Dear Clients & Friends,
The mood here in New York is somber but
undefeated. Yesterday, New Yorkers not directly involved in the rescue
effort carried on their lives as if we had a bonus Sunday - restaurants were
full, families took advantage of the beautiful late summer day to exercise
and play in Central Park. Mail was delivered, banks and grocery stores
were open, mass transit operated on a weekend schedule. Today, school
resumed for school children and universities were open. Everyone in New
York, even if they have not experienced an immediate loss, knows of a friend or
relative of a friend who has perished.
Panic has not occured because, thanks to telephone
and cellphone contact, e-mail, the Internet and the local media, New Yorkers
have been highly informed about this situation throughout and have taken steps
to console families, keep avenues clear for rescue vehicles and donate
blood.
Downtown, rescue workers sifted through the
dangerous piles of rubble, despite the risk of collapse of nearby weakened
buildings. A pall of smoke and dust hangs over lower Manhattan. It
is possible, but not likely, that additional survivors will be found based on
the experience of rescuers after the Oklahoma City bombing and the San Francisco
earthquake. It will be months before all the debris is removed.
About 4800 New Yorkers are listed as missing including 350 fire fighters, 150
Police and EMS personnel. The total death count, including about 200
personnel at the Pentagon and 266 air passengers may exceed 5,000.
At this moment, we would like to salute the
thousands of police, fire fighters, national guard troops, doctors, nurses and
construction workers who have placed themselves in harm's way during this crisis
to save others.
What comes next?
As we wrote yesterday, European central banks and
the Federal Reserve have shifted into high gear to provide liquidity to the
system, physical cash to banks. We may well get 0.50% cut in the Fed Funds
rate in the next few days. European and Japanese equity markets
were stable overnight. Trading has resumed in US Treasury bonds, not
surprisingly with a rally in short and medium term issues. The US bond
market, unlike the US equity exchanges, is geographically spread and therefore
less impacted by the damage downtown.
Trading in US Equities, as we had hoped, will most
likely resume Monday. There is no technological reason why trading
couldn't start earlier, because, as we discussed, the data centers holding
client records are geographically dispersed. However, only rescue
personnel are allowed south of 14th Street until tonight, only below Canal
Street on the West Side after tomorrow. 32 brokerage firms were housed in
the WTC, many more including Merrill Lynch, American Express, Lehman Brothers,
and Salomon Smith Barney are located across the street in the World Financial
Center. Those buildings won't be opened for weeks and those personnel will
have to be relocated to alternate facilities. Rather than risk opening an
unbalanced market, offficials at the NYSE, NASDAQ and SEC are waiting until all
market participants are prepared to conduct operations.
Trading on a Dow Futures contract in Singapore
initially indicated that the Dow Jones Industrials would lose 600 points - that
loss has been trimmed to 300 points or about a 3% loss. We expect, at this
point, modest 1-3% losses in the major indexes when US equity trading
resumes. Airline stocks will do very badly as passengers curtail travel
for the time being, and the number of flights are cut back sharply. The
insurance cost is expected to be between $20 and $30 billion, exceeding the
previous record of $19 billion in the aftermath of Hurricane Andrew in
1992. Several major insurance companies have said that reserves are
adequate; these companies may do well in the immediate future as commerical
rates for insurance are going to rise sharply. Retail oriented,
particularly fashion oriented companies, will do badly through Christmas as
people are not in a shopping mood. Companies that provide the basics such
as Home Depot and Walmart will do OK.
In previous crises, including Pearl Harbor, the
assisanation of JFK, and the outbreak of the Gulf War, stocks often sell-off,
only to recover shortly thereafter. We often say that there are two things
the hurt the stock market, - the Fed increasing rates and the outbreak of
war. In the current environment with the Fed dropping rates and the stock
market already at modest valuations, we would estimate that the chance of a
dramatic sell-off is low. However, the attack on the World Trade Center
could well be the first shot of a major war. Already, the mutual
self-defense clause of NATO has been invoked. It is our hope that, if
war must be conducted against specific countries, that it is a multi-national
effort similar to the Gulf War. If indeed the Middle East is the source of
this terror, then the degree of support we get from such countries as Egypt and
Pakistan will be critical.
For the time being, our strategy is to sit tight
with our current positions. Obviously, if any client needs funds in a
hurry, we would act accordingly.
As always, we are available to discuss client's
individual situations.