| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
The economic news on Thursday was not so good. The weekly unemployment numbers were lousy and consumer confidence was down sharply. Even worse, both reports were for data BEFORE the terrorist attack. But I'm sticking to my economic outlook that pegs Q2 of 2002 as the time when growth of the economy (including the tech sector) becomes "strong" again. And I continue to recommend that people not focus on the fact that the economy will likely be weak for the next couple of months.
It appears inevitable that recent events will cause some kind of sharp decline in the economy. But there is going to be a lot of spending to recover from the effects of the terrorist attack. That will have to be balanced against short-term cautious behavior by individuals and businesses.
I hear that a full $20 billion of the emergency spending being considered by Congress is earmarked for New York City. Wow, that's a very big chunk of change. I think they should clear a larger area at the World Trade Center site and put in FOUR 1,500-foot towers with a fair amount of hotel space, luxury residences, and cultural facilities as well as traditional office space. Actually, I think the heights of the buildings should be staggered to provide some of the upper floors (luxury hotel, residences, restaurants) with truly breathtaking panoramic views. The staggered heights would also have more of an aesthetic appeal. Imagine swimming or playing tennis 1,400 feet above the ground!
Fed Funds futures are suggesting a significantly increased cut in interest rates. Possibly three-quarters of a point or even a whole point by the end of the year. But mostly the futures traders are speculating a worst-case scenario for the rest of the year. Until we see how the next few weeks unfold, nobody has a clue. There is even talk that the Fed might do a half-point cut before the stock market even re-opens on Monday. Anything goes in this kind of environment. The most likely scenario is three-quarters of a point cut by the October 2 FOMC meeting. This is the kind of time that the Fed handles best, a true, acute crisis that allows the Fed to quickly inject a healthy dose of "confidence" to get the markets back on their feet.
A Tokyo market strategist suggested that "everything is still up in the air. We really don't know how far Wall Street will fall." As far as I'm concerned, the further, the better. Best to blow out any and all pessimists and start with a clean slate. The U.S. stock markets lead the world, so I can understand the anxiety of world markets. And the U.S. stock markets could very well fall very sharply. But there's a good chance also for an unprecedented level of dip buying by anyone smart enough to realize that the short-term negative impact of the terrorist attacks will quickly turn into a medium to longer-term net positive for the economy. The economic trough could be significantly deeper than previously expected, but the rebound could be sharper as well. In other words, recent events could "force" a V-shaped recovery rather than the U-shaped one that people were worried about.
I will certainly be making my usual weekly dollar-cost averaging purchase on Monday. But I'll make an additional, larger purchase if the market decides that Chicken Little is right and that the sky really is falling. If I do make such an extra purchase, it will be very near the close.
There is some talk that people will buy stocks out of "patriotism". But that's not my style. I'd rather plod along on a deliberate, reasonably optimistic pace, but also take advantage of any extreme downside irrationality. And I'd rather see a "democratic" approach: we all get to "vote", selling if you're feeling very depressed and cynical, and buying if you're feeling optimistic about the medium and longer term outlook or even feeling defiant about all the "nattering nabobs of negativism" (apologies for quoting Former Vice President Spiro T. Agnew). And you get to cast as many votes as you want, as often as you want! I'm not going to encourage any of these views. The stock market (or the economy for that matter) is merely the net sum of all of our individual actions. Do exactly what YOU feel is appropriate and the stock market will "tally" all the votes (every day). That's TRUE direct democracy.
If you do buy or are holding long positions, be prepared for the cynics who will continue to "sell any rally". As well as those who will insist on "taking profits" after any and every rise. And don't expect cynical short-sellers to act in anything remotely resembling a "patriotic" spirit.
What I do know for sure is that Monday will be a very interesting day. Be prepared for ANYTHING.
I'm down here in Washington, D.C. and things are rather calm. There's certainly additional security, but no curfews or significant disruptions to daily life (other than air travel). Last night I had a pleasant dinner in a restaurant just three blocks from the White House. The table next to me was a group of tourists from London. The table on the other side was a couple of bankers. You could not sense any "heightened anxiety". It was business as usual in Washington. The "backdrop" has changed, but life goes on.
Jack Krupansky
Updated: September 14, 2001 08:32:37 AM -0400
Copyright © 2001 John W. Krupansky d/b/a Base Technology