- The Washington Times - Monday, September 17, 2001

All eyes are on Wall Street today as stock trading resumes after its longest disruption since World War I, ending a four-day hiatus prompted by terrorists' destruction of the World Trade Center on Tuesday.
Investors, regulators and financiers are bracing for a big downdraft like the one that left other major markets from London to Tokyo between 5 percent and 12 percent lower after the terrorist attacks last week.
Some predict a decline of 400 points or more in the Dow Jones Industrial Average and similar drops in other major stock indexes as the vast changes in the economic and geopolitical landscape brought about by the attacks are factored into U.S. stock prices for the first time.
The Securities and Exchange Commission, expecting a roller-coaster day of trading, for the first time used emergency powers on Friday to limit any damage, allowing companies to more freely buy back shares of their own stock and loosening various bookkeeping rules.
Cisco, a leader among technology stocks that were suffering before the attacks, has announced plans to buy back $3 billion worth of shares in an effort to prop up prices.
The current circuit breakers that stop trading after drops of 10 percent or more in an index will remain in place, but no restrictions are planned on the short-selling of stocks, a technique that investors use to make money on declines in a stock price that has contributed to exaggerated selling in this year's bear market.
Regulators postponed reopening the stock exchanges several times last week, fearing a panicky reaction. They also wanted to avoid impeding the rescue efforts at the World Trade Center only blocks away, while allowing time for the repair of Wall Street's downed electrical and trading systems.
"As severe and devastating as the September 11th attacks on New York and Washington are, they will not stop the U.S. economy or collapse the U.S. financial markets," said David Blitzer, chief investment strategist with Standard & Poor's Corp.
He noted that the flight into safe-haven investments such as gold and Treasury bonds and the fall of stocks and currencies seen in international trading last week is a "normal pattern in markets in times of stress." Some short-term interest rates hit their lowest levels in a half-century last week because of a massive influx into the Treasury market as investors dumped stocks in overseas trading.
After an initial dip in trading today, Standard & Poor's expects U.S. stock indexes to rebound and settle in a range near the levels established before the attacks. The Dow had fallen below 10,000 and ended at 9,606 on Monday, while the Standard & Poor's 500 index and Nasdaq Composite Index were hovering a little above their lowest levels of the year.
"A short and moderate recession in the United States now appears likely" in the second half of the year because of the drop in consumer and business confidence expected to result from the attacks, but the stock market was already building in that scenario, Mr. Blitzer said.
Despite the pause in consumer spending and business investment expected in the weeks ahead, Mr. Blitzer sees positive developments coming out of the attacks that should bolster the economy and the markets in the long run. Chief among those is the united response from both political parties and the bureaucratic institutions in Washington aimed at keeping the economy afloat and helping Wall Street get back on its feet.
"One result of the tragedies is a redoubled effort to make all necessary government resources available immediately," he said. That had been in doubt last month because of Washington's vow to preserve Social Security's $156 billion surplus at the expense of growth-stimulating spending and tax cuts.
Although a budget deficit next year is possible, Mr. Blitzer said that "this is the right policy for a sluggish economy." Within days of the attacks last week, Congress approved an unprecedented $40 billion of funding for rescue, reconstruction and retaliation against the attackers.
Because of the massive rebuilding effort, stock analysts expect defense, construction and infrastructure-related stocks such as telecommunications to do well even in a falling market.
The biggest losers in the market today are likely to be airline and insurance stocks, because those are the sectors hit the hardest by the attacks. Standard & Poor's expects the losses for insurance companies to be the biggest ever, while widespread shutdowns of U.S. airports and sharp cutbacks in business and tourist travel have already driven one airline company, Midway, into bankruptcy.
"The horrific string of events involving two U.S. airlines has created a nearly worst-case scenario" for airline stocks, said James Higgins, analyst with Credit Suisse First Boston. He said those stocks could fall by half in trading today, adding to a 31 percent loss of value in airline stock indexes already this year.
Ed Yardeni, chief investment strategist with Deutsche Banc Alex. Brown, sees many similarities to the 1990 Persian Gulf crisis, where a limited war in the Middle East plunged the economy into recession as consumers sat on the sidelines. He said the stock market is likely to respond as it did then, declining with the economy and consumer spirits and rebounding when the war is won.
The highly accommodative measures taken by Congress and the Federal Reserve eventually will prevail, he said. "While the crisis might push the economy deeper into recession over the rest of the year, it might be stimulative next year," he said.
Mr. Yardeni sees another silver lining in last week's tragedy. The need to rebuild devastated communications infrastructure in Manhattan and the vital role played by cell phones in communicating with disaster victims should help to stoke investment in information technology and wireless systems — two of the most downtrodden sectors in the market.
James Burton, chief executive of the California Public Employees Retirement System, the largest U.S. pension fund, said he would view any "precipitous" decline in the stock market today as a good buying opportunity. "It will provide us with good value" in stocks that already have fallen to some of the lowest levels in three years, he said.
Some stock advisers are urging their clients to buy stocks today to counter the selling pressure and demonstrate their patriotism. "Here is a way you can do something tangible to help," said Dave Sackett with the Tarrance Group.

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