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America Under Siege: Possible Sequels

September 14, 2001

Terrorism's tentacles . . . continue to jangle our nerves, ranging from diffuse scares (that were totally bogus) at Macy's and New York's LaGuardia as in Washington, both where the Capitol was evacuated, and there was a bomb scare at least once more. It is impossible to treat crank threats much differently than potentially the real thing, so it's impossible not to try to cover all the bases as best able. Authorities are doing well.

Part of that was an intelligent decision (which we have advocated for two days now), in deciding not to reopen equity trading at the NYSE until next Monday. We thought all along that was the most logical way to both allow frayed nerves to be calmed a bit, to get past the rescue phase (where lives are being saved) at the WTC disaster site, and as not to impede these efforts by preparing for an onslaught of financial workers.

Bond activity was benign on Thursday, and foreign markets stabilized as suggested a most likely outcome. We continue to urge calm, prayers, and determination, as our Nation comes to grip with the ongoing challenges. As for markets, delayed opening of equities until next Monday, is most decidedly a plus, not a minus, barring unknowns of course. Presumably, the stability of Treasuries will be met by a stability in equities, as has been the case with foreign markets too, after initially panic turned to stability.

Futures markets in Chicago have priced-in at least a half-point cut in the Funds rate, presumably at the early October FOMC meeting, but potentially occurring sooner in the event the Fed concludes that such a determination would be needed, or helpful.

The Fed's previously hinted that the Discount Window was utilized by banks earlier in the week, which suggested some frantic or panic withdrawals, which is an equation that presumably was only very temporary. Today did not seem so demanding. As we suggested, the longer this goes (without trying to time any retaliation or retribution, or further threats/attacks from any enemy), the better the chances for market stability.

As for T-Bonds, which did trade in a constrained session at the CBOT on Thursday, there was an effort to 'bear' bonds (take rates higher), which was thwarted as time wore-on, with bonds recovering over a full point from their low to close at 106 and 18 in the September Contract. (Again, we presume this will roll to December Tuesday.) Keep in mind that next Friday just happens to be a Triple Witching Expiration, so there is some prospect that the first full-week after the tragedy will be followed by the forced-covering of any bears, and an interesting potential assist to short-covering; not in any way something that contributes to increased downside potential so many fear.

Just the opposite, in theory. Obviously, the way this world is moving, and with a minor (by relative standards) tropical storm warning in South and West Florida, along with a hurricane watch, there are variables to be contemplated over the days just ahead. (It might be mentioned, to any in Florida, that the storm is coming from the West, not the East, so as residents would know, likely is less threatening to the East Coast of the State, outside of moderate winds and particularly heavy rain (no huge sea surges). It would be a tough week for the Nation to respond to a Hurricane, but if needed it will be done. Far be it in a time of grief and tragedy to note that historically hurricanes or wars have ultimately caused booms, but that is the history of such calamities. Just for a for-instance, large contractors in the Metropolitan New York area have been locking up future delivery contracts on large quantities of steel and concrete, presuming price levels will be ultimately moving up over the years immediately ahead, not down. For sure, we suspect some die-hard permabears will equate this to inflation, but those will be the same mentalities that a week ago were instead terribly worried about deflation.

In any event, if 'safety nets' are needed by these markets, they will likely be provided. However, so far (and based on history) they may be only moderately needed. Such in fact would be the Discount Window opening we discussed before; the determination of the Fed to cut rates if needed soon (interestingly, it may not be, or less than most players typically think now), and actually increased corporate Spending, not restraint.

It is of course impossible to know how the week plays out (more tomorrow), because as of this posting we heard the semi-confirmed story of several terrorist suspects that were masquerading as crew, trying to board various aircraft at JFK Airport outside of NYC. After similar at LaGuardia, it became evident this was not just an isolated (or distinct) situation, even as LAX and other airports in fact commenced repositioning of aircraft, did continue minor operations. We suspect this is when it was decided safety and common sense dictated the separation of the President and Vice President's locations, which followed. As you know, there is no particular precedent for all of this.

As for New York, airline staff quietly quickly called Airport Police, and/or the FBI, and the combined force captured the suspects (which is what they are called at this hour). Presumably, one could contemplate that this is not over yet, and that such cowards were trying to steal jets (without passengers it's presumed) to turn into yet-more sort of missiles. Well, maybe stationing of the Carrier Battle Group off of New York wasn't merely psychological, after all. Needless to say, the FAA has again curtailed flying from New York airports for the moment. But let's not assume more without details. It even crossed our minds, that with an incredible amount being learned about these just horrible barbarians in the first 24 hours, they may be trying things figuring they'll soon be caught. If so, then whatever they can do on the short-run, may be ending with this flair-up of activity, rather than presaging a great deal more. Today, security worked well! Godspeed to our forces in their endeavors to support very rapid apprehension.

Talking to folks around the Country, we've determined that a few cities at least have CAPS still ongoing (combat air patrols, unprecedented since World War II), including the obvious of New York and Washington, and interestingly the entire Gulf Coast, presumably to protect our refineries and oil supply. Even South Florida continues to be patrolled by the U.S.A.F., around the major ports and nuclear reactors. The whole affair sounds like an ongoing and ramped-up 'war footing' of course, but also is not a situation that does anything other than snap the Nation out of any recession of a lingering proportion, regardless of the short-term hunkering down phenomenon. At the same time, we take comfort, not insecurity, from the military's protective efforts.

In summary. . . as noted last night, from a financial standpoint we would not panic, and would recall (from history) that as World War II began, after the initial shock and panic reactions, things gradually (albeit slowly) recovered throughout the balance of the War. Of course the financial institutions were never hit (ever) as they have been this time. But they too will recover, with modest efforts at trading starting Monday. We do not yet know if pressures urging program traders and/or hedge funds not to be active will occur, though the SEC has powers to regulate and require just that. Surely efficient and rapid transactions are not yet possible, which is one reason why we did advocate an orderly reopening, rather than a hastier one, and therefore are pleased the powers-that-be concurred after some discussion. It remains a time for gathering our perspective, expressing patriotism, remaining calm, so that all the historic and proud characteristics of America continue to shine-through this horrible crisis.

Economic News & Releases: (some reports may be delayed)


  • August Retail Sales;
  • August PPI (Producer Prices);
  • Industrial Production;
  • Capacity Utilization;
  • Univ. of Michigan Confidence Survey.

Again we point out the CME and CBT are operating semi-normally tomorrow, while of course the Expiration (rollover) of September to December futures has been delayed, it was determined, by one day after trading in New York financial markets will be able to resume (probably next Tuesday for the rollover, we guestimate). Essentially all the Chicago markets on the CME and CBT will oeprate Friday; normally for agriculture or in open-outcry for some financials, but there will not be stock indexfutures trading. It is impossible to reflect on what happens to anyone who retained a September S&P on the long side (most square daily); however, the longer the opening is delayed, the greater the chances (barring more shocks or attacks) markets trade up, not down, in almost disregard to intra-morning pressures that may be attempted by some Monday.

God bless America, our Armed Forces (with the Pentagon considering calling up the reserves, or certain units), and rescue workers, and have a fine evening if able too! Our thoughts are with all of you, and our prayers for all searching for loved ones.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.
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