy strong sales, the study said, but bad
weather has hurt agriculture and demand is slowing for some consumer goods and building materials. The study
is known as the "beige book," reflecting the cover's color.
In the enormous auto manufacturing industry, sales remain depressed but "with a few indications of an upturn,"
the Fed analysis concluded.
The Treasury Secretary, Robert E. Rubin, also said today that his conversations with business leaders and others
had persuaded him that the economy would rebound from its current weakness.
"I think we will go back to a resumption of solid growth," Mr. Rubin said. "My own view, having talked with a
number of people involved in business, which I think gives you some sense of where the economy is headed, is
that while there may be continued slowness for a while, there are some signs this thing is working itself out."
Mr. Greenspan's complex combination of economic arguments produced confusion today among traders. The
stock market drifted with little change, but the yields on short-term bonds dropped by as much as a tenth of a
percentage point as some traders concluded that Mr. Greenspan could agree to cut interest rates as an insurance
policy against the risk that the current weakness might turn into a deep or lengthy economic recession.
Mickey D. Levy, an analyst at Nationsbank, said that the complexity of the speech limited its effect on the market.
Many traders ignored the Fed chairman's unusual comments about the constraints that international financial
markets have put on the Federal Reserve's freedom of action. That was because they came in the latter half of
his speech, after he had mentioned the coming Open Market Committee meeting.
"When he wasn't talking about the meeting, people turned off -- they were looking for a sound bite," Mr. Levy said.
Mr. Greenspan, by obscuring his true intentions behind a blizzard of economic statistics and theories, helps keep
his options open for the July meeting. Indeed, some analysts say that Mr. Greenspan may not even have any true
intentions for the July meeting yet. "I still think he's on the fence," said Marc W. Wanshel, an analyst at J. P.
Morgan.
Avoiding clear-cut policy statements also helps Mr. Greenspan survive the tricky internal politics at the Federal
Reserve. Members of the monetary policy committee have made clear over the years that they do not like to be
put in the position of undermining the chairman if they do not want to go along with a position that he has already
expressed publicly.
"He's sort of obligated to keep his options open out of respect for the committee and the process," Mr. Wanshel
said.
Mr. Greenspan joked repeatedly about his lack of clarity during Senate Banking Committee testimony Tuesday
morning and after his speech Tuesday night. "If I say something which you understand fully in this regard," he told
a Senator during testimony on Tuesday morning, "I probably made a mistake."
But some analysts said that Mr. Greenspan was fully capable of being even more enigmatic if he chose. David M.
Jones, a longtime Fed watcher at Aubrey G. Lanston & Company, a Government securities dealer in New York,
said that "I had thought before the speech that he wouldn't say anything about policy -- that would have been pure
obfuscating."
Chart/Map: "Scattered Signs of Faltering" provides a roundup of regional economic conditions in recent months
for the Federal Reserve's 12 districts, according to the quarterly beige book report issued by the Fed yesterday.
(Source: Bloomberg Business News) (pb. D17)
Document NYTF000020050403dr6m00qua

Fed's Top 2 Said to Discuss Cutting Rates
By LOUIS UCHITELLE
1,051 words
23 June 1995
The New York Times
NYTF
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Alan Greenspan, chairman of the Federal Reserve, and Alan S. Blinder, the vice chairman, have talked in recent
days about the possibility of lowering interest rates when the Fed's policy makers meet on July 5 and 6, senior
Fed officials said yesterday.
The conversations come against a backdrop of a steadily slowing economy. Mr. Blinder has publicly expressed
concern that the economy might be weakening more than is necessary to control inflation. Now he appears ready
to vote against any resolution at the July meeting that fails to lower interest rates, the senior officials said.
Mr. Greenspan has not indicated his position for the July meeting. But in fact there is a chance that Mr.
Greenspan and Mr. Blinder might both recommend a rate cut at that time, the Fed officials said. Joseph R.
Coyne, chief spokesman for the Fed, said he had no comment on the reports.
Mr. Blinder, a Princeton University economist, and Janet Yellen, an economist on leave from the University of
California at Berkeley, are President Clinton's only appointees to the Federal Reserve Board, which currently has
six members. Ms. Yellen is also reported to favor a rate cut and might side with Mr. Blinder against any resolution
that kept rates unchanged instead of lowering them.
"The risks have increased on the down side," she said in an interview yesterday. She declined to state her
position on a rate cut.
Mr. Blinder and Mr. Greenspan have displayed some basic differences in how they view the economy. Mr. Blinder
is reluctant to let the economy enter a sustained period of what he considers unnecessarily weak economic
growth and rising unemployment. Mr. Greenspan has shown a willingness to let the economy come closer to
recession if that keeps the rate of inflation from rising.
He has said that reversing a rise in inflation, and the expectations it engenders of future price increases, is more
difficult than reversing weak economic growth by eventually lowering interest rates to stimulate borrowing and
spending. Mr. Blinder, in turn, says that in the short run, one is no harder to reverse than the other, so no good
reason exists to let the economy become too weak and unemployment rise.
The potential political stakes are considerable. A weak economy in 1996, a Presidential election year, could
undermine Mr. Clinton's re-election prospects.
Both Mr. Blinder and Mr. Greenspan also have a lot at stake. If Mr. Clinton's appointees were to vote
unsuccessfully for a rate cut and the economy were to revive later this year without the aid of such a cut, as some
economists and several Fed policy makers believe might happen, then Mr. Greenspan might get the applause.
That would come particularly from the financial markets, for his refusal to cut rates and thus prevent a rebound
from becoming too robust and inflationary.
"We are in a slowdown, we all know that, and it is impossible to tell how far it may go," said Edward W. Kelley Jr.,
a Fed governor. "But I believe there are very good reasons to be optimistic and after we work through this period
now, we will return to growth."
But if the economy were to continue to decline instead of rebounding, thus risking a recession and raising the
unemployment rate, then the blame might focus much more on Mr. Greenspan. That might let Mr. Blinder and Ms.
Yellen -- and by extension the Clinton Administration -- at least partly off the hook.
The Fed's policy makers have raised short-term interest rates by three percentage points since early last year,
with the last half-point increase taken on Feb. 1. Mr. Blinder and Ms. Yellen had argued against that last increase,
but in the end they voted with the others for approval.
"Dissent around here, any dissenting vote, is a big deal," Mr. Blinder said in an interview in March. "This is not like
the Supreme Court, where you regularly get 6-3 or 5-4 votes. So you hold your fire until you feel you must shoot."
The Federal Reserve's policy makers generally approve their decisions concerning interest rates by unanimous or
near-unanimous votes. Any departure from this collegial approach could result in volatility in the nation's stock
and bond markets. These markets often respond favorably to what traders think is solid Fed policy, shared by the
chairman, the vice chairman and the other governors, as well as most of the 12 presidents of the Fed's regional
banks.
Most recently, long-term interest rates have fallen on Treasury bonds, mortgages, car loans and the like because
traders expect that the Federal Reserve will vote to reduce the Federal funds rate, which is the rate banks and
other financial institutions pay to borrow for a day or two from each other. Through a ripple effect, changes in the
Federal funds rate eventually bring changes on many other rates paid by consumers and business to borrow
money.
As a matter of practice, Mr. Greenspan's recommendations concerning interest rates have prevailed at virtually
every meeting since he became Fed chairman in 1987, and his view of what should be done now seems likely to
prevail at the early July meeting, however Mr. Blinder and Ms. Yellen -- or others -- might vote.
The last time a Fed chairman and vice chairman voted against each other was in February 1986, when Paul A.
Volcker, the chairman, and Preston Martin, the vice chairman, disagreed not on whether to cut the discount rate,
but when. This is the rate that the Fed itself charges to lend money to banks. Any changes are made at one of the
weekly meetings of the Fed's seven governors.
Mr. Volcker wanted to wait until the Japanese and German central banks made similar rate cuts. Mr. Martin,
joined by three other governors, voted to act immediately. The two sides finally agreed to defer action.
The coming July meeting of the Federal Open Market Committee brings together the governors as well as the 12
regional bank presidents. They meet every six to eight weeks to consider changes in the Federal funds rate,
which has a much bigger impact on the economy than the discount rate.
Document NYTF000020050403dr6n00qzv

Bond Prices Try Recovery But Fall Short
By ROBERT HURTADO
634 words
17 June 1995
The New York Times
NYTF
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English
Treasury prices ended lower yesterday, although they recovered somewhat in the afternoon after a top Federal
Reserve official suggested that the economy was weaker than previously thought.
The comments by Alan S. Blinder, the vice chairman of the Fed, rekindled some hope that the Fed would cut
short-term interest rates soon. Market prices have seesawed as investors have tried to pin down the size and
timing of such a move.
Traders said yields rose on short and intermediate securities, which are the most sensitive to rate moves by the
central bank, after the University of Michigan released its preliminary consumer sentiment index yesterday
morning showing a higher-than-expected number for June. The index rose to 92.3 from 89.8 in May, traders said.
Mr. Blinder's comments, which came in an interview with Knight-Ridder Financial News, provided fuel for the
market's second consecutive day of speculation about an interest rate cut.
He said that he was concerned about the slowing economic growth during recent months and that in the time
since the Fed had last raised overnight bank loan rates in February, economic reports had painted "a very
considerably weaker picture than we saw four and a half months ago." These comments yesterday did lift bonds
from their lows of the day, but they were in contrast to the comments he made a day before to a Minneapolis
group.
"Ultimately, the mixed signals that we're getting from the Fed are likely to be negative for bonds because the
market needs to have a clear view," said Tony Crescenzi, head of fixed-income trading at Miller, Tabak, Hirsch &
Company in New York.
Without a rate cut anytime soon, some managers are saying, bonds are too expensive.
The 30-year bond slipped 4/32 to a price of 1132/32 for a yield of 6.62 percent, up from 6.61 percent the previous
session. Shorter-maturity bills and notes also fell in price, sending the three-month bill rate up a basis point to
5.47 percent and the yield on a 10-year note up 2 basis points to 6.19 percent. A basis point is one-hundredth of
a percentage point.
Christopher A. Low, senior economist at the HSBC Group in New York, said the numbers he saw in the sentiment
index suggested to him that confidence was not eroding so quickly as some of the economic statistics might
indicate.
"Bonds lost on concerns that consumer spending might pick up fast enough to allow the economy to rebound
before the current slowdown turns into an outright downturn," Mr. Low said. "That would cancel out any hope of a
Fed reduction in short-term interest rates."
"Mr. Blinder's remarks today led to a nice rebound in prices," Mr. Low added "I think Mr. Blinder's comments were
probably taken out of context Thursday, so he returned today to clarify his view on the economy. He seemed
much more concerned about the risk of a recession and much less concerned about the risk of inflation." And the
risk of recession, Mr. Low continued, would allow for the possibility of a Fed easing in short order.
"We are faced now with a dearth of economic statistics," Mr. Low said, "which means the game of who said what
last takes on more importance. There are a few numbers that will be market movers, particularly durable-goods
orders next Friday, which will give the market an indication of manufacturers' willingness to bet on a rebound and
at the same time give an indication of how far along they are in the inventory correction."
Until next Friday, there will be little economic data released, Mr. Low noted.
Document NYTF000020050403dr6h00pb7

MUTUAL FUNDS; Rating Funds for Fun, But Not for Profit
By CAROLE GOULD
1,173 words
11 June 1995
The New York Times
NYTF
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English
A SEEMINGLY surefire way for a financial magazine to jump off the newsstands is to put a mutual fund headline
on its cover and a comprehensive rating of funds inside.
The ratings, which usually appear once or twice a year, are often used by investors to whittle their choices from
the more than 5,000 funds on the market. But are these rankings reliable guides for fund investors?
Academic studies have found over the years that differences in risk-adjusted performance by money managers
are merely blips on the screen and that no money manager has the skill to beat the market over time. Hence, the
blanket disclosure by mutual funds that past performance is no predictor of future performance. A study in 1990
concluded, though, that winners and losers in the fund industry tend to repeat. So the debate continues about
both survey methodology and money managers' skills.
Shortcuts to choosing a fund, like culling a list to include only those funds that get a top grade of A+ or five stars
from the magazines, can backfire, according to the latest study. It was conducted by Bob Fischer, an associate
vice president of Legg Mason, in Richmond, who concluded that magazine rankings were useless.
Mr. Fischer looked at four magazines, Business Week, Forbes, Kiplinger's and Money, and their fund ratings for
1992. For Business Week, which gave up and down arrows to funds, he assigned a numerical value of 1 to 5 for
the arrows. For the other magazines, he converted their letter grades to numbers.
He then selected 25 growth-and-income funds at random from each magazine and compared the funds' ratings in
1992 with their 1993 performance. He also looked at how the funds did for the three years ended in 1994.
Mr. Fischer performed a standard statistical test known as a regression analysis, which measured the relationship
between the funds' rankings and their performances. He found no correlation between rankings and future
performances.
Is such a correlation possible? Yes, he said, citing the close connection between Value Line's stock ratings and
stock performance. In 22 of 30 years, Value Line's top-rated stocks outperformed those in group 2, which
outperformed group 3 and so on.
Mr. Fischer conceded that the scope of his fund study was limited and his sample size small. Even so, he said
that he doubted a bigger study would reach a different conclusion.
The reason is that magazines don't do much original research for their rankings, said Scott Lummer, managing
director of Ibbotson Assoicates Inc., a Chicago consulting and market research firm. "I don't expect them to
thoroughly interview each fund manager," he said. ". . . I can't expect to achieve nirvana for $2.50."
The managing editor of Money, Frank Lalli, conceded that fund rankings can be superficial. For that reason,
Money abandoned its A-through-F grading system in August 1993, Mr. Lalli said.
"Rather than provide all-encompassing grades, Money gives its readers sophisticated information on funds'
performance, their portfolios and their management styles in our monthly Fund Watch section, our semi-annual
mutual fund roundup issues and in the fund feature stories we run virtually every month," Mr. Lalli wrote in a letter
to the editor of Registered Representative magazine, where Mr. Fischer's study first appeared.

Business Week took exception. "He's looking for absolute returns, while our ratings are based on risk-adjusted
returns over five years," said Jeffrey M. Laderman, a senior writer at Business Week. "We think this is a good
starting place. . ."
Forbes's rating system does not purport to predict future performance, said William Baldwin, executive editor of
the magazine. Rather, its gradings of performance in "up" and "down" markets are intended to identify a fund's
personality, not its predictable performance, he said.
The brokerage community has been upset over Forbes' ratings for years, Mr. Baldwin said. "Their ability to sell
funds, especially expensive ones, hinges on a certain level of ignorance among their clientele," he said. "These
days, it's harder to sell second-rate funds" when consumers can see that the funds have been poor performers.
Mr. Fischer of Legg Mason, a regional brokerage firm based in Baltimore, said, "What they are saying is that you
can use the ratings to select mutual funds to get better returns," he said. "But it doesn't work."
Ted Miller, editor of Kiplinger's, said his magazine's rankings have never been presented as an indicator of future
performance. Instead, they indicate how much risk a fund took to achieve performance within its class. Kiplinger's
plans to take a look at how good the indicators are in its September issue, Mr. Miller said.
"Despite what Mr. Fischer implies," he said, "we're not so cynical that we throw those things out there and not try
to improve them as years go by." In 1994, Kiplinger's eliminated category grades for up and down markets
"because we discovered that the down market grades were not reliable indicators," Mr. Miller said.
Not all research lines up with Mr. Fischer's claim that rankings are meaningless. Some support has built in recent
years for the assertion that top and bottom funds tend to remain in their respective camps. A 1990 study by Roger
Ibbotson, a professor at Yale University, and William Goetzmann, of Columbia University, examined 728 funds
over 13 years and found that 41 percent of the funds in the top quartile remained there over four subsequent
3-year periods, while 66 percent of the funds in the bottom quartile remained there.
This suggests that performance rankings by magazines are far better at identifying the poorest performers than at
helping investors sift through funds.
There are some other problems with fund ratings, too. Several years of performance may reflect the expertise of a
manager no longer with the fund, said Ken Gregory, who edits the No-Load Fund Analyst, a newsletter in San
Francisco.
Moreover, rankings that use volatility as an indicator of risk may not catch potentially volatile investments until
after the market drops. For example, junk bond funds won generally high grades until the last half of 1989, when
the bottom dropped out of that market. And a few Piper Jaffray bond funds had top ratings for years, based on
their oversized returns, until they reported big losses in 1994 because of risky bets on derivative securities.
Throwing the magazines' mutual fund issues in the trash might be a rash decision. But following their advice
blindly could be dangerous. At best, the editors agree, the rankings are a starting point for individual research.
"Rankings are rankings," said Stuart Emmerich, the editor of Smart Money, which covers mutual funds frequently
but does not assign grades to all the funds. "They're fun to look at, but I don't think it's a terribly intelligent way to
invest your money."
Document NYTF000020050403dr6b00nku

Economy
Payroll Jobs Declined Sharply in May --- Biggest Drop in Four Years Boosts Recession Fears, Spurs Call
for Fed to Ease
1,415 words
5 June 1995
J
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Corrections & Amplifications
A TABLE LISTING the net contributions of the components of the Commerce Department's index of leading
indicators was omitted from yesterday's edition. The table appears in today's issue. (WSJ June 6, 1995)
WASHINGTON -- The economy received its biggest jolt in several years: a dramatic drop in payroll jobs in May
that increased fears of recession.
Although the unemployment rate fell slightly, by one tenth of a percentage point to 5.7%, payrolls sank by
101,000, the Labor Department reported Friday, the biggest setback since April 1991.
"It's not just evidence that the recovery will be jagged, but there is risk of an outright downturn," said Richard D.
Rippe, chief economist at Prudential Securities. He and many other economists, however, stopped short of
forecasting a recession despite the fact that there were few bright spots in the May employment report.
Nevertheless, the prospect that the economy is heading for tougher times sparked a powerful bond market rally
that sent prices of the 30-year bond at one point up a one-day record 2 1/2 points, or more than $25 for a bond
with a $1,000 face amount. The benchmark ended 1 1/4 points higher at 114 5/16, pushing the yield down to
6.52%. Bonds tend to rally on signs of negative economic news because investors assume the slowdown
eventually will lead to lower inflation and interest rates. Bond prices move in the opposite direction of interest
rates. Stocks sustained modest losses Friday.
The Labor Department also reported that factory employment fell in May by 56,000 jobs, the biggest setback
since January 1992. While a decrease in manufacturing jobs had been anticipated, the magnitude of the May
decline surprised many economists. Even more startling was the 57,000 job loss in construction, though analysts
blamed this partly on such weather-related factors as heavy rains and flooding, especially in the South.
Payroll employment also fell in the government and retail sectors. While service-related jobs increased 60,000,
the gain was modest compared with the average pace of service-sector growth during the first quarter.
The employment report, combined with other gloomy economic data -- ranging from declines in consumer
spending to last week's reports of a slowdown in manufacturing -- suggested that the economy will face rough
sledding over the next few months.
In particular, economists fear that downward momentum could feed on itself. "Once it gets going, the downward
spiral is hard to stop," said Sung Won Sohn, chief economist at NorWest Corp. in Minneapolis. "The correction
could go on for longer than anticipated."
Helping confirm that view was another monthly decline -- the third in a row -- in the index of leading economic
indicators. The index fell 0.6% in April, the Commerce Department reported Friday. Three consecutive declines in
the index are regarded as a signal of an impending recession.
The prospect of deep cuts in the federal budget also is fueling recession fears. If budget plans currently proposed
by congressional Republicans come to fruition, the first whacks at the budget -- amounting to tens of billions of
dollars -- will take place this fall. Such a pullback in spending, even if tax cuts are included in the overall budget
plan, likely would exacerbate an economic downturn by shutting off a large flow of funds at a time when it is most
needed.
The growing prospects for a sharp slowdown have prompted more aggressive lobbying on the part of economists
for a lowering of short-term interest rates by the Federal Reserve.
The central bank raised short-term interest rates seven times last year and early this year in an effort to slow
economic growth and keep inflation under control. But it hasn't acted since February.
With inflation now largely under control, many economists believe the Fed could ease rates slightly without
triggering a speed-up in spending, which would lead to higher prices. Most recent data have confirmed that prices
are stable. In addition, slower growth often, but not always, coincides with slower increases in prices.
May's employment report offered additional evidence of weak inflation, as it showed a decline in hours worked
and a two-cent drop in average hourly earnings. Increases in wages are regarded as the most important factor
leading to higher prices for final goods.
While most economists heralded the drop in wages as good news on the inflation front, Labor Secretary Robert
Reich was quick to label it a "disappointment." He also used the occasion to make the case for lower interest
rates. "There is a relationship here between short-term rates and the job loss in construction and manufacturing,
which are both interest-rate sensitive," Mr. Reich said.
But even with the dismal May employment report and the array of other recent negative economic data, the
central question remains: How far is down? "There are a lot of positives out there that suggest this will not get out
of hand," said Robert Dederick, an economist at Northern Trust Co.
In particular, many economists are reassured by several factors: continued high levels of spending on equipment
and other investments by business; stock and bond market rallies; a decline of long-term interest rates, and
recent weakness of the dollar. In addition, the usual precursors of a recession -- an unsustainable buildup of debt,
rising interest rates and widespread pessimism -- aren't in evidence.
Another key factor is an unplanned buildup in inventories that can touch off a downward spiral, starting with
production cutbacks and leading to layoffs and reduced consumer spending. While inventory levels have been
increasing in recent months, they are still low by historic standards.
Also, some economists assert that some job losses are the result of a change in traditional hiring practices. "We
may be seeing the first episode of American firms practicing `just in case' employment management," explained
Joseph Liro of S.G Warburg. "Firms may be cutting employment much faster than in the past just in case the
slowdown turns into a cumulative decline."
Taking such factors in account, Mr. Liro predicted that "the second-quarter economic swoon is a temporary
phenomenon."
May's employment report also revised April's employment figures to a decline of 7,000 payroll jobs from the 9,000
decline reported earlier. Part of the revision was a result of the Labor Department's annual benchmark revisions,
a more comprehensive, though delayed, counting of employment.
Separately, the Commerce Department reported that construction spending rose 0.4% in April, bouncing back
from a 0.4% drop the previous month, despite falling expenditures for housing. Residential spending, nearly half
of overall construction outlays, fell 2% to a $233.7 billion rate in April.
--- EMPLOYMENT
Here are excerpts from the Labor Department's employment report. The figures are seasonally adjusted.
May April 1995 1995 (millions of persons)
Civilian labor force ............ 131.81 132.74
Civilian employment ............ 124.32 125.07 Unemployment ................... 7.49 7.67
Payroll employment .............. 116.19 116.30
Unemployment: (percent of labor force)

All civilian workers ............ 5.7 5.8 Adult men ...................... 5.1 4.9 Adult women .................... 4.8 5.2 Teen-agers
..................... 17.6 17.5 White .......................... 5.0 5.0 Black .......................... 9.9 10.7 Hispanic .......................
10.0 8.8
Average weekly hours: (hours of work)
Total private nonfarm ........... 34.3 34.6 Manufacturing .................. 41.5 41.5
--- CONSTRUCTION SPENDING
Here are the Commerce Department's figures for construction spending in billions of dollars at seasonally
adjusted annual rates.
Apr. Mar. Feb. 1995 1995 1995
Total new construction ......... 41.0 37.9 33.9
Residential ................... 18.5 17.2 14.9 Nonresidential ................ 9.0 8.5 8.1 Public ........................ 10.1 9.1 8.2
--- More Evidence of a Slowdown
The unemployment rates in May for 11 major industrial states
MAY '95 APRIL '95
California 8.5% 7.9% Florida 5.1 5.6 Illinois 5.5 5.7 Massachusetts 5.0 5.9 Michigan 5.7 5.8 New Jersey 6.5 6.3
New York 6.3 6.8 North Carolina 4.3 4.7 Ohio 4.7 4.5 Pennsylvania 5.7 5.8 Texas 6.0 5.9
Source: Bureau of Labor Statistics and Commerce Department
(See related table: "Index of Leading Indicators" -- WSJ June 6, 1995)
Document j000000020011025dr6500ct1

INTERNATIONAL BUSINESS; Trade in Financial Services Is Dealt a Setback by U.S.
By PAUL LEWIS
866 words
30 June 1995
The New York Times
NYTF
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GENEVA, June 29 -- Dealing a significant setback to the newly created World Trade Organization, an effort to
liberalize trade in financial services apparently collapsed tonight after the Clinton Administration said certain other
countries were not offering American financial institutions enough access to their markets.
American officials said they would give a binding commitment to the organization that would allow foreign
financial service companies already established in the United States to continue operating there under the same
regulatory conditions as their American counterparts. But they said the United States would not accept a new
international agreement under which it would undertake to give all foreign financial service companies full access
to its market and treat them as if they were American companies.
The negotiations covered such financial businesses as banks, insurance companies and investment houses.
In making their announcement, the American officials said foreign financial companies seeking to enter the United
States, as well as foreign companies already there but seeking to expand, would be given clearance only if their
home countries agreed to offer adequate access to American companies.
"This is not the end of the negotiation because we are ready to work with other countries or groups of countries to
improve access," Jeffrey R. Shafer, the Assistant Treasury Secretary for International Affairs, said at a news
conference at the end of the talks. "We will have the option to treat countries that treat us well better than others."
Many trade officials said the American decision -- which came only one day after the United States and Japan
averted at the 11th hour a trade war over Japan's automotive market -- had dealt a significant setback to the new
trading system that was set up earlier this year to replace the General Agreement on Tariffs and Trade. In
particular, they said, it called into question the trade organization's hopes of brokering new trade agreements this
year and next in such other service fields as telecommunications and maritime shipping.
Negotiators had agreed to try to liberalize financial services with a global agreement, not through the bilateral
deals that the United States is now offering.
Renato Ruggiero, the trade organization's Director General, said in a statement that he was "bitterly disappointed"
by the American decision.
The Clinton Administration had set a deadline of midnight Friday for reaching an agreement, and American
officials held out no hope that an accord could be reached during the final day.
"After nine years of negotiation, I do not believe the next 24 hours will bring significant concessions," said Jeffrey
Lange, the assistant special trade representative. "All countries knew this day would come."
Now that the talks for a global pact are apparently over, officials said that some countries might reduce the offers
of market access that they were willing to make at the trade organization. It is thus possible that a negotiation that
was aimed at freeing up world trade in financial services is going to conclude with reduced market access.
Delegates from other countries were angered by the decision by the United States to pursue its own accords. The
15-nation European Union, which negotiates on trade as a bloc, said it was "confused and perplexed" because it
"thought the U.S. was negotiating in good faith."

While the United States said that developing countries in particular were not offering enough market access,
European officials said they were ready to accept the existing access offers by the developing nations. They said
they viewed the offers as a good first step that could be improved upon in four years, when members of the trade
organization will hold new negotiations on financial services.
Japan's delegate said he was "surprised and very disappointed" and warned that the American decision could
lead other countries to restrict access to their financial markets.
American negotiators said they did not expect foreign countries to retaliate against American financial services
companies operating in those markets because the Clinton Administration was guaranteeing the rights of foreign
financial companies operating in the United States.
Officials of the trade organization estimated that international trade in financial services totaled about $300 billion
a year, or about one-third of total world trade in all services. The United States believes its share of that trade
could be substantially increased if its banks, insurance companies and brokerage firms had better access to the
fast-growing economies of Asia and Latin America, whose own financial sectors are still relatively
underdeveloped.
Along with other industrial countries, the United States has said it believes that freer trade in financial services is
necessary if countries are to reap the full economic gains from last year's agreement to increase trade in goods.
But many developing countries have said they should be allowed to protect their young financial sectors until they
are stronger. Some have had their faith in economic liberalization shaken by Mexico's financial crisis, which they
attributed to overreliance on foreign capital.
Rather than opening up their markets to more foreign financial institutions, they want to concentrate on regulating
those they already have more closely.
Document NYTF000020050403dr6u00tas

CREDIT MARKETS; Treasury Prices Rise After Trade Accord Spurs Dollar
By ROBERT HURTADO
944 words
29 June 1995
The New York Times
NYTF
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English
Prices of Treasury securities bounced higher yesterday, erasing early losses after a breakthrough in trade
negotiations with the Japanese buoyed the dollar.
Before that, prices were down as the market geared up for a five-year note auction after a mediocre two-year
auction on Tuesday.
The market has had many concerns these days, among them the United States-Japanese trade negotiations,
which went to the wire. Other concerns have been the supply of new debt issues coming to the market and
whether the Federal Reserve will lower interest rates at the meeting of the Federal Open Market Committee less
than a week away.
The 30-year bond rose 17/32 , to a price of 11418/32 for a yield of 6.52 percent, down from 6.54 percent on
Tuesday.
James Hale, a fixed-income analyst with MMS International in San Francisco, said the successful trade
negotiation and subsequent surge in the dollar were key factors in the market's about-face. "But even after
rebounding on trade-agreement news, trading was still somewhat cautious going into the five-year note," he said.
The auction of five-year notes turned out to be a well-sold affair, even with retail interest from small investors
somewhat subdued. Traders said the $11.5 billion of five-year notes were priced for a high yield of 5.90 percent,
the lowest in almost a year and a half, when it was 5.61 percent on Feb. 24, 1994. Last month the yield was 6.25
percent.
Analysts say yields are moving lower amid expectations that the Fed will lower rates to help bolster the economy.
Sung Won Sohn, chief economist for the Norwest Corporation in Minneapolis, believes the Fed chairman, Alan
Greenspan, will move to cut interest rates next week.
"Chairman Greenspan desperately wants to achieve a soft landing and prevent the economy from skidding into a
recession," Mr. Sohn said. "The Federal funds rate will be cut by half a point. The prime rate and other loan rates
should follow."
Then there is the political factor, Mr. Sohn said. "In a democratic society, Mr. Greenspan cannot ignore political
reality," Mr. Sohn said. "The White House wants to lower interest rates; President Clinton doesn't want to go back
home to Arkansas in 1997."
Mr. Sohn said Congress was likely to cut about $50 billion from 1996 spending. "There has always been an
unwritten quid pro quo between Congress and the Federal Reserve Board," he said. "Interest rates will be cut if
Congress trims spending."
Even with the market holding its gains and feeling good mainly because of the dollar, Mr. Hale said trading was
likely to be cautious heading into a holiday weekend and ahead of the Fed meeting next week, as well as the
employment report next Friday.

"I am 99 percent sure the Fed will go with the rate cut at the meeting and not wait for the employment number,"
Mr. Hale said. There is no consensus on how much the cut will be, he said, but it could be 25 or 50 basis points.
A basis point is one-hundredth of a percentage point.
Mr. Sohn said there was a risk for stocks and bonds. "If interest rates are not cut either in July or August, both
markets will be disappointed," he said. "Interest rates would rise, hurting bonds. Projections for corporate
earnings would be scaled back, damaging stocks."
Analysts said import-export prices for May, released yesterday, put pressure in early trading, as import prices
rose 1 percent and exports three-tenths of a percent, both causing inflation flags to flutter.
Municipal bonds were steady yesterday with some investors reluctant to buy tax-exempt securities after voters in
Orange County, Calif., voted down a tax increase to prevent default on its debt.
Traders said investors were concerned that other municipalities might decide to walk away from their debt
through bankruptcy filings. The average yield to maturity for the Bond Buyer's index of 40 municipal issues rose a
basis point, to 6.17 percent.
Some California borrowers paid the price for that concern yesterday. Alameda County, Calif., sold $85 million in
one-year notes at prices to yield 6.40 percent, 30 basis points more than same-maturity Philadelphia notes and
25 basis points more than Colorado paper, both rated lower.
In the corporate debt market, corporations have sold 61 percent more bonds in the second quarter, as the sharp
drop in interest rates cheapened the cost of borrowing in the financial markets.
The Standard & Poor's Ratings Group said companies issued $68.9 billion in bonds in the three-month period, up
from the first quarter's $42.8 billion.
Industrial companies led the surge in new bonds, nearly doubling their sales in the period to $20.4 billion.
The following are the results of yesterday's Treasury auction of new five-year notes:
(000 omitted in dollar figures) High Yield . . . 5.905% Low Yield . . . 5.850% Median Yield . . . 5.890% Accepted at
low price . . . 51% Total applied for . . . $32,545 213 Accepted . . . $11,504,684 Noncompetitive . . . $242,000
Interest set at . . . 5.875% The five-year notes mature on June 30, 2000.
Graphs: "5-Year Treasury Notes" tracks high yields at quarterly auctions, in percent, from the beginning of 1994
through June 1995. (Source: Treasury Department); "Freddie Mac Yields" tracks average weekly yields on
Federal Home Loan Mortgage Corporation 30-year and 15-year participation certificates since March. Yields track
changes in fixed-rate mortgages. (Source: Federal Home Loan Mortgage Corp.)
Document NYTF000020050403dr6t00sy4

CREDIT MARKETS; Treasury Securities Prices Flat in Subdued Trading
By ROBERT HURTADO
745 words
21 June 1995
The New York Times
NYTF
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English
Prices of Treasury securities were flat yesterday in subdued trading, as investors and dealers waited for more
evidence of a slowing economy and for signals from the Fed.
Traders said light selling pressures hit nearly all maturities ahead of a scheduled speech by the Federal Reserve
chairman, Alan Greenspan, to the Economic Club of New York last night.
"The bond market has sailed through some fairly choppy waters recently, and there are those that wanted to
position themselves defensively, electing to take profits ahead of what may be a volatile session overseas," said
Eric Hamilton, senior fixed-income analyst with Technical Data in Boston. Few people were willing to make any
sizable commitments, in case the speech gave any clues as to the Fed's intentions ahead of the Federal Open
Market Committee meeting next month.
The 30-year bond fell 7/32 , to a price of 11317/32 for a yield of 6.58 percent, up from 6.57 percent on Tuesday.
Treasury secretary Robert E. Rubin told the Senate Banking Committee yesterday that all signs were that inflation
was under control for the foreseeable future.
Mr. Greenspan, who also testifed in Washington before coming to New York, told the committee that he was
monitoring the economy and that there was no single economic indicator that was "all revealing." Analysts said
his comments yesterday gave no clue as to what direction he might be leaning.
The Commerce Department reported on May housing starts yesterday. As expected, they fell 1.3 percent, to
1.239 million units. Building permits gained two-tenths of 1 percent, to 1.245 million, and single-family home starts
fell to 951,000, the lowest since March 1993.
The housing report yesterday was overshadowed by Mr. Greenspan's scheduled speech. The Mitsubishi chain
store sales index was unchanged on a week-over-week basis, and up to 7 percent year-to-year, with sales
characterized as mixed and roughly on plain. "Sales have been mediocore but steady in the past few months,"
said James Hale, fixed-income analyst with MMS International in San Francisco, "suggesting consumption growth
rather than the recessionary conditions some are declaring."
Mr. Hale said, "The report is timely and covers a key variable regarding the future of economic growth and how
consumption is fairing, and it is for that reason, it and the Johnson Redbook are likely to be watched more closely
than in the past."
Thomas E. Donne, vice president and a senior vice portfolio manager at the Banc One Investment Advisors
Corporation in Columbus, Ohio, who says he has been "agressively neutral" for over months, said. "The rally has
pretty much discounted a lot of what we already received in the price of securities, and it will need additional
information of a soft economy before moving any higher, he said."
He added. "If you look at the recent comments by the Fed chairman, the jury is still out." He expects the Fed to
remain on its present path.
"The three reasons I think the Fed will remain cautious," Mr. Donne said, are "that (A) Gradualism works. This is a
$7 trillion economy, you just can't turn it on a dime. (B) The Fed has to preserve its image as an strong inflation
fighter, which is good for the economy because it gives people confidence in the Fed, and (C) The international
scene, where the trading situation is very fluid. We're in difficult negotiations with the Japanese, and for the Fed to
move at this point could be viewed as an intrusion in the process. So the Fed is more likely to play this close to
the vest."
Elsewhere, in the municipal bond market states, cities and agencies sold $2.7 billion of new securities yesterday.
In the day's largest competitive issue, Georgia awarded Goldman, Sachs & Company $303.2 million of triple-A
rated general obligations bonds priced to yield from 3.95 percent for an issue due in 1997 to 5.60 percent in 2012.
Meanwhile, the recent deluge of corporate debt sparked by low interest rates continues to keep rolling. Cox
Communications Inc., Nabisco Holdings Corp. and Fleet Mortgage Group Inc. plan to sell a total of $1.65 billion of
debt in the days ahead, traders say.
Document NYTF000020050403dr6l00q8w

Clearly, the Chairman Tries to Obfuscate Or Maybe He Doesn't --- Alan Greenspan's Language Engenders
Great Interest But Is Tough to Decipher
By David Wessel
1,122 words
23 June 1995
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WASHINGTON -- Is Federal Reserve Chairman Alan Greenspan really all that hard to understand?
Well, as the chairman himself responded to one question this week, "Yes and no."
Central bankers seem bred for their ability to practice intentional ambiguity, but headlines after Mr. Greenspan's
speech to the Economic Club of New York this week suggest he has achieved new heights.
"Greenspan Hints Fed May Cut Interest Rates," said the Washington Post. Not so, replied the New York Times:
"Doubts Voiced by Greenspan on a Rate Cut." Wrong, said the Star-Ledger of Newark, N.J.: "Cautious
Greenspan Hints at a Cut in Rates." No, he didn't, countered the Baltimore Sun: "Change Unlikely in Interest
Rates; Greenspan Dampens Speculation on Cut."
The Manchester (N.H.) Union-Leader was on to something when it declared, "Greenspan: Uncertainty Abounds."
Never mind that during the speech, the Fed chairman explicitly said he didn't intend to give any clue about
whether he wants interest rates cut at the meeting of Fed officials on July 5-6.
"I spend a substantial amount of my time endeavoring to fend off questions and worry terribly that I might end up
being too clear," he told the black-tie crowd at the New York Hilton. They laughed, but it wasn't entirely clear
whether he was joking.
In fact, Mr. Greenspan is far more open in public than predecessors like William McChesney Martin and Arthur
Burns, according to longtime Fed listener David Jones of Aubrey G. Lanston & Co., a New York securities firm.
"They prided themselves on leaving Congress totally confused," he says.
Although markets and reporters scrutinize every Greenspan word to discern his views on interest rates, Mr.
Greenspan simply doesn't speak in short declarative sentences that ordinary people can understand. "You
wouldn't want Alan Greenspan to write the instructions for assembling a beach chair," says Robert Orben, a
former speech-writer for President Ford. New York economist Jeremy Gluck once imagined that Mr. Greenspan's
tombstone would read: "I am guardedly optimistic about the next world, but remain cognizant of the downside
risk."
Mr. Greenspan has an unparalleled affection for dependent clauses and is enamored of the words "endeavor"
and "engender." Even when he is trying to be clear, it's hard to tell. "We basically endeavor to project the
economy by trying to infer what imbalances exist currently," he told a congressional committee last year. And that
was one of his few sentences short enough to quote in its entirety.
To the practiced listener, Mr. Greenspan speaks, if not always with clarity, then with precision. "Greenspan
speaks in long, convoluted sentences. They are logical. They say what he wants to say," says former Fed staffer
Scott Pardee, now a senior adviser to Yamaichi International (America) Inc., a unit of Tokyo-based Yamaichi
Securities Co. "You have to get into the rhythm of his presentation. Too often if you take one slice out of what he
has said, and say, `Aha! That's what he wants to say,' you've missed the point."
One rule that veteran Greenspan listeners use: When the chairman says something is "extraordinary," it isn't. In
one 1992 appearance before Congress, Mr. Greenspan used the word a dozen times.

In recent months, Mr. Greenspan has labeled as "extraordinary" all of the following: economic reforms in Mexico,
capital flow to Mexico and the U.S. response to the financial crisis there; inflation in the 1970s; the size of the
future deficit and congressional willingness to do something about it; recent changes in international financial
markets; U.S. economic growth in 1994's second half, and the number of his appearances before Congress so
far this year.
Something about monetary policy tantalizes the poet that lurks deep -- very deep -- within central bankers.
"Monetary policy never ends," Mr. Greenspan told the Senate Banking Committee earlier this year. "It's like the
luggage carousel in the airports." Perhaps that's because the old metaphors are tired -- the Fed as a driver with a
gas pedal and a brake, and Mr. Martin's description of the Fed's job as taking away the punch bowl just when the
party is getting good.
There is hope. Fed Vice Chairman Alan Blinder is the first Fed governor in decades with the wit and the wish to
find some new ways to describe the Fed's job. Arguing that the Fed must act in anticipation of changes in the
economy, he warned against "the Bunker Hill strategy," which he defined as: "Wait until you see the whites of
their eyes and then fire." Such an approach, he said, is sure to fail. "By the time you see the whites of their eyes,
they've already shot you right through the heart."
The alternative policy? "The `stitch in time' strategy. You try to save nine by stitching in time," says Mr. Blinder,
proving that it takes more than will to come up with an original metaphor.
Mr. Greenspan has yet to embrace Mr. Blinder's rhetorical advice.
Mr. Blinder, almost alone among his colleagues, argues that Fed officials should say more about what they are
doing than they already do. Even though he eschews the traditional ambiguity of Fedspeak, he's not sure the
press will ever get it right. "If you try to give an on-the-one-hand-or-the-other-hand answer," he complains, "only
one of the hands tends to get quoted."
But sometimes Mr. Greenspan sets out to obfuscate on purpose, and he does so with, well, extraordinary
success. "That's what he really wanted to do this week," says Lyle Gramley, a former Fed governor. "He doesn't
at this junction want to tell the market which direction he wants to go."
Or, as Mr. Greenspan told a persistent questioner this week, "I'm trying to think of a way to answer that question
by putting more words into fewer ideas than I usually do."
So the conflicting headlines may not upset him. After he spoke briefly in Seattle earlier this month, the New York
Times said "Greenspan Sees Chance of Recession," but this newspaper said "Fed Chairman Doesn't See
Recession on the Horizon."
This caused CIT Group, a Livingston, N.J., financial-services firm, to run a full-page ad with both headlines and
the comment: "Confused? Who Wouldn't Be."
Mr. Greenspan has asked for a framed copy.
(See related letter: "Letters to the Editor: A Familiar Ring" -- WSJ July 19, 1995)
950623-0013
YY95 MM07
Document j000000020011025dr6n00d98

International
Canadian Firm Is Facing U.S. Sanctions --- Sherritt Ventures May Be Punished Due to Cuba Ties
By Wall Street Journal Reporters Jose de Cordoba in Miami And Carla Anne Robbins in Washington
882 words
13 June 1995
J
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In a shot across the bow to Cuba's efforts to attract foreign investment, the U.S. Treasury is expected to put four
Canadian-Cuban companies formed by Canadian metals company Sherritt Inc. on its so-called blacklist.
U.S. officials say the companies, at least three of which are part of a joint venture between Sherritt, based in Fort
Saskatchewan, Alberta, and General Nickel Co. SA, Cuba's state nickel company, will soon be named "special
designated nationals." They would thus be considered Cuban agents and prohibited from selling to or buying from
the U.S.
Analysts say the Treasury decision, although largely symbolic, could still have a chilling effect on foreign firms
seeking to invest in Cuba. "It will have an impact on how non-U.S. companies structure transactions with Cuba,"
says James Whisenand, a Miami lawyer who publishes the Cuba Report newsletter. "Most major non-U.S.
businesses won't want their affiliates to be structured as Cuban nationals and blacklisted in the U.S."
A spokeswoman said Sherritt hasn't been contacted by U.S. officials and is "in the dark." She declined to
comment on the potential impact, but noted that Sherritt's Cuban ventures are already prohibited from selling to
the U.S.
Treasury sanctions would anger Canada, which has long objected to Washington's attempts to limit trade with
Cuba. "We consider this to be an unwarranted extension of U.S. law against a Canadian company," says Charles
Larabie, spokesman for the Department of Foreign Affairs and International Trade in Ottawa. "We aren't about to
shy away from doing business with Cuba because it doesn't suit U.S. foreign policy."
The Treasury's move, which officials say was decided after a 10-month study, comes at a time when Cuba and
the U.S., longtime Cold War adversaries, appear to be taking halting steps toward a less antagonistic relationship.
Just last month, Cuba and the U.S. negotiated an agreement limiting Cuban immigration, infuriating many
Cuban-Americans. Last week, Cuba hinted it may return fugitive financier Robert Vesco, who has been living
under the Cuban government's protection since 1982.
But even as the U.S. considers other conciliatory moves, such as allowing expanded contacts between
Americans and Cubans, the U.S. Congress is refining legislation which would penalize foreign companies, like
Sherritt, that are doing business in Cuba with confiscated U.S. properties.
U.S. officials say the Treasury decision has nothing to do with the legislation, introduced by Republican Sen.
Jesse Helms, even though the timing would help the administration mollify critics who say it is soft on Cuba. "I
wish we were that clever," says a senior U.S. official.
Lawyers who follow the issue say a Treasury designation may affect Sherritt's ability to raise money in U.S.
financial markets if part of the money were to be destined for the Cuban joint venture.
"A U.S. bank wouldn't want to be in the position of violating the embargo," says Matias Travieso Diaz, a member
of the Washington law firm of Shaw, Pittman, Potts & Trowbridge.
Sherritt is among the most aggressive companies investing in Cuba. The U.S. finds its activities particularly
galling because Sherritt is exploiting former U.S. properties in Cuba, a nickel mine and processing plant at Moa
Bay, which were expropriated without compensation by the Fidel Castro government from a predecessor of
Freeport-McMoRan Inc. of New Orleans.
The Treasury decision will affect companies formed in a joint venture agreement announced in December. A
Sherritt news release said the company plans to invest $109 million to upgrade and expand the Moa Bay nickel
plant in Cuba during the next five years.
Under the agreement, Cuba now has a 50% share of the Cobalt Refinery Co., which has a plant in Fort
Saskatchewan, Alberta. Cuba also has a 50% share of the International Cobalt Company Inc., which is in charge
of sales and marketing. The third jointly owned company is Moa Nickel SA, which includes the mining and
nickelprocessing operations in Cuba. It wasn't immediately possible to learn the identity of the fourth company.
Cuban officials have touted Sherritt's Cuba venture as an example of the new, capitalism-friendly Cuba, noting
that they didn't insist on owning a majority interest. They point out that the continuing U.S. embargo prevents U.S.
companies from enjoying similar benefits.
"Who discovered nickel in Cuba? The Americans. Who developed it? The Americans," said Raul Taladrid, Cuba's
deputy minister for foreign investment, in a recent interview. "You're losing an historic opportunity."
---
Mark Heinzl in Toronto contributed to this article.
--- Sherritt's Operations
Based on contribution to first-quarter 1995 revenue of $225.9 billion Canadian dollars
Fertilizers 47%
Metals 35%*
Specialty Products 11%
Oil & Gas 7%
Engineering Less than 1%
*Sherritt and Genral Nickel Co. SA of Cuba formed a 50-50 joint venture last December that mines nickel and
cobalt in Cuba, refines it in Alberta and markets it world-wide, except for the U.S.
Document j000000020011025dr6d00crp

The Outlook
Budget Battle Is Likely To Drag On Until Fall
By David Wessel
907 words
19 June 1995
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WASHINGTON -- This year's budget battle won't come to a climax until this fall.
It could be a political Bosnia, a bloody war that leaves victims everywhere. Or it could end up like Haiti, where a
last-minute negotiated settlement avoided bloodshed.
The odds of the first scenario remain high. Each side has reason to hope the other will flinch first.
Republicans are confident they can force the president to accept their package of spending and tax cuts by tying
it to legislation the president must sign to lift the federal debt ceiling and keep the government operating after the
fiscal year ends Sept. 30. If he vetoes it, he gets blamed for gridlock. The White House figures Republicans can't
maintain the unity such a confrontational strategy requires. And in the Republicans-in-charge world, the GOP gets
blamed if the government closes down.
But last week, Mr. Clinton took a step toward the second scenario with his opening negotiating offer. After
pausing to review the details, Republicans have decided to ignore him, relieved that he has provided some
political cover for what they are doing. As House Majority Leader Dick Armey puts it, the president "has
conceded" on all big political issues, such as balancing the budget by a set date and squeezing Medicare. To the
public, the Texas Republican says, "It's just a matter of difference on details."
On some "details" there is surprisingly little disagreement. Mr. Clinton is now willing to curtail spending on food
stamps and other nutrition programs almost as much as Republicans. He proposes to cut farm subsidies less
than Republicans, but that is no sticking point. It's hard to imagine a headline that reads: "Clinton Rejects
Dole-Backed Farm Cuts." There are few significant differences on defense spending, Social Security or veterans
benefits.
Here are some guesses on how the major disagreements might be resolved.
TAXES: The biggest argument over taxes right now is between Republican deficit-phobes in the Senate and
Republican tax cutters in the House. It may take a few more weeks, but eventually they are likely to find a
compromise. Sure to survive: some sort of tax credit for families with children, perhaps a temporary one; an
expansion of tax incentives to encourage retirement savings; a sweetening of investment write-offs for small
business and a capital-gains tax break. The most likely losers: big corporations hoping for some tax relief.
Mr. Clinton would like a tax deduction to help people pay college tuitions, but he is in no position to insist. For him,
the make-or-break issue will be how much of the GOPbacked tax break goes to the middle class. But he has
always been more willing than most of his advisers to go along with a capital-gains tax break. Scale it back
somehow and trim a few corporate tax breaks to "share the pain," and he may go along.
DOMESTIC SPENDING: Despite all the rhetoric about his new fiscal rectitude, Mr. Clinton's new balanced-budget
plan calls for spending just as much on annually appropriated domestic spending as does his February budget.
Republicans want to spend substantially less and are likely to prevail on the totals. He believes in government
"investment" spending. They don't. Mr. Clinton isn't in any position to demand that Congress spend more money
overall. His price is protecting spending on education and training. Give him that, and he may reluctantly accept
deep cuts elsewhere.
HEALTH: Republicans want to squeeze Medicare and Medicaid more than the president does, but the differences
are magnified by disagreement between congressional and administration bean counters over how much federal
health-care spending is growing. Resolve this, and the two sides are a bit closer. Mr. Clinton says he wants to
avoid charging Medicare beneficiaries more, but he is unlikely to stick to that. His price for backing
GOP-approved changes to Medicare: Make changes to the private health-insurance system that many
Republicans already favor.
A bigger obstacle is Medicaid: Republicans want to give each state a set sum, a "block grant," to care for its poor,
just as they propose to do for welfare. Mr. Clinton says that risks inflicting pain on the poor; so far, he shows no
signs of going along.
"There are philosophical differences and differences in priorities," White House Budget Director Alice Rivlin said
last week, "but in the end it really comes down to how rapidly you move to a balanced budget."
If Republicans, perhaps using the weak economy as an excuse, settle for balance in eight years instead of seven,
the odds of a deal go up. That would be a plus for the economy. A more-or-less amicable deal would please
financial markets, bringing interest rates down to offset the contractionary effects of deficit reduction.
The next few months promise to be confusing and, to some extent, irrelevant. What matters is the final peace
treaty, be it the terms of surrender by the president or a negotiated settlement.
--- Spending Gap
Clinton and GOP proposed spending, fiscal year 2002, in billions of dollars
HOUSE SENATE CLINTON GOP GOP
Defense* $281 $280 $260
Nondefense* 293 243 248
Medicare** 260 259 283
Medicaid 150 121 125
Other benefits 723 663 677
*Annual appropriation
**Partly reflects differing view of current trend
Sources: White House, budget committees
Document j000000020011025dr6j00e9y

Economy
Disputes Between G-7 Nations Crowd Out Big Issues at Summit --- Annual Meetings in Future May Be
Less Formal; IMF Reforms Approved
By Wall Street Journal Reporters Bob Davis, Peter Gumbel and Rick Wartzman
998 words
19 June 1995
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HALIFAX, Nova Scotia -- Leaders of the Group of Seven industrialized nations want to scale back their annual
summit after this year's meeting became as much a forum for bilateral squabbles as it was a showcase for
international cooperation.
The summit did approve a modest package, urged by the U.S., to reform the International Monetary Fund.
Treasury Secretary Robert Rubin said that if the safeguards had been in place last year, Mexico's financial crisis
"never would have built up this way."
The leaders also reported progress on other issues, including agreeing to a top-level meeting in Russia next year
on nuclear safety. And the U.S. was particularly pleased that the leaders condemned Iran using stronger
language than they have in the past.
But the leaders of the G-7 countries -- U.S., Japan, Germany, Britain, France, Italy and Canada -- spent much of
their time trying to resolve one-on-one disputes. The U.S. took on Japan over autos, the Japanese took on the
French over nuclear tests, the Germans took on Britain over the planned sinking of an oil rig in the North Sea, and
everyone took on the U.S. Congress for its reluctance to provide funds for new troops being sent to Bosnia.
There was little action on the key economic issues of the day, which include the worrisome signs of an economic
slowdown, continued turbulence on foreign-exchange markets and expansion of the world trading system.
Improving cooperation on such issues was precisely why the summit system was set up in 1975. Meanwhile, on
pressing political issues such as the wars in Bosnia and Chechnya, the summit merely spotlighted the G-7's
impotence.
Some European leaders say they are determined to improve the way future G-7 meetings are staged. Next year's
gathering in Lyons, France, is expected to be far less formal. Foreign and finance ministers may not even be
invited, and Jacques Chirac, the French president, says he wants the summit to focus on two to three key issues
at most. Mr. Chirac described the final communique from the Halifax meeting as "too long and unread." British
Prime Minister John Major also told his colleagues that future summits should be less "institutionalized and
ritualized," officials said.
Some U.S. officials privately cautioned, however, that intentions to scale back the summit have been expressed
many times in the past, to no avail. They also argue that the G-7 meetings can set in motion important initiatives.
Previous summits, for example, have paved the way for providing aid to the former Soviet Union.
This year, the G-7 approved a plan to push IMF members to publish timely financial data that would alert
financial markets to emerging problems and give them a chance to react before a crisis erupts. The IMF also
would issue a list of nations that meet its disclosure standards.
Nations that don't make the list would find it "exceedingly difficult to raise money on the global market," Mr. Rubin
said. Though the financial data wouldn't be audited, he said, it would be a "suicidal move" for nations to publish
bogus figures. Mr. Rubin, a Wall Street veteran, said financial houses would detect deception and refuse to lend
more money.
In addition, the G-7 urged the IMF to set up an "Emergency Financing Mechanism," a fancy name for a procedure
to permit the IMF's managing director to try to ram through loans for countries facing Mexican-style financial

crises. The money would come from an IMF kitty called the General Arrangements to Borrow, a $29 billion line of
credit provided by 11 big industrial countries and Saudi Arabia. The G-7 envisions doubling the credit line, and
inviting newly rich Asian nations to join.
But it's far from clear whether Congress would approve any new U.S. commitment, which could easily top $1
billion. The U.S. already is committed to providing as much as $6.4 billion to the fund. Mr. Clinton argued,
however, that providing additional money to the fund is simply a "risk-free" loan.
Further, the G-7 agreed to study a more-ambitious plan to set up a kind of international bankruptcy court to help
nations work through insolvency. The industrialized nations also agreed to hold a separate G-7 jobs summit next
year in France.
Movement on these issues, however, was in many respects overshadowed by a plethora of disputes between the
individual nations. The battle over autos between the U.S. and Japan dogged summiteers. During one session,
several European leaders complained to President Clinton that the fight was becoming a problem for them,
presumably because it threatens to undermine the new World Trade Organization. Mr. Clinton responded that
he's "quite serious" about imposing sanctions if the U.S. and Japan can't reach a deal, but "this was not the place"
to discuss the issue, according to a State Department official.
Separately, officials from Japan's Ministry of International Trade and Industry who run the auto negotiations,
made it clear that Japan's position hadn't softened, either. On Thursday, Prime Minister Tomiichi Murayama
appeared conciliatory, but MITI officials said he was merely reflecting the traditional Japanese reticence to get
into public confrontations.
"The problem here pertains to the fact the U.S. is resorting to unilateral action," said Yoshihiro Sakamoto, MITI's
vice minister and chief negotiator. "It's fine for the U.S. to be aggressive, but to resort to unilateral action is a
problem." Negotiations resume Thursday in Geneva, with neither side expecting a breakthrough. Mr. Clinton has
threatened to impose 100% tariffs on Japanese luxury cars, imports valued at $5.9 billion, on June 28 unless
Tokyo opens its auto market further.
Document j000000020011025dr6j00ecy

Confidence Of Consumers Falls Sharply
By ROBERT D. HERSHEY Jr.
715 words
28 June 1995
The New York Times
NYTF
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WASHINGTON, June 27 -- Consumer confidence took its steepest fall in nearly three years in June, dropping to
the lowest level since late last year, the Conference Board reported today.
The surprisingly big decline reported by the Conference Board, a New-York based business research group, was
taken as a sign that consumers, their incomes growing slowly and saddled with high debt, will continue to spend
cautiously in coming months.
Still, analysts tended to play down the effect of this latest economic reading on the Federal Reserve, which many
believe is likely to lower short-term interest rates at a meeting next week.
They said that in recent years confidence had been more a mirror of current conditions than a predicting, or
leading, indicator. "Confidence is sort of coming into line" with flat sales early this year, said Bruce Steinberg, a
senior economist at Merrill Lynch. He added that consumer spending, which accounts for about two-thirds of
economic activity, "is not going to come roaring back."
The Conference Board said that its overall index skidded to 92.8 in June from 102 in May. This was the lowest
since October, when the index, based on a survey of 5,000 households, stood at 89.1.
Eight of nine geographic regions -- the only exception being the eastern south-central states -- showed declines.
As in May, the lowest confidence was in the Middle Atlantic region, followed by New England.
The expectations component, which seeks to gauge activity over the next six months, was especially weak,
plunging to 81.3 from 93.1, on a small decline in the number of consumers who expected business to improve
and a moderate increase among those who feared it would worsen. Expectations are now the lowest since
November 1993.
"Despite the relatively large decline in confidence in June and other signs of a slowing in the pace of the nation's
economic growth, the current confidence level has been historically associated with a reasonably strong
economy," said Fabian Linden, executive director of the board's Consumer Research Center. "Still," he said, "the
magnitude of the decline is somewhat disconcerting."
Today's report was somewhat at odds with preliminary June data on public confidence published by the University
of Michigan last week. That report, according to subscribers, showed a rise to 92.3 from 89.8 in May, returning to
about the same level as in April.
Bond prices, which tend to rise on weak economic data, rallied after the Conference Board report was released.
But they retreated later in the day, weighed down by a lackluster auction of Treasury notes and a strong weekly
retail sales report from Johnson Redbook.
"We still think the economy's essentially in an inventory correction" and will begin to pick up in the second half of
the year, said John E. Barnds, director of business and banking analysis for NBD Bank in Detroit.
But slow income growth and concern over jobs will restrain this, he added, and he predicted that there would be
relatively little benefit from home-mortgage refinancing.

Unlike in 1993, when refinancing boomed, today's relatively low long-term rates have mainly induced home
owners to shift from adjustable-rate mortgages to fixed-rate mortgages. This means that relatively few people are
reducing their monthly payments -- indeed, they are often higher -- and few are withdrawing equity that could spur
other spending, Mr. Barnds said.
As for current business conditions, the Conference Board found people moderately less positive than in May. The
June reading was 110.1, down from 115.4 last month and from the peak recent reading, in April, of 116.2.
For employment, slightly fewer respondents called jobs in the current market plentiful, while the number of those
reporting jobs hard to get were unchanged. Pessimists continued to outnumber optimists by a fairly large margin
on the question of future job opportunities.
The drop in overall confidence was the largest since July 1992, when the economy was clawing its way out of
recession.
Geographically, the highest confidence by far, at a reading of 126.3, was recorded in the Mountain states. In
second place, at 112.4, were the states of the eastern north-central region.
Document NYTF000020050403dr6s00swn

REVIEW & OUTLOOK (Editorial)
A Growth Democrat
624 words
27 June 1995
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Miracles do happen, even in our nation's capital. In that category we'd put a Congress that cuts spending, and
even more amazing, a Democrat who endorses a cut in the capital gains tax.
Congress still has to prove itself, but Connecticut Senator Joe Lieberman actually performed his tax miracle last
week. Along with Utah Republican Orrin Hatch, Mr. Lieberman introduced a bill to cut the capital gains rate in a
way that isn't too far away from the proposal that has already passed the House. We hope James Carville -- the
legendary soak-the-rich Democratic consultant -- was sitting down when he got the news.
Mr. Lieberman's proposal is news because it breaks from what has become, since the late 1980s and into the
1990s, the class-war orthodoxy of the Democratic Party. This view holds that tax policy is really all about political
distribution, not economic growth. So tax cuts are acceptable only if they are "targeted to the middle class," as
President Clinton likes to say.
Tax cuts can't really do much for investment, in this view, and in any event Democrats can use the capital gains
issue to portray Republicans as tools of "the rich." Thanks to George Mitchell and Mr. Carville, among others, this
orthodoxy has controlled fiscal policy in Washington since George Bush signed away his tax birthright in 1990.
The time is ripe for a change, not least because the U.S. economy could use a fiscal boost. The expansion has
slowed in this year's second quarter and job growth has plateaued. While financial markets remain buoyant,
overall economic gains aren't robust enough to provide the income gains we all want.
With fiscal policy frozen by Mitchellnomics, all eyes have been on the Federal Reserve. But Alan Greenspan can't
easily steer an economy with the single oar of monetary policy. In any event, it operates with lags, so even if the
Fed decides to ease at next week's policy meeting, the impact won't be felt until well into 1996, or later.
Republicans have put fiscal policy back on the table with their tax proposals, though even they seem more
interested in distribution than growth. We appreciate that the GOP's $500 family tax credit is a way to raise
after-tax incomes immediately, but the only way to keep incomes rising is to spur general prosperity. The only tax
cut in the GOP package that we see spurring growth is the one on capital gains.
Yet this is also the only one that Democrats seem to want to attack for political reasons. That's where Mr.
Lieberman can make his mark. His "Capital Formation Act" puts the emphasis back on growth. We wish his
proposal included indexing, which would offset for future inflation that can turn long-term gains into losses. He
and Senator Hatch have also included a "targeted incentive" for small business that is designed to lure other
Democratic support but smacks too much of industrial policy. But these problems matter less than the bill's 50%
capital gains tax exclusion, which would reduce the top rate to 19.8% from 28%, and even lower for
middle-income earners.
"There's no question this is an uphill fight in the Democratic Party, but it's a fight worth making," Mr. Lieberman
tells us. "I don't think the class angle does anything but firm up a hard-core Democratic base. It doesn't take us
into the broad middle class, which wants upward mobility." With talk like this maybe Mr. Lieberman can persuade
his friend in the White House to stop attacking "the rich" and become a growth Democrat, too.
Document j000000020011025dr6r00e1k

U.S. Rejects WTO Plan on Opening Financial Markets
AP-Dow Jones News Service
285 words
30 June 1995
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GENEVA -- The World Trade Organization is unlikely to reach an agreement on liberalizing international markets
for financial services by today's deadline, a U.S. official said.
Jeffrey Shafer, assistant treasury secretary for international affairs, confirmed that the U.S. had rejected the
package of financial liberalization measures put forward at the WTO.
Mr. Shafer said the U.S. is prepared to continue negotiations, though he said it's extremely unlikely a deal will be
reached by today.
"We stand ready to work with any country or group of countries who are ready to open their markets on an equal
basis with us," Mr. Shafer said.
The U.S. will maintain its General Agreement on Tariffs and Trade offers protecting existing activities of foreign
financial services companies in the U.S.
But from July 1, the U.S. won't agree to bind open the U.S. market and guarantee national treatment for new
activities in the financial services area.
"From July 1, the U.S. will not have a [most favored nation] obligation with governments as far as new activities in
banking, securities, insurance, fund management and other financial services are concerned," Mr. Shafer said.
But the U.S. doesn't intend to restrict entry by anyone. "The aim is to open markets, not to close them," Mr.
Shafer said.
The move has dealt a blow to the new WTO established six months ago to police global-trade rules.
WTO's new Director General Renato Ruggiero has personally lobbied member countries over the past few
weeks, including the U.S., in the hopes of a successful conclusion to the negotiations.
Document j000000020011025dr6u00fe2

The Inequality Myth: Getting Richer (At Different Rates)
By John C. Weicher
1,379 words
14 June 1995
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The 1980s are turning out to be the most interesting decade in American economic history since the 1930s, a
subject of endless debate. Now economic inequality is back in the news, as critics of the Contract With America
cite the 1980s to argue that Republican proposals to cut taxes and spending will increase disparities in wealth:
The rich will get richer and the poor will get poorer, just as they did when Ronald Reagan was president.
The problem with this argument is that the distribution of wealth was about the same after all the policy changes
as it was before. It's true that the rich got richer, but so did the middle class and the poor, to about the same
extent -- and different people were rich at the end of the decade than at the beginning.
There is not much information on the wealth of individual Americans. The most extensive data come from surveys
of several thousand households conducted every few years for the Federal Reserve Board. These households
are asked detailed questions on their assets and their debts. The surveys are expensive, so they aren't conducted
very often. The two most recent ones that have been made available to researchers happen to be for the years
1983 and 1989, years that bound the long economic upturn that started under President Reagan. The story they
tell is not one of increasing inequities and immiseration.
The surveys show, first of all, a huge increase in the total real wealth of American households -- to $16.8 trillion in
1989 from $12.7 trillion in 1983. The wealth of the average household rose by about 20%, to $181,000 from
$151,000. (These are net-worth figures, after debts are subtracted from assets. All the numbers are expressed in
1989 dollars.)
As the accompanying table shows, average wealth increased for every type of household except one -- single
women with children. Average wealth also increased for all but two age groups: For those under 25, it fell 13% to
$13,500 from $15,300, and for those between 65 and 74, it fell 7% to $254,800 from $273,300. Average wealth
for every other age group increased by at least 8%.
The surveys report increases for every identified racial and ethnic group. Average wealth rose by about 24% for
white households and 35% for blacks. Both of these categories exclude Hispanic Americans. Their circumstances
are less clear because the two surveys identify race and ethnicity differently -- in 1983 by the enumerator, in 1989
by the survey respondent. Enumerators counted half as many individuals as Hispanics, compared with the
respondents' self-identification, and only one-quarter as many as members of "other races" (a residual category
combining Asian Americans and American Indians/Alaska natives). Thus figures for these groups are suspect.
But for what they are worth, the data show a 54% increase for Hispanics.
Although wealth for minorities grew faster than for whites, there were still very large differences in 1989. The
differences become much smaller, however, and in fact are no longer statistically significant, when other factors
such as age and education are taken into account. Members of minority groups are typically younger than whites,
and therefore have had less time to accumulate assets, and they are typically less well educated.
While most people were getting richer, the gap between the rich and the poor did not change much, if at all,
during the Reagan boom years. By some measures, the distribution of wealth became less equal, but by others it
became more equal; and by all measures, the changes were quite small. More measures show an increase in
inequality, but most of the changes don't pass the conventional statistical tests used by most economists to
decide whether a change has in fact occurred. The safest conclusion is that the hypothesis of increasing
inequality of wealth is not proved.

The reason for this verdict is that the results depend on technical issues that arise in analyzing the surveys -- how
to extrapolate to all households from the sample interviewed in the survey, and how to reconcile the survey totals
for specific categories of assets and debts with other information, such as matching the value of checking
accounts reported by households in the survey with total household checking accounts as reported by banks.
These are complicated issues, and serious professional economists and statisticians with no political ax to grind
reach different conclusions on how to resolve them. But the conclusion as to whether the distribution of wealth
has become more unequal turns out to depend on how they are resolved.
That's because the measured changes are so small. If there were a large change, it would show up under all or
most ways of measuring wealth. The conclusion that there was a substantial increase in average wealth for all
households does hold, no matter how the technical issues are resolved. The change in the distribution of wealth
is simply too close to call.
The conclusion that the distribution of wealth didn't change may come as a surprise. Stock prices went up very
rapidly as inflation came under control, and stocks are held mainly by the well-to-do. But home equity increased
among the two-thirds of American households that own a home, as house prices rose moderately and they
continued to make their mortgage payments. This growing wealth among the middle class, and a substantial
minority of the poor, was enough to offset the effect of the stock market boom and leave the relative position of
the rich unchanged. In 1983, the richest 1% of U.S. households owned about 39% of the wealth in the country. In
1989, they owned about 36%.
But "the richest 1%" don't seem to be the same people at the end of the boom as at the beginning, by and large.
At least, the sources of their wealth are strikingly different. The surveys do not provide information on the same
households in each year, but they show noticeable differences between those in the top 1% in the two years,
enough to suggest that many of the individuals themselves were different. After the six years of economic growth,
unincorporated business constituted a larger share of their wealth, and stocks a smaller share. And they owned
different types of businesses. In 1983 more of them were in professional practice -- doctors, lawyers or
accountants -- than any other occupation. In 1989, more of them were in real estate and insurance. The data
suggest a dynamic economy in which individuals were creating wealth in new ways. Additional evidence of
mobility is the fact that many more of the richest 1% in 1989 were relatively young, under 45 years of age -- 17%
compared with 11%.
Did the rich get richer and the poor get poorer during the Reagan years? No, or at least not much, if at all. The
distribution of wealth hardly changed. But even if it did become slightly more unequal during the 1980s, that
wouldn't invalidate U.S. economic policy. After all, would most Americans prefer to go back to a world of
double-digit inflation and 50% marginal tax rates for middle-income families -- and 20% less wealth per family -- if
in return they knew that their richer neighbors were hurt more than they were themselves by the change? It
seems like a poor bargain.
---
Mr. Weicher is a senior fellow at the Hudson Institute. This article is adapted from an article appearing in Federal
Reserve Bank of St. Louis Review.
--- The Wealth of American Households
(Average wealth in 1989 dollars)
1983 1989 % CHANGE
All Households $150,900 $180,700 +20% By Household Composition: Married couple, $271,900 $305,400 +12%
no children at home Married couple, with children $132,100 $175,100 +33% Single men, $89,200 $125,500 +41%
with or without children Single women, $83,600 $95,700 +14% no children at home Single women, with children
$36,200 $32,200 -12%
By Race or Ethnicity: White, non-Hispanic $175,100 $216,400 +24% Black, non-Hispanic $35,900 $48,600 +35%
Hispanic $31,900 $49,200 +54%
Document j000000020011025dr6e00d44

Farm Subsidies Face Onslaught By House Group --- Bipartisan Coalition Seeks To End All Supports In a
Five-Year Period
By Bruce Ingersoll
823 words
14 June 1995
J
A4
English
WASHINGTON -- For the first time since the New Deal, a bipartisan House coalition is mounting a legislative
assault on the fortress of subsidized agriculture: the income-support programs for thousands of cotton, rice,
wheat and feed-grain growers.
The alliance of conservative Republicans and urban Democrats is introducing a bill today that would phase out all
agricultural entitlements in the next five years. It would save an estimated $27.5 billion through the year 2002.
Because of circumstances -- notably, the Republican revolution last November, the urgency of deficit reduction
and the farm economy's robust health -- the coalition has a chance to pull it off.
Never before has there been a farm-subsidy attack quite like this one. "It's sort of a D-Day landing," says Rep. Pat
Roberts (R., Kan.), archdefender of the New Deal-era farm program. Instead of just trying to pick off a couple of
smaller programs, such as peanuts and sugar, the coalition is attacking the basic premise of supply-management
farm policy by going after the big-ticket commodity programs.
"Finally, once and for all," asserts Democratic Rep. Charles Schumer of New York, a sponsor of the new
measure, "we are going to wean American agriculture from subsidies and move it to the free market."
Currently, farmers are reaping $10 billion a year in so-called deficiency payments and other benefits.
Traditionally, most of them vote Republican. Ending such entitlements would test "the credibility and good faith of
the new Republican majority," says Rep. Richard Zimmer, a New Jersey Republican who also is a sponsor.
Beyond raising the stakes in a 1995 farm-bill struggle, the Zimmer-Schumer proposal makes farm subsidies an
even more volatile issue for President Clinton and Republican presidential candidates. Moreover, a political
backlash over the issue could weaken Republican control of the House. While the farm vote is no longer a
decisive factor in national elections, it can tip the outcome of presidential primaries and congressional races.
Every presidential aspirant has the Iowa primary on his mind, and every one has a different tack on farm policy.
President Clinton, vowing to "do no harm" to agriculture, would cut farm spending by only $1.5 billion in the next
five years. In contrast, the Senate Budget Committee has proposed $8.8 billion in spending reductions, while the
House Budget Committee has called for $9 billion over five years.
So far, Senate Majority Leader Bob Dole of Kansas and Sen. Phil Gramm of Texas have deliberately said little on
farm issues beyond acknowledging the inevitability of some agriculture-budget cuts. Sen. Dole is expected to
weigh in eventually on the side of moderate cuts and continued funding for farm-export programs. Meanwhile,
Senate Agriculture Committee Chairman Richard Lugar of Indiana has set himself apart from his GOP
presidential rivals by proposing $15 billion in farm cuts over five years.
As a result, Sen. Lugar finds himself in the same camp as the House agricultural-reform group. He would reduce
so-called target prices for all the major crops by 3% annually in the five-year life of the next farm law, but he
wouldn't terminate deficiency payments, which make up the difference between target and market prices.
The Zimmer-Schumer proposal would abolish subsidy payments altogether in fiscal 2001 after a five-year phase
out. In the interim, farmers who earn more than $100,000 annually in nonfarm income would be barred from
collecting subsidies. And to get the Agriculture Department out of supply management, the bill would abolish
acreage-reduction programs and end payments to farmers for taking land out of production.

Nobody is discounting the possibility of revolutionary change in farm law. The Zimmer-Schumer coalition is trying
to recruit more than 70 freshmen GOP lawmakers who ran as fiscal conservatives and free-market advocates. It
also has a prominent ally in House Majority Leader Richard Armey, a Texas Republican who is pushing his own
bill to scuttle the peanut price-support program. He is expected to let Reps. Zimmer and Schumer lead the attack
on whatever farm bill is brought to the House floor by Rep. Roberts, leader of the so-called Aggies.
"Until now, there never really have been committed people with momentum behind them," notes James C.
Webster, publisher of a well-regarded agricultural newsletter.
Developments in the House will undoubtedly influence what happens in the Senate. It's quite possible that the two
sides could compromise by adopting the only part of the Zimmer-Schumer bill favored by the White House-ending
subsidies to well-off farmers with a lot of nonfarm income.
Rep. Roberts, for one, isn't conceding defeat. "I think we can persevere. There's a strong reservoir of support for
the family farm."
Document j000000020011025dr6e00dcf

International
In Japan, Business Sentiment Brightens --- Prime Minister Murayama Denies Ties With U.S. Are
Beginning to Fray
By Michael Williams
466 words
12 June 1995
J
A8
English
TOKYO -- Prime Minister Tomiichi Murayama is presiding over the worst deterioration of U.S.-Japan ties in 50
years. So why isn't he doing anything about it?
Because things are going well, Mr. Murayama claimed in an interview on Friday. "First of all, I do not have the
view that Japan-U.S. relations are deteriorating," he told a group of foreign reporters. "We are enjoying good
relations."
As evidence, he cited the nations' continuing defense treaty, their cooperation in handling North Korea's volatile
government, and recent agreements on trade in flat glass and financial services. He dropped no hints of a
possible compromise in the trade talks.
Mr. Murayama's diplomatic reply is something of a whopper. Washington is about to slap $5.9 billion in tariffs on
Japanese luxury cars in a dispute over car-parts trade. A trade war threatens to further weaken Japan's already
feeble economy. This week he faces President Clinton in Halifax, Nova Scotia, at the Group of Seven summit
meeting of industrial nations.
The two leaders are likely to discuss the auto-trade fight when they meet on June 15. But Sandy Berger, deputy
national security adviser to President Clinton, told reporters that the planned meeting is "not a bargaining
session."
So far, the Japanese seem to have little strategy for handling the increasingly emotional wrangle, beyond trying to
convince the world that they won't give in. The Japanese have been blitzing U.S. papers with advertisements
arguing that justice is on their side and that trade sanctions would hurt U.S. car dealerships.
If Washington pushes ahead with sanctions, Tokyo may have trouble working out a deal. The car makers and the
bureaucrats who oversee the industry oppose a U.S. demand that Japanese auto makers announce targets for
their purchases of American-made car parts.
Japan's point man in the negotiations is Trade Minister Ryutaro Hashimoto, who makes little secret of his desire
to be prime minister. Mr. Hashimoto has put his reputation at stake by pushing a hard line against Washington.
Mr. Murayama, whose cabinet received the support of just 25% of the public in a recent opinion poll, himself
seems to lack the clout to strike a deal.
Instead, the prime minister is left to deny that Japan's relationship with its most important ally is souring.
Regardless of the outcome of the trade dispute, the U.S.-Japan security treaty "will not be shaken," he said in the
interview. "We are allies."
(See related article: "Survey by Government Sees Mild Economic Upturn, But Only in Short Run" -- WSJ June 12,
1995)
Document j000000020011025dr6c00cma

Producer Prices Stayed Flat in May As Inflation Eased
By Lucinda Harper
391 words
12 June 1995
J
A5
English
WASHINGTON -- Inflation pressures appear to be subsiding right along with the pace of the economy.
The Labor Department said producer prices were unchanged in May after jumping 0.5% the month before. Food
and energy prices both declined during the month, but even excluding these two volatile sectors, prices were up
a fairly moderate 0.3%, the same as in April. For the 12 months ended in May, producer prices were up 2.2%.
Particularly encouraging was that inflation seems to be abating at earlier stages of the production process. The
price of intermediate goods, for instance, increased just 0.2% from April, well below the much larger gains of
previous months. Prices of paper, nondurable manufacturing materials, organic chemicals, plastic resins and
paperboard all slowed during the month. The price of crude goods actually fell 0.8%, helped by declines in
softwood logs, bolts and copper scrap.
"Industrial commodity prices have probably peaked and are beginning to edge down," said Bruce Steinberg,
senior economist for Merrill Lynch & Co. in New York.
That would, of course, be welcome news for the Federal Reserve. Percolating prices for unfinished goods -- even
absent price pressures at the consumer level -- played a big part in the Fed's decision to raise interest rates
several times in the past year. In addition, the Fed was concerned about the strength of the economy and
tightening labor markets, both of which have eased considerably in recent months. Many analysts expect the Fed
to sit tight or even ease rates in the near future.
"One would expect prices to decelerate with a slowing economy, and that seems to be what we have," said
Samuel Kahan, chief economist of Fuji Securities in Chicago. But Mr. Kahan said that if the economy picks back
up, as several economists expect, including himself, "we start to see another shoot-up in prices."
The pricing figures have been adjusted for normal seasonal variations.
--- PRODUCER PRICES
Here are the Labor Department's producer price indexes (1982=100) for May, before seasonal adjustment, and
the percentage changes from May 1994.
Finished goods ...................... 128.0 2.2% Minus food & energy ................ 139.7 2.0%
Intermediate goods .................. 125.3 6.9% Crude goods ......................... 103.5 0.5%
Document j000000020011025dr6c00cq5

The Outlook
Big Corporate Layoffs Are Slowing Down
By Bernard Wysocki Jr.
854 words
12 June 1995
J
A1
English
NEW YORK -- Despite recent gloomy reports about jobs, the wave of mass layoffs at American corporations is
subsiding.
The evidence is abundant that U.S. company "restructuring" has slowed significantly for a year or so. In the first
five months of 1995, U.S. companies eliminated 146,000 jobs, down 45% from the 265,000 wiped out in the
year-earlier period. And there is much to suggest the trend will continue, at least for a while.
Is this a return to a kinder, gentler corporate America? Economists and consultants aren't ready to go that far.
Rather, many say this probably is a pause in the ax wielding, but nevertheless a pause that may last until 1997 or
even beyond.
"The heat is off, for the time being," says Stephen S. Roach, chief economist at Morgan Stanley & Co. in New
York. "Only when the next recession comes, in 1997 or 1998, will we see an acceleration of layoffs."
Mr. Roach believes that corporations tend to make deep cuts in work forces only under severe pressure. And
such pressures have subsided at many companies. Corporate profits are up because of many factors, including
the way the cheap dollar has fueled export growth at many companies.
"It's too early to detect any meaningful backpedaling, but we're beginning to see some easing up," Mr. Roach
says.
Another factor: The stock-market rally has carried share prices of many companies higher, reducing some
shareholder pressure on management to slash jobs.
Other economists, as well as outplacement counselors, believe that the payroll reductions have something of a
"me too" quality, making it easier for companies to cut jobs when others are doing so, too. "I think layoffs have
their own `crowd noise,' and now a lot of the din has died down," says John Challenger, executive vice president
of Challenger, Gray & Christmas Inc., a Chicago-based outplacement consulting firm.
Mr. Challenger is convinced that the months ahead will see a slowdown in corporate staff cuts, even though the
May figures, announced last week, were unusually large. The May cuts included layoffs at Boeing Co., BellSouth
Corp. and CNA Financial Corp. Despite "occasional big hits," he says, the corporate job cuts "will continue to
drop."
Some experts even draw comfort from bright spots in the U.S. Labor Department's mostly downbeat jobs report
on June 2.
Although the department reported that nonfarm payrolls fell by 101,000 jobs, the number of jobs actually
increased in a category hard-hit by the mass firings of the early 1990s: the managerial and professional ranks. In
May 1995, such jobs totaled 35.2 million, up from 34.8 million in April and from 34.1 million a year earlier.
This isn't to say the shrinking of job rolls is over, even temporarily. But it seems to be shifting, mainly from the
private to the public sector. In May, one of the biggest federal cutbacks to date was announced, covering 25,000
jobs at the National Aeronautics and Space Administration. Some analysts expect more such actions.

Also getting attention from layoff watchers is the rise in corporate job cuts in Europe and, to some extent, in
Japan. These moves are driven partly by an urgent need to cut costs that largely stem from the sharp
appreciation of the German and Japanese currencies in recent months.
"The focus on costs is moving to Europe, but it's a minimal effort, mostly just nipping around at the edges," says
Henry Conn, a vice president of A.T. Kearney Inc. and head of the management-consulting firm's research
institute in Atlanta. Mr. Conn and others say the European efforts to trim down are inhibited by several factors,
including the power of labor unions and a distaste for the brutalities of U.S.-style management.
Yet there's evidence that U.S. companies may have gone too far and are suffering from "corporate anorexia."
They may now be too lean to innovate.
"We're not going to downsize our way to prosperity," A.T. Kearney's Mr. Conn says. He says that although a lot of
American corporations got "lean and flattened and focused," they wound up dissatisfied with the results. He and
other consultants say top executives are trying to turn to ideas that will generate revenue, and these plans, for
better or worse, require people.
To be sure, none of these cheery thoughts spell a complete end of corporate America's penchant for slashing
payrolls. Mergers tend to eliminate jobs, and mergers are numerous these days. Many banks and utility
companies, moreover, are still in the throes of early-stage efforts to trim the layers of corporate fat.
The fact remains, however, that much of American industry has already gone through a painful effort to become
more productive and more competitive. "A lot of the very aggressive downsizing has already been accomplished,"
says Nicholas Perna, senior vice president and chief economist at Shawmut Bank, of Boston. "Now the cuts are
going to be far more selective."
Document j000000020011025dr6c00cqe

Politics & Policy
Congress Likely to Criticize, but Not Stop Clinton If He Decides to Use American Troops in Bosnia
By Thomas E. Ricks and Carla Anne Robbins
1,113 words
2 June 1995
J
A10
English
WASHINGTON -- Which presidential candidate is toughest on Bosnia, calling for an end to the arms embargo
and getting tough with the Serbs?
Bill Clinton in 1992. And Bob Dole today.
But as President Clinton has learned since winning the White House, it's a lot easier to campaign on Bosnia than
it is to make policy. And unlike Mr. Clinton, Mr. Dole may not have to wait until after the next election to learn that
sobering lesson. If the North Atlantic Treaty Organization does ask next week for American troops to help relocate
Bosnian peacekeepers, Senate Majority Leader Dole will have to decide whether to try for a vote to block the use
of U.S. troops, or simply keep criticizing the president's Bosnia policy. The betting today is that he -- and the rest
of the congressional leadership -- will stick to the sidelines. "The luxury is in attacking the president," rather than
taking a "tough vote," says Republican Sen. Richard Lugar, who pressed a highly reluctant Congress into
authorizing the Gulf War. Mr. Lugar says he hasn't decided which way he would vote, but he believes a clear
decision is essential for U.S. credibility both at home and abroad.
With passions running high on Capitol Hill against sending troops, and President Clinton doing nothing to cool
them, many expect Congress to stick to its historical pattern and look for ways to register opposition but not
actually bar the president from acting. The most likely vehicle is Sen. Dole's bill for lifting the arms embargo on
the Bosnian government. "It looks like a risk-free solution . . . for politicians who want to do something on Bosnia"
without getting Americans involved, says Indiana Rep. Lee Hamilton, the ranking Democrat on the House
International Relations Committee. Mr. Hamilton, like the administration, warns that course could actually draw
Americans in deeper.
Mr. Clinton would also like to sidestep the troops issue, if possible. He's still betting that by simply raising the offer
he will calm the Europeans and not have to send them more than logistical help.
But Mr. Lugar, who is also running for president, worries that Mr. Clinton will find it even harder to rally popular
support later if combat troops are sent to Bosnia -- unless he tells Congress and the American public what he's
got in mind. The Indiana Republican also worries that more flailing in Washington over Bosnia will only encourage
the Bosnian Serbs, who hold nearly 400 U.N. peacekeepers hostage, into even more defiant acts.
"We'd have had a lot more credibility with Saddam Hussein," he says, if Congress had endorsed the Gulf War in
September or October instead of waiting until January 1991.
The volatile Bosnian situation is numbingly difficult to predict and, with the current flare-up coming during a
congressional recess, many members say they're out of touch with their colleagues' views. But at the moment few
courses of action appear available when Congress returns next week.
LIFTING THE ARMS EMBARGO: The most vigorous line for Sen. Dole to take is offering what he calls "the best
alternative" for Bosnia -- a vote on his own bill for a unilateral lifting of the U.N. arms embargo.
Mr. Dole is fearful that a straight vote on deployment would only divide the Republican party, between strict
constitutionalists who fear eroding presidential power and those who are viscerally opposed to being drawn into
Bosnia.

According to an aide, Mr. Dole has a three-step strategy. First, avoid any direct vote on the troop deployment.
Second, use next week's hearings on Bosnia to start "disassembling" Mr. Clinton's pledges on the need for
American troops -- either for deployment or withdrawal. Once the ground is prepared, put up the arms embargo
for a vote -- likely early this summer.
The House, meanwhile, could move as quickly as next week. There's talk there of attaching an amendment lifting
the arms embargo to the foreign aid bill that will come to the floor on Wednesday.
As alluring as the arms embargo vote might be, it could actually have the opposite effect: drawing U.S. troops into
Bosnia even more quickly. If the U.S. lifts it unilaterally, the French, British and other Europeans have said they
would immediately withdraw their peacekeepers from Bosnia. And the U.S. has pledged at least 20,000 of its own
troops to help carry out that withdrawal.
U.N. AND NATO-BASHING: In addition to slamming the president, both Democrats and Republicans will almost
certainly take aim at two other targets: the U.N. and NATO. The GOP has been having a field day on the U.N. for
months, trying to slash its budget and powers at every turn. But NATO and Europe are comparatively new targets
sure to come in for some harsh times from right and left.
Rep. Barney Frank, a liberal Massachusetts Democrat, would be happy to fire the first shot. "I don't understand
why the Europeans can't do anything by themselves," he says. "Is NATO anything more than an excuse for
America continuing to subsidize Europe long after it makes sense?"
Such sentiments almost certainly will embitter European politicans and their voters, who are more worried about
getting their troops out of Bosnia than Americans are about getting theirs in. Indeed, some diplomats suggest the
British and French commitment to stay with the peacekeeping mission may not last much beyond the hostages'
release. If true, then either an end to the arms embargo or insults from the U.S. Congress could become a pretext
for getting out.
ACTUALLY VOTING ON A U.S. TROOP DEPLOYMENT: Inserting troops to support a "reconfiguration" of NATO
peacekeepers appears to be enormously unpopular in Congress. "Once committed, it's hard to say where
American forces will end up," worries Rep. Jack Reed, a Rhode Island Democrat and a former Army Ranger. "We
don't want to get into a piecemeal introduction on U.S. troops."
Despite Congress's historical reticence, and Sen. Dole's political concerns, some key foreign policy voices will still
push for a vote -- including Mr. Lugar and Arizona Republican Sen. John McCain. As a former Navy fighter pilot
and Vietnam prisoner of war, Mr. McCain has particular credibility on matters of war. "I will do everything I can to
force a vote, and I believe there are enough members of the Senate who will believe it necessary," he vows.
Document j000000020011025dr6200cmo

WTO: Framework for Financial Freedom
By Renato Ruggiero
1,364 words
22 June 1995
J
A16
English
One of the most important results of the Uruguay Round -- some would say the most important -- was the
conclusion of the General Agreement on Trade in Services, which brings this huge and dynamic sector within the
framework of multilateral rules for the first time. This was to a great extent an American achievement. U.S. policy
makers forced the subject onto the international agenda for two reasons. They knew that the services sector must
provide the bulk of economic growth and new employment, and they believed that open markets and multilateral
disciplines would ensure this growth, as they have done for trade in goods over the past 50 years.
Financial services are a big part of this story; in commercial terms they are the most important of all internationally
traded services, and they are the backbone of virtually every other economic activity. They were seen by many
countries as the linchpin of the services agreement, and in the national schedules -- the lists of market access
commitments that form part of the agreement -- 76 countries, more than in any other sector save tourism, made
commitments on banking, securities or insurance.
The value of these commitments is that they are binding: It will not be possible for governments who have made
such commitments simply to rescind them. Exporters and traders in financial services, and above all companies
investing in the provision of financial services in foreign markets, will have a degree of security they have never
known before. And the countries with market access commitments already on the table at the end of the Uruguay
Round account for well over 90% of world banking assets and deposits, of world insurance premiums and of
stock market capitalization.
Nevertheless, financial services were unfinished business in the Uruguay Round, essentially because the U.S.
was concerned that some countries' commitments did not provide enough genuine market opening. Since the
results of multilateral negotiations apply to all participants on a nondiscriminatory (most-favored-nation) basis, it
was feared that acceptance of poor offers would allow "free-riders" to profit from greater liberalization by others.
The U.S. was accordingly unwilling to make a full MFN offer, and cut back its own commitments. Ministers agreed
to go on negotiating until June 30, 1995, in order to secure better commitments from as many countries as
possible.
We are now up against the deadline: In the next few days governments will make the final improvements in their
offers, and the U.S. and other governments must decide whether to stay with the multilateral deal or to fall back
on the bilateral leverage that is traditional in this heavily regulated (and often highly protected) sector.
U.S. and other negotiators have put a massive effort into this negotiation, and it has been rewarded. Measures
negotiated between the U.S. and Japan to open insurance, banking and securities markets are obviously an
important advance, but not the only one; in all, at least 25 countries (the European Union's 15 members counting
as one) are offering to improve their existing commitments. The negotiations will clearly produce a significant
improvement in export opportunities -- if the results are accepted. But it is still possible that the U.S. will decide
that the offers on the table are insufficient to justify a full MFN-based offer on its part.
One of the main difficulties is that some countries are offering to bind in their schedules levels of access lower
than what is already permitted under their existing law or policy. For example, a country where foreigners are
currently allowed to own up to 70% of a local bank may be willing to bind only a 49% maximum foreign stake,
leaving some uncertainty about whether existing levels of investment will be maintained. Clearly, the trading
partners of these countries would prefer them to guarantee existing investments by scheduling current access
levels in full.

It is certainly not true that bindings below current access levels have no value; without the 49% binding in the
hypothetical case given above, nothing would stop such a government reducing the foreign ownership percentage
to zero. Nor is it true that to accept the 49% offer gives it a seal of international approval; no government is fully
satisfied with the offers of any of its partners, and every single commitment is due for renegotiation within five
years, in a new round of liberalizing negotiations. But it is true that unnecessary uncertainties should be
eliminated wherever possible -- not primarily for the benefit of foreign investors, though they will benefit, but to
attract investment capital.
Nothing chills investment like uncertainty about the stability of government policy. If a few countries could make
commitments matching their own current levels of access, this would contribute greatly to the success of the
negotiation and improve their own competitiveness. I have made this point in the capitals of key negotiating
countries, and I believe it has been well taken.
But in the end there will be a gap between negotiating objectives and the results achieved: there always is, in
every negotiation. The question the responsible governments must ask themselves is whether the gap is
important enough to justify walking away from the negotiations. It has been suggested that the U.S., for example,
might take an exemption from the MFN obligation that would permit discrimination against countries whose
commitments are thought inadequate. Other countries, including the European Union members and Japan, would
then be likely to cut back their own commitments. It could then be a very long time indeed before we would see
another such opportunity for world-wide liberalization and deregulation of these vital industries.
Governments should think very hard before accepting such a responsibility -- for three reasons.
First, there is no guarantee that bilateral negotiations outside the World Trade Organization will yield better results
than those available now. Failure of the current negotiations is likely to produce recrimination and resentment that
could harm relations in many areas, financial services first of all. Experience suggests very strongly that bilateral
leverage is itself likely to produce such reactions. Nor can bilateralism ever provide the security of access,
enforced through a powerful dispute settlement process, that is obtained through multilateral commitments in the
WTO.
The MFN principle has contributed immeasurably to postwar prosperity, creating world-wide markets in which
traders can buy and sell at the most competitive prices. It has been the bulwark against market-fixing by
bureaucrats and the chaotic proliferation of bilateral trade deals, has prevented the over-politicization of trade,
and has made trade liberalization durable.
Second, in the particular case of these negotiations on financial services, fears of free-riders are not well founded.
The developed economies that are serious exporters of financial services have made commitments recognized as
extensive and valuable. The countries on which attention is now focused are essentially importers, not exporters,
of financial services, and are in no position to free-ride on the greater openness of the advanced economies.
Reciprocity is of course important -- all WTO members share the responsibility to create and maintain an open
multilateral trading system -- but in these circumstances bilateral leverage is not likely to be very effective. That is
why it makes sense to keep financial services inside the wider negotiating framework of the WTO.
Third, failure of the financial services negotiations would damage the prospects of the WTO, created only six
months ago after seven years of effort, leadership and sustained vision. This is the first major negotiation under
the new body. Disappointment here must reduce the chances of success in the further negotiations already under
way, for example on telecommunications services, where deregulation and market opening offer such great
rewards.
Governments were right in December 1993 when they refused to turn away from the MFN principle and decided
to go on negotiating for a comprehensive, nondiscriminatory agreement. The negotiations have produced results
in a short time that are far better than those that bilateral approaches could have achieved. These results should
be harvested. It matters very much that the right decision should also be made on June 30.
---
Mr. Ruggiero is director-general of the WTO.
Document j000000020011025dr6m00czu

CREDIT MARKETS; Treasuries Fall Hard Again As Rate-Cut Hopes Recede
By ROBERT HURTADO
639 words
9 June 1995
The New York Times
NYTF
16
English
Fading expectations of a cut in interest rates anytime soon caused prices of Treasury securities to pull back
sharply for a second consecutive day yesterday.
Lawrence B. Lindsay, a governor of the Federal Reserve, said yesterday that the economy was not likely to slip
into a recession though it faced 18 months of slow growth. On Wednesday, the Fed chairman, Alan Greenspan,
said he expected an economic recovery in the second half of the year, and the vice chairman, Alan S. Blinder,
said he expected a quick adjustment by businesses to the slower economy. The comments have been interpreted
by the market to mean that the Fed would not move soon to cut short-term interest rates.
The 30-year bond fell 23/32 , to a price of 1136/32 for a yield of 6.61 percent, up from 6.55 percent on
Wednesday.
Treasuries sold off a bit after the release of the weekly jobless claims data, and on talk that foreign central banks
were selling five- and ten-year notes in the market.
Marilyn Schaja, an economist with Donaldson, Lufkin & Jenrette, said that while the market appeared to be
waiting for today's producer price results, "I suspect that even if we get terribly constructive inflation numbers the
market will likely not discount them into prices" because of the expectation of an eventual easing by the Fed.
Ms. Schaja said she believed that if people thought the economy was truly weak, then the inflation numbers
would be less critical. "Next week's consumer numbers at this moment are more important in the eyes of the
financial market than today's producer price data," she said.
The Producer Price Index, she said, looks as if it will be up four-tenths of a percent, with the core rate up
two-tenths of a percent. In April, the index was up five-tenths of a percent and the core up three-tenths of a
percent.
She said she expected that even if the producer number came in as expected there might still be some
nervousness in the market. "There's a general sense that some investors are at a crossroads and so any weak
inflation numbers in their eyes would move up the timetable for the next easing," she said.
The jobless claims data yesterday for the week ended June 3 showed 372,000 claims, down by 7,000 from the
previous week's figure, which was revised to 379,000 from 382,000. But the four-week moving average rose by
1,000 claims, to 374,500.
Looking ahead, Ms. Schaja said she expected the economic data for May and June to fit the weak economic
picture given the recent May employment report and purchasing management reports. "The question is whether it
will signal whether the Fed was right about slow growth caused by inventory, or that the data signaled that it is
more of a slowdown in final sales," she said.
In the municipal market, the Massachusetts Bay Transportation Authority was able to sell one-year general
obligation notes at lower-than-expected yields because of a shrinking supply of new short-term securities and
even while municipal bonds fell on concern that the rally in the market was beginning to slow.

The $240 million Massachusetts Bay debt offering through competitive bidding that was won by BT Securities,
with the notes due June 12, 1996, was priced to yield 3.45 percent, or about 25 basis points better than the Los
Angeles County's one-year notes sold the day before.
Graph: "Tax-Exempt Yields" shows average weekly yields for 20 general obligation bonds and 25 revenue bonds,
in percent from Feb.-June 1995. (Source: The Bond Buyer)
Document NYTF000020050402dr69001a0

Economy
Sales of New Homes Jumped 19.9% in May --- Percentage Gain Biggest In Three Years, Giving Bullish
Economic Sign
By Lucinda Harper
732 words
30 June 1995
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WASHINGTON -- New-home sales shot up in May after languishing since the beginning of the year, one of the
latest signs that the economy isn't slipping into recession.
The Commerce Department said new-home sales jumped 19.9% last month to 722,000 units, the largest
percentage rise in three years. Sales improved in every region except the Midwest, which was unchanged. The
biggest rise in home sales came in the South and West, with increases of 31% and 19.7%, respectively.
Analysts were encouraged by the report but cautioned that the latest figures probably overstate the strength of
the housing sector. Home-sales figures often are revised significantly. But economists said the report still
suggests that the worst is over for the housing market and the rest of the economy.
"We've seen a batch of reports that suggest that the slowing isn't going to snowball into a recession," said
Christine Chmura, chief economist of Crestar Bank in Richmond, Va. The Labor Department said yesterday that
initial claims for state unemployment insurance fell by their largest amount in almost a year in the week ended
June 24. Orders for big-ticket factory items jumped in May. These numbers strengthen the posture of those on the
Federal Reserve Board who don't believe interest rates should be cut when its policy-making committee meets
next week. The markets agreed with that position, with the 30-year bond falling 1 7/8, or $18.75 for each $1,000
face amount, to yield 6.64%.
But Ms. Chmura said the recent good news doesn't suggest that the economy will get much stronger any time
soon. "We have to balance this with the fact that we're in the fourth year of a recovery, much of pent-up demand
has been satisfied and the recent loss of jobs have made many buyers more cautious," she said.
During May, the supply of new homes, given the current sales pace, dropped significantly to 5.6 months from 6.9.
That low number indicates that builders will begin building new homes in larger quantity. "That really helps get the
economy moving again," said David Lereah, chief economist of the Mortgage Bankers Association.
In the week ended June 24, initial jobless claims fell 28,000 to 368,000. In recent weeks, analysts have been
worried about the labor market as the number of new claims edged closer to 400,000. The four-week moving
average of claims, which is considered a more accurate measure of labor-market conditions, fell for the first time
in 10 weeks, down 2,750 to 378,500.
All figures have been adjusted for normal seasonal variations.
Separately, the Conference Board said yesterday that employers placed fewer job advertisements in May,
exercising caution about new hires until they have a clearer view of where the economy is headed.
The independent business-research group said its seasonally adjusted help-wanted advertising index, an
indicator of hiring trends, fell five points to 126 in May from April's level. The index was at 128 in May 1994.
May's slide was the second-biggest drop in 1995, indicating a slowdown in the labor market as employers,
concerned about reduced consumer spending, cut back on production and hiring plans.
Board economist Ken Goldstein said strong income gains and lower mortgage, car-loan and other interest rates
should motivate consumers to spend more in the second half, making employers more confident about production
and hiring plans. "Production would have to be scaled up and new hiring would increase, reducing the
unemployment rate to about 5% by the end of the year," he said. The Labor Department this month reported a
5.7% unemployment rate for May.
Four of five regions saw declines in advertising volume during the past three months, except the East South
Central, which includes Memphis and Nashville, Tenn., where volume gained 2.3%. The steepest drop was in the
East North Central, including Chicago and Detroit, down 8.1%; followed by the West South Central, which
includes Houston and Dallas, down 7.2%; and the West North Central, including Minneapolis, off 5.3%.
---
Jacqueline Simmons in New York contributed to this article.
Document j000000020011025dr6u00fjh

Machine-Tool Orders Rose By 5% in May --- Gain Reflects Hefty Boost Abroad, Helping Offset Domestic
Market Drop
By Raju Narisetti
785 words
26 June 1995
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Surging export orders helped U.S. machine-tool makers surmount a decline in domestic demand during May and
kept 1995 new orders running 20% ahead of last year.
Orders in May rose 5% to $387.1 million from $368.1 million in April, and were up 20% from year-earlier May
orders of $322.9 million. Orders through the first five months of 1995 reached $2.09 billion, up 20% from the
$1.74 billion a year earlier.
Despite signs of a slowing U.S. economy, manufacturing companies continue to upgrade their factories, mostly
through new and faster machine tools, in order to squeeze out more productivity and higher product quality.
As a result, the U.S. machine-tool industry is facing healthy order backlogs and a steady stream of orders, even
after new orders reached a 15-year high in 1994.
While last year's orders were primarily domestic -- mostly from Detroit's auto makers and their component
suppliers -- an economic recovery in Europe and a weak dollar are kicking in this year, helping the industry soften
a relative slowdown in domestic orders, which fell 3% in May to $323 million from $333 million in April.
Export orders in May rose 81% to $64.1 million from $35.5 million in April. Export orders through May totaled
$265.6 million, up 237% from the $79 million in new orders during the same period last year.
"Exports continue to drive growth in new machine-tool sales," said Albert Moore, president of the Association for
Manufacturing Technology, a McLean, Va., trade group that compiles new-order data. "Clearly, there is value in
the soft dollar for U.S. manufacturers."
Indeed. At Gleason Corp., Rochester, N.Y., "second-quarter bookings from overseas, particularly Europe, have
surpassed our expectations," said John Perrotti, a vice president at the maker of gears and other machine tools.
Mr. Perrotti noted that the soft dollar helps in making some of Gleason's products, such as parallel axis-gear
equipment, "a lot more price competitive."
Machine tools are used by manufacturers to form or cut metal parts. They go into machines that help make other
goods such as cars, airplanes and construction and farm equipment. Because of the six-to-12-month lead times
involved in delivery of machine tools, especially large systems, new orders can act as an advance indicator of
manufacturing activity.
Meanwhile, American tool makers are taking advantage of the bullish markets for machine tools in other ways
too. In the past year, two long-standing, closely held tool makers, Bridgeport Machines Inc., and Hardinge Inc.,
raised funds for expansion and modernization by listing their shares through initial public offerings.
Others, such as Giddings & Lewis Inc., have tried to capitalize on strong demand for smaller machine tools by
acquiring other tool makers. Giddings paid $180 million in April to acquire Fadal Engineering Co., a closely held
maker of small vertical machine centers, in a move that vaults Giddings into the top five machine-tool companies
in the world based on sales.

Separately, a decline in domestic demand was also reflected in orders to machine-tool distributors. An index
based on orders over a three-year period fell 9% in May from April even as it stayed 25% ahead of May 1994,
according to the American Machine Tool Distributors' Association.
---
Comparative new orders for metal-cutting machines:
May 1995 April 1995 May 1994
Domestic ..... $191,700,000 $229,100,000 204,300,000 Foreign ...... 23,950,000 18,950,000 8,150,000 Total ......
215,650,000 248,050,000 212,450,000 5-month total for 1995: 1,305,000,000; for 1994: 1,131,850,000.
Metal-forming machine orders:
Domestic ..... 131,250,000 103,700,000 99,950,000 Foreign ...... 40,150,000 16,500,000 10,500,000 Total ......
171,400,000 120,200,000 110,450,000 5-month total for 1995: 784,450,000; for 1994: 610,800,000.
Comparative shipment of metal-cutting machines:
253,400,000 217,650,000 197,800,000 5-month total for 1995: 1,143,350,000; for 1994: 947,550,000.
Metal-forming machine shipments:
129,200,000 143,700,000 163,300,000 5-month total for 1995: 605,100,000; for 1994: 569,050,000.
Document j000000020011025dr6q00dma

Administration Moves to Blame Fed Rate Rises For Slowdown
By KEITH BRADSHER
1,128 words
13 June 1995
The New York Times
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WASHINGTON, June 12 -- Faced with a significant slowing of the economy as the season of Presidential politics
heats up, Administration officials say the White House is gradually zeroing in on a well-known culprit: the Federal
Reserve and its interest rate increases over the last 16 months.
The evolution of the Administration's stance -- which comes despite the strong objections of the Treasury
Secretary, Robert E. Rubin -- began earlier this month, officials said today. It was given voice on Sunday by the
White House chief of staff, Leon Panetta, who said the Administration would welcome a move by the Federal
Reserve to lower short-term interest rates.
Traditionally, the quasi-independent Federal Reserve has not taken kindly to pressure from any White House to
act on interest rates. And, with rare exceptions, it has not taken such pressure very seriously, either. But if the
central bank does not lower rates soon, what the White House hopes to do is deflect blame should the economy
slip into a recession this year or next, as a few economists now predict.
The Administration also hopes to influence Federal Reserve policy indirectly, through business leaders and others
who agree with its desire for lower short-term interest rates. "Although the Administration can't influence the Fed
directly," a senior Administration official said, "it can change the climate of opinion by pointing out what many
economists and business leaders already know, and thereby legitimize those voices or give greater weight to
those voices."
Mr. Rubin insisted in an interview today that the Administration still had a policy of refraining from comments on
the central bank. But that policy is clearly fraying, as some Administration officials have begun to comment more
negatively about the Federal Reserve and as the tone of internal meetings moves toward more recriminations
aimed at the central bank.
The goal of the finger-pointing is only partly to persuade the Federal Reserve to lower interest rates,
Administration officials said. The purpose is also to sway working-class voters by convincing them that the White
House is not to blame for their problems.
Indeed, until recent evidence mounted that the slowdown earlier this year might turn into something much worse,
the Administration welcomed the Federal Reserve efforts to prevent the economy from overheating as offering the
best chance to extend the expansion through next year's election.
But today, said the Administration official, who insisted on anonymity, the White House is especially concerned
that "any economic slowdown is going to hit with particular force the working-class swing voters in the close-in
suburbs." These are the auto workers and other Democrats who abandoned the Democratic Party to vote for
Ronald Reagan in 1980 and 1984 and for George Bush in 1988, but returned to the party in 1992 to elect Bill
Clinton.
The shift in Administration sentiment began during interagency discussions on June 2, the day the Labor
Department announced that the American economy had shed 101,000 jobs in May. The news shocked
Administration officials not just as a sign of a steepening economic downturn but also as a potential political
disaster, since President Clinton has presented the creation of jobs as one of the biggest successes of his
Presidency.

Indeed, when the May unemployment figures were released, the Labor Secretary, Robert B. Reich, gave several
interviews in which he pointed to interest rates as a problem. "You don't have to be a rocket scientist to see there
is a relationship between interest rates and where jobs were lost," Mr. Reich said. Asked whether he was referring
to short-term rates, he said he was.
The new willingness to criticize the Fed represents at least a crack in the facade of an Administration that, until
now, has been remarkably unified in its approach to economic policy. Mr. Rubin, a former co-chairman of
Goldman, Sachs & Company, the Wall Street investment house, has long felt that Administration efforts to
influence the Federal Reserve are doomed to fail, and may even provoke the Fed to raise rates to prove its
independence. Moreover, Administration comments carry the risk of alarming financial markets, where long-term
interest rates may rise if investors conclude that the Administration and the Fed are at odds over monetary policy,
adding to uncertainty about the outlook for inflation.
The re-election prospects of Presidents are closely linked to the economy's health. And efforts by past Presidents
to blame the Fed for economic troubles have rarely convinced many voters, as President Bush found when he
tried this strategy unsuccessfully in 1992.
Mr. Rubin denied in a telephone interview today that the Administration had changed tack. "We do not comment
with respect to the Federal Reserve Board, and we believe strongly that any comments with respect to the
Federal Reserve Board may be counterproductive," he said. "The independence of the Federal Reserve is very
important to the credibility of our markets and how those markets are viewed around the world."
George Stephanopoulos, a senior adviser to President Clinton, said in an interview this evening that "we have no
strategy to pressure the Fed."
But several other senior Administration officials have recently commented anyway on the Federal Reserve and
the short-term interest rates that it controls. When asked on Sunday whether the Federal Reserve should cut
interest rates to forestall a recession, Mr. Panetta responded, "Well, it would be nice to get whatever kind of
cooperation we can get to get this economy going."
The comment was particularly noticeable because Mr. Panetta is a former member of the House of
Representatives, and House Democrats have led complaints that the Clinton Administration is not doing enough
to challenge the Federal Reserve's policies.
The pressure for a more confrontational role toward the Federal Reserve has come primarily from political
operatives at the White House. Mr. Rubin was able to enforce a ban on Administration comments about the
Federal Reserve when he was the chairman of the White House's National Economic Council.
Mr. Rubin's replacement at the council, Laura D'Andrea Tyson, is perceived by some colleagues as more willing
to permit criticism of the Federal Reserve. But Ms. Tyson denied in an interview this afternoon that she was
prepared to make or authorize any criticism of the Federal Reserve.
Still, starting with the release of the poor job figures earlier this month, the first signs of mild criticism have
emerged. From inside the White House, the President's Council of Economic Advisers issued a statement
attributing the slowdown in part to "the rise in interest rates in 1994, which affected the interest-sensitive sectors
such as durable goods and housing."
Document NYTF000020050403dr6d00nws

DIARY
By HUBERT B. HERRING
1,320 words
25 June 1995
The New York Times
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SECURITIES FRAUD Crash Landing for Brennan "Come grow with us," the ads said, and Robert Brennan's
trademark helicopter hammered home the idea that First Jersey Securities, his penny-stock firm, could transform
mere mortals into high fliers. For a decade, though, the S.E.C. has tried to prove that Mr. Brennan and his brokers
did all the growing, while customers' accounts did a vanishing act. Mr. Brennan held them off, with one delay
coming after he named a horse after a judge and the irate judge quit the case for fear of seeming biased. And all
the while he built his sports empire, and his reputation as a philanthropist. But the S.E.C. kept at him, and last
week Mr. Brennan's charmed life crashed into a wall: a Federal judge ruled that Mr. Brennan and his firm had
engaged in "a massive and continuing fraud" and imposed damages of at least $71.5 million. PUBLIC SPEAKING
What's That, Mr. Greenspan? Clarity is a rare and wondrous thing. It sparkles. It illuminates.
It sends all doubt scurrying to life's dusty, cobwebbed corners. So Alan Greenspan, one of the most powerful
humans alive, avoids it like the plague. "I worry incessantly that I might be too clear," he said last week. Don't you
worry yourself about that, Mr. Greenspan; you didn't even come close. The Federal Reserve chairman -- who
could move the financial markets with a mistimed cough -- had just given a Big Speech with an unmistakable
message: The Federal Reserve might lower interest rates in early July, or it might not. The economy might slip
into a mild recession, or it might not. And to make his calculated obfuscation complete, he stated unequivocally
that July's rate-setting meeting would be "most engaging." Any questions? THEME PARKS In Orlando, Real Mice
When you think of Disney and animals, you think of a grossly overworked mouse, an adorable lion or some
ridiculous number of Dalmatians. Disney wants to change that, in its usual oversized way. Last week it
announced plans for a Wild Animal Kingdom, at 500 acres its largest park yet, right in the thick of Disney World.
It'll be a habitat for more than 1,000 animals, some of them endangered, and untold thousands of humans, all hot
and grumpy. Disney overflowed with talk about preserving species and educating the public about wildlife. But if
that sounds too educational, don't worry: one section will be devoted to mythical beasts, like unicorns, and
another to extinct ones. (Are Disney's magicians off somewhere busily turning ancient amber into velociraptors?)
As one observer put it, "They can say all they want, but this park is to make money." THE DONALD Did He Lose
a Gold Sled? Donald Trump has this thing about gold. It's as if he fancies himself some latter-day Midas, gleefully
bestowing his touch on a sadly gray landscape. Look at the Grand Hyatt. Look at Trump Tower. And soon, like it
or not, you'll be looking at something called the Trump International Hotel and Tower if you get anywhere near
Columbus Circle. In its drab, pre-Trump incarnation, this was the Gulf and Western Building, but last week work
began on its Trump rebirth -- same size and shape (no public scrutiny needed), but gold-tinted glass from head to
toe. Never fear, though -- this is no quickie gilding: one designer is none other than Philip Johnson. Goldfinger
would be impressed. TOBACCO A Recall Hazardous to Logic Philip Morris recalled seven billion cigarettes last
month, but now no one seems quite sure why. At first it said there was some irritant in the filters that could cause
"temporary discomfort." But last week it said the filter problem was small and involved only a bad taste and odor.
The irritant may have been in the packaging. But Westvaco, which supplied the packaging, denied that "minute
trace amounts" of the irritant could be linked to the problem -- and, indeed, the existing packaging is not being
destroyed. So let's see: it's not the filters, it's not the packaging, and the cigarettes inside, of course, continue to
be harmless. What's the problem? THE ENVIRONMENT No Oil Rig Is an Island The next time you agonize over
insulting the environment by discarding plastic bottles, say, or junk mail, just be thankful you don't face this rather
more sizable disposal problem. Royal Dutch/Shell has this old oil rig in the North Atlantic that it wants to get rid of,
and it planned to sink it. But Greenpeace charged in, calling the rig -- with its 100 tons of sand, oil sludge, and
radioactive materials -- an environmental time bomb. The company backed down, but then last week said it had
no idea what to do with it. It could cost $70 million to dismantle it on land, vs. $16 million to sink it -- and to top it
off, it wasn't clear that land disposal would in fact be safer. An Austrian financier offered to turn it into a floating
casino, but that doesn't seem likely. So for now this 450-foot-long orphan wanders at sea. CAR WARS Wrong
Side? Detroit Did It The clock is ticking toward Wednesday, when those crippling tariffs on Japanese luxury cars
could kick in, and negotiators in Geneva are doing the usual dance -- with no one likely to give in til the last
minute. But here's an interesting side issue: Japan has all those Lexuses and Infinitis made with America in mind;
they'd be tough to sell in Japan, because the steering wheel's on the wrong side. Japan has long scolded Detroit
for trying to sell wrong-side cars in Japan, so it'll be awfully strange to say now that wrong-side Lexuses are just
fine. Even a Toyota spokesman said, "It's a very funny idea." Of course, they could always call them Fords, sell
them at a discount, and then blame Detroit. THE BUDGET A Bumpy Road Ahead? In a family's budget,
"discretionary" spending is the extra stuff, the frills -- vacations, dinners out, marble Pocahontas lawn ornaments.
To Congress, though, the label is applied to things many would consider more basic: roads, schools, the
environment. But these become "discretionary" because they lack law-given formulas, and are thus ripe for the
Republican knife. So when House and Senate leaders agreed last week on $245 billion in tax cuts over seven
years -- the final piece of the mad budget-balancing dash -- the plan included $190 billion in cuts from projected
discretionary spending. A "historic step," said Newt Gingrich. "Tax cuts to those who don't need them," said Leon
Panetta. DETENTION Capitalism as Jailer A lot of people say the Government botches things the private sector
could handle easily. But when a privately run immigration jail erupted in violence last week in New Jersey, it
raised the opposite question: should human detention be at capitalism's mercy? The head of Esmor, the prison
company, put the blame for the revolt on the immigration service, saying it took too long with its paperwork, and
said Esmor had fulfilled all its obligations. But a former warden at the center said that he could find no doctor
who'd work for the wages offered and that he'd been told that $1.12 a day was too much to pay for an inmate's
meals. "They don't want to run a jail," he said. "They want to run a motel as cheaply as possible."
Photo: POWER MARKETING -- No, It Wasn't a Sci-Fi Nightmare -- Since Timothy Batiste, 8, was in Children's
Hospital in Los Angeles, he may have missed the Mighty Morphin Power Rangers on television. No matter: they
came to him, bearing gifts.
Document NYTF000020050403dr6p00rdd

INTERNATIONAL BUSINESS; Big Powers Plan a World Economic Bailout Fund
By DAVID E. SANGER
1,167 words
8 June 1995
The New York Times
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WASHINGTON, June 7 -- The United States and its major economic partners plan next week to urge the creation
of a worldwide emergency fund intended to bail out countries that find themselves, as Mexico did early this year,
on the verge of national bankruptcy.
The fund's creation is described in a draft copy of the communique for next week's meeting of top leaders of
seven of the world's largest industrial nations in Halifax, Nova Scotia.
The text was released prematurely by an opposition member of the Canadian Parliament, who has denounced
the annual meeting of presidents and prime ministers of the Group of Seven as an empty and enormously
expensive ritual.
The disclosure of the proposed communique is causing anxiety among American and other officials, who have
gone to great lengths at previous summit meetings to keep the final document secret until the end of the talks.
But the plan itself is no surprise. For months, the Clinton Administration has pressed for an overhaul of major
international financial institutions -- primarily the International Monetary Fund, but also the World Bank and
economic institutions linked to the United Nations -- so that the United States would not foot the bill alone the next
time a Mexican-style crisis erupts.
Early this year, the Administration acted on its own authority, offering Mexico $20 billion in loans and loan
guarantees, after Congress proved reluctant to act on a special request for funds to rescue Mexico from its
severe financial crisis set off by the devaluation of the peso.
The bailout of Mexico, though it seems largely successful so far, has scarred the Clinton White House. Treasury
Secretary Robert E. Rubin has repeatedly declared his determination to prevent the United States from being
thrust into similar situations in the future.
"The United States cannot be the lender of last resort to the world," Mr. Rubin said as recently as Tuesday. "The
multilateral institutions need the capacity to deal with such crises."
The proposed communique, which is subject to change before the meeting begins on June 15, calls for the
development of "an improved early warning system" that would include requirements that nations disclose to the
financial markets a vast amount of information many of them now keep secret or release much later. Such
information includes the level of foreign-exchange reserves and other data that Mexico hid from the markets
before it devalued the peso on Dec. 20.
That information was available to Clinton Administration officials, who privately warned Mexican officials last year
that their economy was headed off a cliff.
The proposed Halifax communique also calls on the International Monetary Fund to reverse its current policy and
"establish a procedure for the regular public identification of countries which comply" with the publication of such
economic data. That step would place enormous market pressure on countries that fail to reveal their financial
condition.
It also declares that the fund, which itself contributed more than $17 billion to Mexico, should tighten its
surveillance and "insist on full and timely reporting by member countries of a standard set of data" and "deliver
franker messages to countries that appear to be avoiding necessary actions." The I.M.F. has been accused of
failing to send such messages to Mexico, becoming a silent partner in its brush with financial disaster.
Officials from several countries said the proposed communique was simply a first step in what is bound to be a
long international debate on how to prevent another situation like the Mexican peso crisis, and how to pay for it
should attempts at prevention fail.
"This is all still very developmental," said a British official who has worked closely on the issue. "Many of the
details are still vague."
In fact, the communique says little about where the money would come from for the new Emergency Financing
Mechanism, which would essentially be available for a quick response in case an I.M.F. member was unable to
pay its debts. It calls for a doubling in size of the General Agreement to Borrow, a $29 billion line of credit
financed by 11 major industrial nations and Saudi Arabia.
In his speech Tuesday, Mr. Rubin was more specific, saying much of the money should come from "the newly
prosperous nations of Asia." But those countries have so far expressed almost no enthusiasm for bailing out
countries that get into trouble.
American and European officials have for months debated a basic question about the proposed bailout fund:
Would it make the effort to persuade countries to act responsibly easier or harder?
Clearly the fund would reassure investors, reducing the chance that a nation would feel compelled to threaten that
it might have to stop paying off its bondholders. But in one of the perversities of economic incentives, some
economists fear that it could also encourage countries to spend with abandon, secure in the knowledge that they
are backed by a lender of last resort within the International Monetary Fund.
Economists refer to that as a "moral hazard," and Mr. Rubin has said it can only be avoided by making any bailout
a painful experience, as it has certainly been for Mexico and its people, who are now experiencing much higher
prices and interest rates only partly offset by limited pay increases.
All these issues are expected to be debated by the Group of Seven -- the United States, Japan, Canada,
Germany, Italy, Britain and France -- when they meet in Halifax. The hard preparatory work is being done by their
finance ministries, and the top leaders may well focus on other issues, from Bosnia to the confrontation between
Japan and the United States over auto trade.
Other sections of the proposed communique call for consolidating and streamlining the United Nations, though
bracketed language in the proposal indicates there is still considerable debate over how to trim the United Nations
organization. Tentative wording declares that the system of assessment "should be reformed to bring it closer to
member states' actual capacity to pay."
Canadian officials say they hope to move the summit meeting back to its roots, when leaders talked more
informally, when pomp and circumstance was at a minimum, and when at least some real decisions were made at
the sessions.
They have not convinced Nelson Riis, the legislator from the New Democratic Party who released the draft, dated
May 27. Drafts, which go through several revisions, are prepared in advance to narrow the issues to be presented
to the leaders.
Mr. Riis obtained a copy of the draft -- he declined to say how -- and released it to reinforce his point that most
major decisions at such summits were "pre-cooked."
While there was nothing surprising in the document, the action chagrined American officials. Still, some diplomats
suggested privately that Mr. Riis had a point.
"Now tell me," a Western envoy said this afternoon. "Can you remember last year's communique?"
Document NYTF000020050403dr6800mdv

Market Place; Regulatory Alarms Ring on Wall St.
By SUSAN ANTILLA
1,211 words
9 June 1995
The New York Times
NYTF
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With the frenzy of merger deals and takeover battles these days, it seems like old times on Wall Street in more
ways than one. Securities regulators say they are opening investigations into insider trading at a rate not seen
since the mid 1980's, the era in which Ivan Boesky, who went to jail for trading on inside information, became a
household name.
Regulatory alarm bells went off again earlier this week after I.B.M. disclosed its hostile $60-a-share offer for the
Lotus Development Corporation. That bid pushed up the value of Lotus shares by 89 percent on Monday, the day
it was announced, and caused regulators to begin looking into suspicious trading last week.
Other cases brought to light recently involved Lockheed's merger last year with Martin Marietta, another military
contractor, and AT&T's acquisition of the NCR Corporation.
"It's a growth industry," said William McLucas, director of the division of enforcement at the Securities and
Exchange Commission. "In terms of raw numbers, we have as many cases as we've had since the 1980's, when
we were in the heyday of mergers and acquisition activity."
Through the end of May, the National Association of Securities Dealers, which oversees the Nasdaq electronic
trading market, had already referred 47 cases to the S.E.C. for investigation into possible insider trading, said
James Cangiano, N.A.S.D.'s senior vice president for surveillance. If the pace of suspect trading continues at that
rate, it would mean the N.A.S.D. would surpass the record 110 insider trading referrals it made to the S.E.C. in
1987, he added.
The same holds true for the New York Stock Exchange, where investigators have opened three times as many
insider trading cases so far this year as they had by this date in 1994.
The Lotus case seems typical. In the days before the I.B.M. announcement, trading in both Lotus stock on
Nasdaq and Lotus options, which are traded on the American Stock Exchange, was unusually heavy. "I think you
can presume we are looking at it," Mr. Cangiano said. And while the S.E.C. does not comment on pending
investigations, Wall Street professionals say that the agency has undoubtedly already opened a case to
investigate Lotus trading.
These days, those trading on insider information apparently do not come as frequently from the ranks of Wall
Street's professionals as they did in the 1980's, regulators say. Those who take advantage of privileged
information now tend to be corporate officers, directors, and their families, friends and lovers, according to
executives at the nation's stock exchanges, and lawyers who represent defendants.
But the game -- and the potential profits -- are the same: get information about a proposed deal that might raise
the shares of a publicly traded company before it is announced, and buy the stock ahead of the news. Better yet,
buy the options, which cost less and tend to attract less regulatory scrutiny.
Then, after the public learns what the insiders knew ahead of time, it's time to get out with a quick profit.
The lure of profits from insider information regarding deals is just too much to resist for some players, the S.E.C.'s
Mr. McLucas said. The potential rewards compared with the risks look better "when people look at the premiums
available in takeovers," he said. "We're a few years removed from the Boesky insider trading cases, and people

have short memories." Of the 1,400 unresolved cases in the S.E.C.'s current inventory, Mr. McLucas said, 20
percent involve insider trading.
The initial rounds of suspect trading of the last year or so differed from those of the 1980's in that they generally
did not focus on big names in the securities business. "While Wall Street learned some lessons of the 1980's, it's
not completely clear that Main Street learned all of the lessons," said Harvey Pitt, the former S.E.C. lawyer who
defended Mr. Boesky.
If Wall Street appears to be more honest, though, it is largely a function of increased surveillance by brokerage
firms and by regulators, say defense lawyers and securities cops. "We have not returned to the environment of
the 1980's where so many defendants were investment bankers, brokerage firm employees and young lawyers,"
Mr. McLucas said. Still, he added, "We're seeing people in those areas start to crop up, and I wouldn't be
surprised to see more of them."
Earlier this week, Frederick A. Moran, a money manager in Greenwich, Conn., said that he was the focus of an
S.E.C. investigation. Regulators contend that he bought shares of Tele-Communications Inc., the big cable
operator, in advance of the announcement that it planned to merge with Bell Atlantic. The S.E.C. is looking at Mr.
Moran's purchases because his son is a securities analyst who was privy to information about the pending deal.
Mr. Moran has said he will fight the charges.
Despite the higher numbers, regulators undoubtedly miss cases both big and small. But, in this newest round of
insider trading investigations, it appears that the chances of being caught are higher than before. At the New York
Stock Exchange, 100 employees work in market surveillance today, up from 76 in 1975. And white-collar
criminals who are members of the Big Board face stiffer fines if they get caught. In 1988, the New York exchange
removed the previous limit of $25,000 for each charge against a member, eliminating any cap on potential fines.
At the same time, Congress enacted the Insider Trading Sanctions Act, which allows for triple damages to be paid
when a trader is convicted on insider charges.
Moreover, the New York Stock Exchange and the Chicago Board Options Exchange, which routinely share
information with each other and with the S.E.C. about suspect action in the markets, have beefed up their
detection mechanisms substantially.
"When I first came here in 1981, the analysts drew genealogical trees of corporate officers and investment
bankers and hung them on the wall" to analyze who had privileged information about a pending deal, said Agnes
Gautier, a vice president in the Big Board's market surveillance department. Today, by contrast, computer
software programs spit out the dates, times and names behind the trades that look suspicious, she said, making
what used to be an onerous task a fairly simple exercise.
Thus, the S.E.C. was able to quickly investigate and settle a case against a lawyer for Lockheed only eight
months after the news that the military contractor and Martin Marietta would merge. The lawyer made $42,000 in
illegal profits by buying Lockheed options, Mr. McLucas recalled.
Considering all this renewed attention to insider trading, shouldn't more people be wary of breaking the rules?
"We'd like to think so," Ms. Gautier said. "But, I guess, as the defense lawyers say, 'Greed will overcome.' "
Graph: "Regulatory Alarms Ring on Wall St." shows Lotus Development daily closes from May 22-June 5.
(Source: Datastream)
Document NYTF000020050402dr6900192

Cravath Lawyer and Brother Are Guilty of Insider Trading
By PETER TRUELL
993 words
29 June 1995
The New York Times
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A former senior associate at Cravath, Swaine & Moore, the blue-chip Wall Street law firm, and his brother,
pleaded guilty yesterday to insider trading in a case that shows how even well-paid young lawyers can fall prey to
the temptation to pass on confidential information.
With the recent upswing in big mergers and takeovers, there has been a steady increase in insider trading cases,
some of them involving lawyers and investment bankers and their family members. But yesterday's guilty plea is
the first such case to involve Cravath, a firm that represents many of the biggest American companies, and that
has prided itself on its clean record.
The former Cravath senior associate, Richard W. Woodward, 34, was accused of passing along confidential
information on a dozen prospective mergers and acquisitions to his brother, John T. Woodward, 36. The brothers
each pleaded guilty to one count of insider trading in Federal District Court in Manhattan. The two also settled a
complaint brought by the Securities and Exchange Commission and agreed to pay back $110,000 of their profits.
According to Federal investigators, Richard Woodward, a resident of Middletown, N.J., joined Cravath in 1989
and worked as a skilled and valued lawyer on much of its most important merger and acquisition business. For
several years, even as the law firm regarded him as a hard-working and successful employee, Mr. Woodward
passed information on deals involving such important Cravath clients as CBS, ITT, Johnson & Johnson, King
World Productions and S. G. Warburg from 1990 to 1995.
John Woodward, a 36-year-old electrical supply salesman from Little Silver, N.J., who is currently unemployed,
used this information to trade in the securities markets, the United States Attorney's Office said. He made profits
of about $578,000 by buying the securities of 12 companies that were either Cravath clients or possible merger
partners for these clients. These purchases were made in advance of possible merger and acquisition
announcements. Another unnamed friend of Richard Woodward's and other unnamed people that he "caused to
trade" made profits of about $355,000.
The United States Attorney's Office in Manhattan and the S.E.C. declined to identify these people but said their
investigations were continuing.
The indictment detailed a dozen cases involving insider trading by the Woodward brothers. A typical example was
the proposed acquisition of Vista Chemical by the AMC subsidiary of a German Company, RWE-DEA A.G. In
February 1990, AMC retained Cravath in connection with a tender offer it was considering for Vista Chemical.
Richard Woodward was among the team of Cravath lawyers assigned to represent AMC and therefore obtained
"confidential, material and nonpublic information concerning the transaction," the United States Attorney's Office
said.
A few months later, Richard Woodward "disclosed the potential tender offer" to his brother, John, who around
Nov. 30 bought about 2,000 Vista Chemical shares for about $25 a share. AMC announced its tender offer on
Dec. 13, causing Vista Chemical's stock price to rise to $54 a share from $29 a share. John Woodward then sold
his Vista Chemical stock for a profit of about $57,000.
The insider trading became apparent to regulators earlier this year, according to the S.E.C. and Cravath. The
National Association of Securities Dealers was investigating unusual trading in the shares of a company that had
been acquired in 1994 by a Cravath client. It first notified Cravath of its inquiry in January and later passed on a

list of stockholders who had traded the stock before the announcement of the deal. The law firm said it noticed
the name John T. Woodward and confronted Richard Woodward.
"We fired him the same day we called the S.E.C.," said Samuel C. Butler, presiding partner at Cravath. "It's a
tragedy, on the one hand I feel terribly sorry for him, his wife and his children, but on the other hand, I feel
outraged at this breach of trust."
In a statement, Cravath said that all clients mentioned in the indictment and S.E.C. complaint were notified as
soon as the firm learned that transactions in which they were involved might be under investigation. The two
brothers, who have cooperated with the Government, are scheduled to be sentenced on Sept. 15 on the felony
charge, which carries a maximum sentence of five years in prison.
The insider trading case illustrates how one employee can for several years, without detection, operate a
systematic scheme to profit from inside information involving a dozen major companies. The current takeover
boom means that there will almost certainly be more such cases as some professionals find themselves unable to
resist the chance of quick and easy, but illegal, profits, either for themselves or for their friends and families.
"The general feeling is that we're seeing more insider trading investigations now than we've seen since the
takeover boom of the 1980's," said Daniel A. Nathan, an assistant director in the S.E.C.'s enforcement division.
"In terms of filed cases we're ahead of where we were a year ago," he added, saying that in the 12 months ended
October 1994, the S.E.C. had filed about 45 such cases, compared with 30-plus in the year earlier.
At yesterday's hearing before Judge Lawrence M. McKenna, Richard Woodward "acknowledged that he had
disclosed matters on which he'd worked to his brother," his lawyer, Mark R. Hellerer, said.
Richard Woodward recognized it was reckless of him to do so, and that it breached his duty to Cravath and to his
clients. He said Cravath was not involved in any way and sincerely apologized."
Table lists the 12 potential or actual deals involved in the insider-trading allegations against Richard C. Woodward
and John T. Woodward.
Document NYTF000020050403dr6t00t33

National Desk; A
BATTLE OVER THE BUDGET: THE PRESIDENT WHITE HOUSE MEMO; New Strategy Puts Clinton On His
Own
By ALISON MITCHELL
1,044 words
15 June 1995
The New York Times
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WASHINGTON, June 14 -- In his New Hampshire appearance with Newt Gingrich and in his nationally televised
address in support of a balanced budget, President Clinton has sought to present himself this week as the New
Democrat he ran as in 1992: an independent, centrist leader.
This posture, best captured in the President's comment Tuesday night that the budget debate "must go beyond
partisanship," is squarely aimed at those who voted for Ross Perot as well as other politically volatile
independents who now make up about a third of the American electorate, aides say.
But by putting out a new plan to balance the budget, Mr. Clinton has also cut himself loose from Congressional
Democrats whose strategy both for regaining control of Congress and for affecting the budget debate has been to
hammer away at the painful cuts in the Republican budget plans.
"This is the clearest signal yet that the President is going it alone," said Carter Eskew, a Democratic political
consultant. "I think the message to the Congressional Democrats is, 'You are in your own lifeboat, not in mine.' "
Indeed, the President had his emissaries meet with Republican leaders on Capitol Hill today to explore the
prospects for a compromise plan to erase the Federal deficit. [ Article, page B12. ]
Mr. Clinton's decision to embrace the Republican goal of a balanced budget over the objections of the Democratic
Congressional leadership was not arrived at quickly. Aides say it came only after weeks of furious debate inside
the Administration that, as one White House official put it, pit traditional Democrats against New Democrats.
The few advisers counseling Mr. Clinton to be conciliatory and to release a budget plan, Administration officials
said, were Vice President Al Gore, William Curry, a domestic policy adviser, and Dick Morris, a
Connecticut-based pollster who has worked for Mr. Clinton off and on since he was Governor of Arkansas.
In making the decision, aides said the President relied in part on his gut instinct that if he wanted a bipartisan
solution to the budget he had to put out his own plan to be credible.
But several aides also described a growing sense in the Administration that the political strategy that works for a
Congressional minority seeking to regain majority status is not enough for a President who will be judged on his
record and leadership when he seeks re-election.
"For the Democratic leadership in Congress, counterpunching against Republican budget cuts is a perfectly
acceptable political strategy," said Al From, president of the Democratic Leadership Council, the organization of
centrist Democrats that Mr. Clinton helped to organize when he was Governor. "But the President's
responsibilities rise above politics to leadership."
Mr. Clinton all but said the same thing in a Cabinet meeting Tuesday night before his address, and again today
when he met with several Democratic senators on welfare policy, and was asked about the Democratic rebellion
on Capitol Hill.
"The Democratic position is the Republicans won the Congress by just saying no," Mr. Clinton said. "They voted
against deficit reduction. They proposed health care plans and then walked away from them. They just said no.
And somehow they were rewarded for that, and therefore we should just say no, at least for a much longer time."
He added, "But I do not believe that that's the appropriate position for the President."
In the past, ceding to the wishes of the Democratic leaders on Capitol Hill has often provided Mr. Clinton with little
profit. When he took office he deferred to their advice to go slow on issues like changes in the campaign financing
and lobbying system that he pressed as a candidate, in the hope of winning support for his broader agenda.
But his 1993 deficit reduction plan passed without any Republican votes in Congress, and his health care plan
foundered in both houses in the face of as much criticism from Democrats as from Republicans.
Now looking toward the 1996 election, one White House official even suggested that the split with the Democrats
could solidify Mr. Clinton's credentials as an independent.
The official noted that Mr. Clinton's highest popularity ratings came in the autumn of 1993 when he took on the
Democratic Congress and organized labor over the North American Free Trade Agreement.
Today, Mr. Gore quickly cited Democratic discontent to suggest that the President was moving in the right
direction.
"When you're getting criticized from both sides of the spectrum, that's often a pretty good sign that you're on the
right course in the direction most Americans want to travel," Mr. Gore said today on the ABC News program
"Good Morning America."
But the road that Mr. Clinton has chosen to travel is far from risk free. House Democrats were so angry with the
President today that there was revived speculation about a primary challenge from someone to the left of Mr.
Clinton, a threat that White House aides thought had been put far behind.
And it was still far from certain that Mr. Clinton would not emerge from the coming budget debate looking
ineffectual in the face of the Republican Congress instead of looking like a leader.
Today, many Democrats seemed in no mood to help him win any support for his latest budget. And while
Republicans were sounding somewhat conciliatory, there is a vast difference between Mr. Clinton and the
Republicans over the scope of tax cuts and spending cuts and the speed in which they can be accomplished.
While Mr. Gingrich said that "there are pieces of what the President said that are eminently worth looking at," he
also called a 10-year plan to balance the budget a "nonstarter."
And Mr. Eskew, the Democratic consultant, said of the President: "Where he did a smart thing politically, he also
gets judged by leadership. Through all the cacophony, people want to know can he deliver or not?"
Photo: President Clinton met yesterday with Democratic leaders in the Oval Office of the White House. From left
are Senator Barbara A. Mikulski of Maryland and Senator John B. Breaux of Louisiana. (Associated Press) (pg.
B12)
Document NYTF000020050403dr6f00o9m

National Desk; A
Securities Litigation Measure Nears Passage in the Senate
By NEIL A. LEWIS
452 words
28 June 1995
The New York Times
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WASHINGTON, June 27 -- The Senate tonight moved swiftly toward a final vote on legislation that would make it
far more difficult for investors to sue corporations and stockbrokers for securities fraud.
Opponents of the measure tried repeatedly today either to slow the bill or to modify its effects but were beaten
back at every turn. The legislation is expected to pass as early as Wednesday morning with support from both
Democrats and Republicans.
The House has already passed a similar measure. The Clinton Administration has not yet taken an explicit
position but has suggested that some parts of the legislation are necessary.
One principal area of contention over the last several days of debate has been provisions that would shield
corporate officers, and others who make predictions about a company's prospects, from stockholder fraud suits
when their assessments prove unfounded and the stock price drops precipitously as a result. The bill would
provide a "safe harbor," in which those who made such predictions could not be held liable under most
circumstances.
The measure's opponents, chiefly Senator Paul S. Sarbanes, Democrat of Maryland, argued that allowing
company executives, stockbrokers and accountants, among others, to make such statements free of liability
would increase corporate irresponsibility. Mr. Sarbanes said small investors who had been deceived would be left
with little recourse.
But supporters of the bill like Senator Pete V. Domenici, Republican of New Mexico, said that at present the fear
of being sued prevented corporate officers from making predictions that would be useful for investors.
After lengthy debate, the Senate beat back two Sarbanes-sponsored amendments that would have changed the
safe-haror provisions of the measure. The main amendment would have deleted the safe-harbor provisions
entirely, instead leaving the task to the Securities and Exchange Commission. Mr. Sarbanes said the matter was
too technical to be included in legislation and should rather be left to the S.E.C. to deal with in regulations.
Arthur M. Levitt, the S.E.C. chairman, has objected to the safe-harbor concept in the House and Senate bills alike
and has asked that the matter be left to his agency. Nonetheless, the Senate easily defeated Mr. Sarbanes's
proposal, 56 to 43.
Photo: If all goes as planned, the Senate today will pass legislation that would make it much harder for
stockholders to sue companies in which they invest. The bill's chief sponsor, Senator Alfonse M. D'Amato of New
York, declared yesterday that frivolous lawsuits were "making it difficult for companies to raise the capital needed
to fuel our economy." (Stephen Crowley/The New York Times)
Document NYTF000020050403dr6s00sv1

Metropolitan Desk; A
More Budget Battles; This Year's Fiscal Fight Is Over in Albany But Squabbling May Be Worse Next Year
By JAMES DAO
1,106 words
5 June 1995
The New York Times
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ALBANY, June 4 -- Having just ended one of the longest and most bitter budget fights in state history, Gov.
George E. Pataki and the Legislature have now embarked on a course toward an even more caustic and
protracted conflict next year.
The reasons lie buried in the budget agreed to by the Republican Governor and legislative leaders late last week.
The spending plan fails to address many of the state's long-term financial problems and has created new pitfalls
that could significantly worsen future budget shortfalls.
Earlier this year, Mr. Pataki predicted that the state would have a budget gap of between $1.4 billion and $1.8
billion in 1996. The Governor now acknowledges that the shortfall will be larger by an unspecified amount
because the Legislature rejected his major welfare and Medicaid cuts, restored nearly $900 million in spending
and approved a three-year tax cut that is larger next year than what he had originally proposed.
The new budget, which totals $63 billion for all funds, includes a range of measures to transfer the cost of this
year's spending to future budgets, including borrowing to pay for new stadiums and using $900 million in so-called
one-shot revenues. For that reason, many fiscal analysts and legislators think next year's shortfall could be as
large as this year's $4 billion gap.
Though state spending plans traditionally contain questionable budget-balancing measures, Mr. Pataki had
vowed to avoid them this year. But analysts for bond raters and business groups said he has not succeeded.
Without a strong economic recovery, which few economists predict, the Legislature and Mr. Pataki will probably
be back at the budget table next year revisiting the most thorny cuts that the Governor proposed but failed to gain
this year, particularly in the area of welfare.
"The size of the multiyear tax cut is the largest that we've seen, and it's by the state with the largest accumulated
deficit," said George W. Leung, managing director for Moody's Investors Service, which has given New York the
second lowest bond rating in the nation, after Louisiana. "It will make the achievement of structural balance that
much more difficult and accordingly will necessitate more spending cuts."
Election-year politics are also likely to make next year's budget fight more volatile and ideologically sharp. The
state's Republican Party has already singled out 21 seats in the Democratic-controlled Assembly, all of whose
members are up for election next year. Those races could affect the budget negotiations by making both parties
even more intransigent and the process even more nasty, brutish and longer than this year, which saw the third
longest budget negotiations on record.
"This year was a battle; next year is a war," said Assemblyman Clarence Norman Jr., a Brooklyn Democrat.
"You're going to see a whole lot of political posturing."
Mr. Pataki said he is not overly worried about a more protracted and politicized budget battle next year because
he believes the state's economy will improve this year, partly due to tax cuts in the budget. Historically, it has
been easier to resolve budget fights when the economy has been strong.
"I'm optimistic about it," the Governor said at a news conference on Saturday. "I believe that as the message gets
out that New York is serious about cutting taxes, about reducing the cost of government, about lowering the

regulatory burden the state places both on the private sector and local governments, that we are going to begin to
see us creating the jobs and opportunity that have we've missed out on for the past four years."
But Mr. Pataki's assurances seem to conflict with the expectations of his strongest allies in the Legislature, who
foresee a ferocious budget fight in 1996. Assemblyman John J. Faso, the ranking Republican on the Ways and
Means Committee and a leading party strategist, said the Republicans will seek to close the anticipated shortfall
by cutting social programs that the Democrats traditionally protect.
"We'll go after the same things the Assembly Democrats refused to do this year, like setting time limits on Home
Relief and making further changes to Medicaid," Mr. Faso said. Home Relief is a welfare program mainly for
able-bodied, childless adults. There is currently no limit on how long a person can collect it, and Assembly
Democratic leaders rejected Mr. Pataki's proposal this year to limit Home Relief payments to 60 days per year.
State Senator Kemp Hannon, a Long Island Republican, said anticipated Federal cuts for Medicaid this year
would make it harder for the state to reduce its Medicaid spending next year, but would increase the likelihood
that Mr. Pataki will seek even larger savings from welfare.
"The Governor will definitely push for time limits and benefit reductions next year," Mr. Hannon said. "It's a
hot-button issue."
Several independent financial analysts said the new budget seems to be balanced on some precarious
assumptions. For instance, it predicts that Medicaid spending will actually drop this year, even though it has risen
at double-digit rates in recent years. Several analysts called that prediction optimistic.
Mr. Pataki has also projected savings of more than $245 million from anti-fraud measures in welfare and Medicaid
programs, although some of the programs have limited track records and could be challenged in court.
The spending plan also includes costs that will grow significantly in following years. A cut in personal income
taxes will reduce state revenues by $555 million this year, but $2.2 billion next year. Reductions in business taxes
will grow from $50 million this year to $160 million next year. And the budget calls for tougher sentencing laws
that critics say will drive up prison costs, though Mr. Pataki's aides deny that.
In March, an analysis of Mr. Pataki's budget by J. P. Morgan Securities concluded that the state's economy would
probably remain flat, that the tax cuts were "too deep" and "ill timed" and that the state "may experience chronic
financial imbalances that could match or even exceed those evident at the height of the recent recession."
Since then, the Legislature has only worsened things, financial analysts said, by approving most of the tax cuts
while also increasing spending sharply.
"They'll be fighting over the same issues next year," said Cynthia B. Green, deputy research director of the
Citizens Budget Commission, a nonprofit business group.
Document NYTF000020050403dr6500ttf

National Desk; A
House Appropriations Panel Takes Up the Volatile Task of Filling In Budget Details
By JERRY GRAY
1,246 words
27 June 1995
The New York Times
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WASHINGTON, June 26 -- Now that Republican leaders have provided the bark -- a deal to balance the Federal
budget by 2002 and to provide $245 billion in various tax cuts -- the Congressional appropriations committees this
week begin to deliver the bite, chomping away at virtually every area of Government.
When the House opens the spending debate on Tuesday on the floor and in several committee meetings,
members will be considering cuts to programs ranging from the National Endowments for the Arts and
Humanities, a perennial target of conservative politicians and organizations, to the subsidy for tobacco growers,
one of the most fiercely guarded programs.
Curbing Medicare and Medicaid payments -- by $270 billion and $180 billion respectively over the coming seven
years -- would provide the biggest share of the nearly $1 trillion in cuts that the Republicans said they would need
to reach their balanced-budget goal. But they also figure that they must first grease the glide path with $190 billion
in cuts to highways, education, social programs, environmental efforts and scores of other areas of discretionary
spending that fall under the review of the Appropriations Committee and its 13 subcommittees.
It is the budget that drives the spending numbers, but it is the Appropriations Committee that will bear much of the
burden and the political heat. It is one of the most powerful committees in Congress, overseeing all the
discretionary spending of the Federal Government, about a third of the $1.5 trillion annual budget. The committee
has a reach that literally extends from the purchase of ball-point pens to multimillion-dollar military aircraft.
"Everybody is going to feel some of the pain," said Representative Robert L. Livingston, a Louisiana Republican
who is chairman of the Appropriations Committee. "All of our agriculture people are not happy with the lack of
money available, our defense people are unhappy, our labor and health people are unhappy, you name it.
"But we know what we have to do," Mr. Livingston said. "We have said the buck stops here, with the
Appropriations Committee, and it is time that we acknowledged that."
Both chambers of Congress are expected to give final approval this week to the new budget outline. But that will
by no means be the final word or form.
President Clinton, who has offered his own plan to balance the budget in 10 years while offering $111 billion in
tax cuts, has threatened to veto any budget that includes deep reductions in the rate of spending on Medicare
and Medicaid. And the Senate minority leader, Tom Daschle of South Dakota, raised that prospect again on
Sunday.
"This bill will not go anywhere unless they move more toward the middle," Senator Daschle said on the NBC
News program "Meet the Press."
Senator Trent Lott, Republican of Mississippi, said that he expected the bill to be modified but that the President
had already agreed in concept to many of the things the Republicans were proposing, like a balanced budget, a
tax cut and changes in the Medicare and Medicaid programs.
In the end, Mr. Lott predicted, Mr. Clinton "will be supportive of what we are trying to do."

Senator Bob Dole of Kansas, the majority leader, and Speaker Newt Gingrich of Georgia announced the
Republican budget agreement last Thursday, and immediately full attention swung to the House Appropriations
Committee, whose subcommittees had already been at work for nearly two weeks.
Mr. Livingston circulated budget allocations for the subcommittees on June 8 that call for nearly $23 billion in cuts
now. That figure not only assumes the enactment of a bill paring spending in the 1995 budget, but also lowers the
spending ceiling significantly for 1996 for every sector of Government except military construction and targets
scores of pet programs, a move that will sorely test the resolve and discipline that the Republicans have
demonstrated so far.
"They will meet those requirements," said Mr. Gingrich, a promise echoed by Mr. Dole. "Any committee which
fails to meet those requirements, we will ask the Budget Committee to do it, period. Since every committee would
prefer to meet the requirements on their own, rather than have the Budget Committee to do it, I am confident that
every committee is going to meet the number assigned to them by the Budget Committee."
The Appropriations Committee's mark, or budget target, and indeed the Republicans' entire balanced-budget plan
counts on making cuts in the current budget year. The House and Senate last month approved $16 billion in
midyear budget cuts, but on June 7 President Clinton used the first veto of his Administration against the bill,
saying it unduly targeted social, environmental and education programs.
Unable to override the veto on their own and unlikely to obtain enough help from Democrats, Republicans have
spent the last few weeks negotiating with the White House over those midyear cuts, which are known as
rescissions.
Trying to prod the White House, Mr. Livingston said last week that Republicans would either try to override the
veto or introduce a new bill this week. "Our ability to comply with the balanced-budget goals is made more difficult
by the lack of resolution of the 1995 rescissions bill," he said.
The Appropriations Committee has already sent to the full House the reports of two subcommittees -- Foreign
Operations and Energy and Water -- and floor votes are expected on them on Wednesday and Thursday. On
Tuesday, the full committee is to consider reports from the interior subcommittee and the agriculture
subcommittee.
"We're not progressing as fast as we like, in committee or on the floor," Mr. Livingston said.
In a taste of the bitter fights to come, Democrats on the House floor last week succeeded in restoring $12 million
for the Office of Technology in the Interior Department.
"You can't do that too many times and hit the target," Mr. Livingston said.
But there are bigger fights ahead, especially in the Labor, Health and Human Services and Education Committee,
whose spending ceiling has been lowered by $2.2 billion.
"You are going to find some appropriations more painful than others," said Representative Richard J. Durbin, a
Democrat from Illinois. "We will have to cut education programs and health research programs at a time when I
think that is a wrong thing to do."
Mr. Durbin and Representative Frank Riggs, a California Republican, have opened another window on the
coming debate. They are trying to eliminate the $42 million in annual subsidies to tobacco growers.
Both are members of the agriculture subcommittee, which will debate their amendment this week.
"What we are trying to do here is to bite a pretty tough bullet," Mr. Riggs said. "With all due respect to my
colleagues from tobacco-producing states, I just see no useful or legitimate purpose for the Government
supporting tobacco subsidies. The jury is in, and the evidence is conclusive on the addictive effects of tobacco
consumption."
Mr. Riggs is a nonsmoker who was born in and grew up in Kentucky, a tobacco-growing state. "It's very difficult
for me to justify continued taxpayers' expense on that program," he said.
The Californian's views have drawn the expected heated response from representatives from tobacco-growing
states.

"I am sure if we were talking about earthquake assistance he would have a cow," said a senior aide to one
representative from North Carolina.
Document NYTF000020050403dr6r00rpd

National Desk; 1
INSIDE
118 words
17 June 1995
The New York Times
NYTF
English
China Shows Anger at U.S.
China summoned its Ambassador back to Beijing for consultations, asserting that Washington changed its policy
toward China when it allowed the President of Taiwan to make a private visit to the U.S. Page 5. Dow Closes
Above 4,500
The stock market, lifted in part by the Senate's approval of a telecommunications overhaul, surged. The Dow
rose 14.52 points to close above 4,500 for the first time. Page D1. The Price of a Pair of Gloves
O. J. Simpson's efforts to pull on the famous bloody gloves may have severely undermined the prosecution's
most vital evidence, some legal observers say. Page 7.
Document NYTF000020050403dr6h00pa5

National Desk; A
SENATE VOTES BILL TO CURB LAWSUITS BY STOCKHOLDERS
By NEIL A. LEWIS
930 words
29 June 1995
The New York Times
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WASHINGTON, June 28 -- By a surprisingly large margin, the Senate today easily approved a measure to
discourage lawsuits by shareholders alleging fraud by stockbrokers, accountants or corporate officials.
The issue pitted powerful interests against each other and produced a flood of television commercials and
advertisements from both sides. Supporting the bill were large accounting firms, brokers and business groups,
especially those from the more financially volatile high-technology industry, who argued that the legislation was
needed to discourage a flood of frivolous lawsuits that occur when a company's share price drops suddenly. On
the other side were consumer groups, lawyers and government regulators who said the changes in the bill would
mean that small investors who are deceived would be left with little recourse.
After several days of debate and repeated attempts by Senate opponents and the White House to dilute the
measure, the Senate approved it, on a bipartisan vote of 70 to 29.
Senator Alfonse M. D'Amato, the New York Republican who has been a vocal supporter of the bill, said it ended
"a long-time abuse." He said such shareholders' suits "are often based on nothing more than a company's
announcement of bad news, not evidence of fraud."
A similar measure passed the House last March. Both bills would modify laws dating to the 1930's that regulate
publicly traded corporations.
The Senate's action today means that both houses of Congress have now passed versions of the
Republican-inspired package of proposals to overhaul the nation's civil litigation system drastically. All the
proposals were listed as high priorities in the Contract With America, the campaign manifesto used last year by
Republican candidates for the House who are now in the majority.
Similar legislation enacted by both chambers would limit liability for damages caused by faulty products as varied
as poorly designed heart valves and malfunctioning toasters. The House, unlike the Senate, has also passed a
separate bill intended to discourage lawsuits by making people pay their opponents' court costs in many
circumstances if they bring unsuccessful claims.
The Clinton Administration has generally been critical of the legislative package while occasionally suggesting
that it would favor parts of the bills. In the case of the bill approved today, the Administration threw its weight
behind an unsuccessful effort to change some of its language.
All the legislation will have to be reconciled because there are differences in the versions passed by the Senate
and House. Congress will have to establish committees to work out compromise versions which will then have to
be considered again by each chamber.
President Clinton could have a significant political problem in deciding which to sign and which to veto when the
bills eventually reach his desk. But most of the measures have been approved with majorities that would allow a
veto to be overridden.
Underlying the debate over the last few months is the notion that the United States has become a nation far too
dependent on resolving disputes in the courtroom. And the main culprits, according to those who have been
pushing the new legislative agenda, are lawyers.

Senator Pete Domenici, a New Mexico Republican, said today that suits against companies, stockbrokers and
accountants were brought by a small handful of lawyers who enlisted shareholders merely to intimidate
companies into agreeing to expensive settlements.
But Senator Richard H. Bryan, a Nevada Democrat, said that, "What this is all about in my view is to emasculate
the right of the individual, the private investor, from securing relief and recovery from securities fraud."
As a result of the measure, he said, "We are going to see innocent investors by the thousands deprived of their
day in court."
The proposals that have been passed by both houses of Congress have been put forward for years, largely by
the business community, but with little expectation they would or could win approval. But with last fall's election,
which gave Republicans control of both chambers for the first time since the 1950's, the legislation suddenly
turned from snail to racehorse.
Several provisions in the legislation passed today are designed to discourage many such lawsuits. The bill would,
for example, prohibit lawyers from recruiting plaintiffs.
It would also require that in most cases defendants be liable only for damages in proportion to their degree of
guilt. Under current law, someone who successfully brings a lawsuit may collect all the damages from the most
wealthy defendant, even if that defendant is responsible for only small part of the problem. The bill limits a
defendant's damages to one and a half times the percentage of the fraud for which it is to blame.
The most heatedly debated provision was one to allow corporate executives and others to offer projections of
their companies' future performance without those projections later use as evidence of fraud in a lawsuit if the
information turns out to be untrue. The so-called safe harbor provision was one in which that the White House
had unsuccessfully sought a change.
The bill provides a safe harbor for all statements except those knowingly made with the intent to mislead
investors. Abner J. Mikva, the White House counsel, yesterday sent the Senate a letter asking it to support an
amendment sponsored by Senator Paul S. Sarbanes, Democrat of Maryland, which would have narrowed the
safe harbor and made company officials liable for misleading statements when they had "actual knowledge" the
statements were false. The amendment was narrowly defeated.
Document NYTF000020050403dr6t00t1s

MUTUAL FUNDS; Coming This Summer: Fund Documents for Real People
By EDWARD WYATT
1,251 words
25 June 1995
The New York Times
NYTF
8
English
MUTUAL fund investors, circle Aug. 1 on your calendars, and label it Prospectus Freedom Day.
That's the date set by Federal and state securities regulators for the introduction of a simplified fund prospectus,
now a lengthy and often impenetrable legal document that outlines a fund's investment techniques and risks for
potential investors.
The new version, called a fund profile, will be a two-page summary, in simple language, of the full document.
Initially, profiles will be available for a stock, bond and money market fund from each of eight big companies
working with regulators on the project.
Although the profiles will be distributed along with the traditional prospectuses for now, the hope among some
regulators and all the fund companies is that the streamlined documents will be able to stand on their own
eventually. The fund companies, with Federal and state rule makers, will conduct a survey of profile recipients to
see whether the documents contain enough information for an investor to make an intelligent decision.
If the profiles are found to be sufficient and are approved for all funds, they could radically change how mutual
funds are bought and sold.
Now, fund companies are required to distribute a prospectus to investors and ask if they have read the document
before selling fund shares. That leaves investors to wade through what often turns out to be a 50-page tome
written in legalese. If the new approach takes hold, an investor will merely have to consult the slender fund profile
and its 11 brief sections, easily digested in minutes. To insure comprehensive disclosure, the fund company will
deliver the full prospectus with a confirmation of a fund purchase.
For fund companies that sell their shares directly to the public, the potential benefits are great. If the short profiles
are approved as stand-alone documents, they could easily be reproduced in newspaper and magazine
advertisements. That would allow consumers to buy a mutual fund after reading an ad -- a proposal made three
years ago by the Securities and Exchange Commission and greeted with vehement opposition by state regulators
and some members of Congress.
The latest proposal has been received guardedly by state regulators, a fractured group whose individual
members offer vastly differing opinions of what constitutes adequate risk disclosure.
But following intense lobbying by Arthur Levitt Jr., chairman of the Securities and Exchange Commission, the
North American Securities Administrators Association, which represents state securities regulators, agreed two
weeks ago to a one-year test of the document "in the interest of significantly improving the understanding of
investors."
Mr. Levitt has made a simplified prospectus a priority. "It's my hope and expectation that as a result of using the
profile prospectus that for the first time most investors can read and understand" the disclosure document, he
said recently.
Philip A. Feigin, Colorado Securities Commissioner and president of the state regulators association, still
expresses some reservations about the profiles, but said he is committed to the project.

"This will guide how mutual funds disclose things for the next 20 years," Mr. Feigin said. "A lot of the information,
and the way it's presented, in the current prospectus is counterproductive. It's dense and very dry."
Nevertheless, he and other state regulators are concerned that the shortened forms won't tell investors enough
about the risks they face and the types of securities a fund might own, among other matters.
"There are a lot of things about liability and redemption of shares, for example, that cannot be handled in the
profile document," Mr. Feigin said. "Those are things someone might want to know. Some people love to pore
over the details in a prospectus."
To those who fear crucial information in the full prospectus will fall by the wayside, supporters point out that the
fund profile is intended to be a prelude to, not a replacement for the complete document.
They add that so many people tune out when handed a prospectus now that anything might be an improvement.
"Even if it is theoretically true that most people would make a better investment decision after reading the full
prospectus, the fact is that most people don't read it," said Matthew P. Fink, president of the Investment Company
Institute, the mutual fund trade group in Washington, which strongly supports the plan.
The profile offers information on fund goals or objectives, investment strategies, risk, appropriateness for a
particular investor, fees and expenses, past performance, investment adviser or fund manager, and details about
purchases, redemptions, distributions and other services.
FOR example, a prototype fund profile supplied to The New York Times last week by a fund company answers
this question, "Is the fund appropriate for me?" The profile, for a growth and income fund, states: "The fund may
be appropriate for investors who are willing to ride out stock market fluctuations in pursuit of potentially high
long-term returns. The fund is designed for those who seek a combination of growth and income from equity and
some bond investments. The fund by itself is not a balanced investment plan."
It is true, of course, that the fund profile does not contain all the information that an investor might want before
buying a fund's shares. As a gesture in this direction, the participating companies agreed not to use "prospectus"
at all to describe the new document, and simply to use "fund profile."
An example of the type of informationlikely to be absent from the fund profile can be found , oddly enough, in a
brochure published by the I.C.I. and called, "Reading the Mutual Fund Prospectus."
The full prospectus contains information about the tax implications of switching funds, writing checks against a
fund balance and withdrawing funds in an emergency -- details not likely to be included in the profile.
Bank of America, Capital Research and Management, Dreyfus, Fidelity Investments, IDS Financial Services, T.
Rowe Price, Scudder and Vanguard are putting the finishing touches on their fund profiles. A few variations are
expected among their documents, but the general form of the prototypes is clear.
Despite some missing information, like what portion of a fund can be invested in illiquid securities or low-rated
bonds, the profiles will include some features that could improve disclosure.
For example, they will contain one item that the fund industry is pushing as a universal standard for risk
disclosure: a bar chart of total return for each year. Unlike the common mountain charts that show how an initial
investment of say $1,000 would have grown over the years, this bar chart shows gains and losses at a glance.
Investors can readily see that they would have lost money in some years and how much.
And whatever the arguments against allowing investors to buy funds directly after reading advertisements, the
fund profile satisfies a greater need. It puts investors who do their own research on more even footing with those
who buy funds through brokers.
Funds can now be sold through brokers without an investor seeing a prospectus of any kind -- the idea being that
the trained sales representative will tell the investor everything he needs to know. With the fund profile, investors
could get useful information conveyed in a simple format -- much as it would be in a conversation.
Chart: "The Look of Things to Come" shows a prototype for a shortened prospectus, called a fund profile.
Document NYTF000020050403dr6p00rib

CREDIT MARKETS; Securities Take Drop On Comments By Greenspan
By ROBERT HURTADO
535 words
8 June 1995
The New York Times
NYTF
22
English
Prices of Treasury securities turned sour yesterday, as the market reacted to statements by Arthur Greenspan,
the chairman of the Federal Reserve, that suggested the Fed was likely to stand pat on interest rates rather than
cut them in the near future.
Traders said the market weakened significantly in the afternoon after the Market News wire service said that Mr.
Greenspan, at a conference of bankers in Seattle, had indicated that he was not overly concerned about the
recent slowdown in economic growth. The report lowered investors' expectations that the Fed would cut
short-term rates anytime soon.
Earlier in the day, trading was in a narrow range, as many people seemed content to wait for the Government's
report on producer prices for May, which will be released tomorrow morning.
"If the Fed is not going" to cut rates, one trader said, "than the two-year is too expensive," adding that he had
been told to start selling intermediate notes as quickly as possible.
In earlier trading the long bond had been up about a half a point, on rumors that China's central bank had bought
up to $1 billion in bonds.
While traders said the mood was still bullish within the Treasury market, market participants are tracking
corporate bond issuance that would compete for investor money.
The 30-year bond fell by 25/32 , to a price of 11329/32 for a yield of 6.55 percent, up from 6.50 percent on
Tuesday, with a five-year note down 20/32 to yield 5.98 percent, up from 5.84 percent.
Theodore Ake, government trading manager at Kemper Securities Inc. in Chicago, said it was the much larger
accounts that were participating in the trading yesterday.
And he confirmed it was the report about Mr. Greenspan that caused the market to react negatively. "In fact," Mr.
Ake said, "there were various versions of the story circulating, all with different spins. The one that they seemed
to believe is that Mr. Greenspan feels the economy is more in a minor inventory correction, that will be worked off
eventually and that it would not require the Fed to ease anytime soon."
In the municipal bond market yesterday, prices were little changed as some California issuers were pleasantly
surprised by the demand for notes. There had been some concern that the Orange County bankruptcy might
force other California issuers to pay higher borrowing costs.
California municipalities and agencies are expected to bring about $1.4 billion in notes this week, including the
day's biggest debt sale, by the Los Angeles Unified School District of Los Angeles County, which priced $300
million of tax and revenue anticipation notes through underwriters led by Bear, Stearns & Company. The notes,
which are sold to raise cash in order for municipal government's operations to continue uninterrupted, have a
maturity date of July 3, 1996.
and 15-year participation certificates since February. Yields track changes in fixed-rate mortgages. (Source:
Federal Home Loan Mortgage Corp.)

Document NYTF000020050403dr6800mek

S.E.C. Charges Distributor Defrauded Film's Investors
By FLOYD NORRIS
608 words
28 June 1995
The New York Times
NYTF
2
English
The investors who put money on the expectation that "Happily Ever After" would be the next classic animation
film have since lived anything but. The Securities and Exchange Commission charged yesterday that they were
defrauded by the company that distributed the film in 1993.
"Happily Ever After" was billed as a sequel to "Snow White and the Seven Dwarfs," although the Walt Disney
Company had nothing to do with the movie. The S.E.C. said the company that distributed the movie projected in a
series of direct-mail advertisements sent to 400,000 potential investors that the film "would gross between $50
million and $80 million at the box office and earn an additional $35 million to $42 million from videotape sales."
Those projections were based on results of the most successful animated films in recent years, the S.E.C. said,
adding that the company knew the projections were far in excess of reason and contradicted the company's
internal figures. Outside experts said the company had projected grosses of less than $10 million, the S.E.C. said.
The case was filed as the Senate was debating amendments to the securities law that would relieve companies
from responsibility for projections in many cases, so long as general disclaimers were included indicating the
projections might be wrong. "We would hope that under any standard that would be adopted with respect to
forward-looking information, this is a case that could be brought," William McLucas, the S.E.C.'s chief of
enforcement said.
Shares in the company, then called the First National Film Corporation (and since renamed First National
Entertainment) leaped to a high of $9.81 in April 1993, shortly before the film was released. The S.E.C. said that
corporate insiders, led by Milton J. Verret, the chairman and chief executive, sold 900,000 shares, for a total of
more than $6 million, while the price was inflated.
After the movie flopped, the shares fell quickly to $1.50, and have since fallen further. Yesterday, they were at
37.5 cents, unchanged, in Nasdaq trading. The movie grossed $3.6 million at the box office and $5.6 million from
videotape sales.
First National settled the S.E.C. charges, filed in Federal District Court in Austin, Tex., by agreeing that Mr. Verret
would not act as an officer or director of the company and by consenting to an injunction against violations of the
securities laws.
Mr. Verret agreed that his shares in the company would be placed in a voting trust, to be voted in accordance with
other shares, but he would fight the charges against him. His lawyer, John Carroll of Rogers & Wells, said he
expected Mr. Verret would be vindicated.
The S.E.C. said Mr. Verrett sold more than 800,000 shares for $5.2 million. He was charged with insider trading
as well as with securities fraud because of the misleading statements.
The S.E.C. also charged that the company and its officers lied in saying the company had arranged financing for
the movie's distribution. In fact, the commission said, the distribution was to be financed by selling shares to the
public.
The commission said the false projections were sent in the form of two newsletters, Inside Wall Street and
Corporate Profiles, which were prepared by First National and its employees. They compared the opportunity to

buy First National to buying Disney in 1937, and projected huge profits leading to the stock trading for $78 to
$156 a share.
Document NYTF000020050403dr6s00sx5
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Date 06/01/1995 to 06/30/1995
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Dow Sets Another Record On Rate-Cut Expectations

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"Trees don't grow to the sky," he said.

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Maybe it is time for another argument.

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For the week, the Dow fell 20.40 points.

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Graph: "Durable Goods Orders" (Source: Commerce Department)

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--- CONSUMER PRICES

% chg. from April May Index 1995 1994

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Chart: "Exactly How Much Is $673 Billion?"

Feed the entire nation for a year, or . . .

Buy every family in America a top-line Apple Powerbook laptop computer, or . . .

Finance the Federal budget deficit for about three years, or . . .

Give every American worker a $5,100 bonus, or . . .

Take every American family to Disney World for a week.

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Strong Income is now called Strong Corporate Bond. In Brief

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And that's what the pilot thinks, too.

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